Low Income (Poverty) Dynamics in Canada: Entry, Exit, Spell Durations, and Total Time

8. Conclusion

8.1 Policy Implications

In presenting for the first time a general analysis of poverty dynamics in Canada, these findings have a wide range of policy implications, large and small, broad and specific. A few important general ones are now discussed.

8.1.1 Poverty Dynamics and Anti-Poverty Policy: Who Are the Poor?

With almost one-half of those who ever experienced a spell of poverty over the five years covered by the analysis in that state more than half the time and hence classified as being long-run poor, this study shows that there is a very sizeable group for whom policy measures should provide assistance of a rather fundamental nature, such as developing labour market skills, making work a feasible option (child care, etc.), helping with job search, providing longer-term income support until individuals get on their feet, and so on.

Furthermore, with just 6 percent of the population in low income in all years but this group comprising approximately 40 percent of the low income population in any year, the analysis makes clear that any truly significant reduction in low income rates would have to include a focus on the chronically poor and presumably involve the more activist measures just mentioned ? as opposed to simple stop-gaps or short-run interventions ? on a commensurately large scale.³²

From a more positive perspective, while the long-run poor are surely the more difficult cases ? the protracted nature of their poverty experiences presumably stemming precisely from the deep nature of their problems ? they also represent the greatest potential policy payoff, in that improving the lot of this relatively small group would lead to greatly reduced overall poverty rates on a more-or-less permanent basis. Otherwise put, even if the underlying problems of the long-run poor are also the most challenging ? and costly ? from a policy perspective, the benefits of any success in helping them would clearly be large and lasting in purely economic and financial terms as well as from any social justice point of view.

On the other hand, in addition to these long-term hard-core poverty types, the analysis has also shown that there is another substantial group ? the other half of those who are ever poor ? for whom poverty is more of a passing experience and, therefore, where less fundamental poverty-fighting measures, such as short-term income support, the re-tooling of existing job skills, a little extra help with job search, and the like, would probably be more appropriate.

8.1.2 Identifying the Different Types of Poor and Directing Specific Policy Initiatives

This dichotomy of poverty types (really more of a continuity but usefully thought of in terms of the binary classification adopted here) then raises the issue of how these two basic classes of individuals ? the longer-run/dependent versus the more passing/independent poor ? can be identified so that the different sorts of policy measures just described could be efficiently targeted at the soonest possible point in time. The findings presented here again provide a useful guide in this respect.

First in this regard, the analysis of entry, exit, and re-entry rates has identified a number of observable personal characteristics and situational attributes which represent good indicators of who is likely to enter poverty and the amount of time a person will spend in a current or subsequent poverty spell should that occur. These include sex, family status, age, province, language, and area size of residence. Such information could, therefore, be usefully employed to classify individuals in terms of the policy initiatives which would be most appropriate to their specific cases, and other analyses with the LAD database or others could probably provide additional information of this type.

The results also point to the powerful nature of the amount of time an individual has spent in a current poverty spell or has remained non-poor after a previous exit (i.e. the relevant "duration" effects) as well as the overall number of years recently spent in poverty ("occurrence effects") in terms of predicting poverty status at any point in time, the probable length of a given poverty spell, or the likelihood of entering another period of low income, meaning that individuals' current and past poverty records could also be very helpful for targeting policy measures.

8.1.3 The Need for Early Interventions

A further implication of the analysis stems from the finding that the rate of exiting poverty tends to decline substantially with the amount of time a person has spent in a current poverty spell and that the rate of re-entry similarly decreases with the amount of time an individual has spent out of poverty after a previous exit. These results thus point to the importance of early interventions to speed people out of poverty once they have entered or to prevent them from re-entering once they do manage to escape.

That is, while the relative importance of "unobserved heterogeneity" versus "pure duration effects" might be debated and investigated further, the face value of the empirical evidence presented here indicates that individuals get increasingly entrenched in poverty, that early interventions before this occurs are likely to be very important (and worthwhile) and that extra efforts at keeping individuals out of poverty in the first year or two after exiting a previous spell are similarly appropriate.

8.1.4 "Events" and Poverty Dynamics: The Special Case of Single Mothers

On a slightly different track, this study has also identified certain specific events ? as opposed to current personal or situational attributes ? which are associated with high rates of entry or re-entry into poverty or low rates of exit from that state and which thus point to other sorts of policy initiatives. Lone-motherhood is perhaps the best example in this regard. The high incidence of entering poverty at the point of becoming a lone mother, the longer poverty spells experienced by these women, the importance of marriage to their leaving poverty, and their high rates of re-entering poverty after a previous exit observed here have effectively rendered much more explicit and precise what cross-sectional studies have previously only intimated in a much blunter manner regarding the poverty experiences of lone mothers ? and have thus reaffirmed the need to focus attention on this group in terms of anti-poverty policy from a much more informed perspective.

And while child support payments have undoubtedly risen since this time (thanks to the introduction of guidelines) and the generally strong labour market in the period since 1996 may have been of some help, the fundamental problems are that women typically earn less than men while having the primary responsibility for the custody of the children in cases of a marital breakup and that the generally even more vulnerable never-married group is growing in size. Only longer-run initiatives which address these underlying factors are, therefore, likely to make a substantial difference in single mothers' poverty experiences over the longer-run. Restoring public sources of income in the form of "old fashioned" social assistance or through the newer and sometimes more creatively innovative welfare-to-work programmes, would, however, almost certainly be needed to provide the support needed to deliver and keep single mothers and their children out of poverty in the nearer term.

On the other hand, the analysis has also shown that most of the poor in any given year ? and the large majority of the long-run poor (83-85 percent) ? are in fact not single mothers. With unattached individuals being the largest single group and couples representing another substantial part, policy initiatives clearly need to be directed at these others if overall poverty rates are to be reduced significantly.

8.1.5 Carrots, Sticks, a Strong Economy, and Getting It Right from the Start

What are the sorts of more "fundamental" measures which should be adopted to help the longer-run poor? Without getting into detailed specifics, it is worth noting that both common sense and the available empirical evidence (see Blank [2000a] regarding the U.S. record) indicate that successful anti-poverty programmes typically consist of three fundamental elements: carrots, sticks, and a strong labour market.

The carrots should typically include, on the one hand, the development of marketable skills, learning about job search, and making work feasible and worthwhile, including the provision of child care, helping with transportation, facilitating the purchase of the necessary clothes and other "tools of the trade," assisting with other work-related costs, and so on. It is equally important, however, to improve the financial incentives to work, such as allowing welfare recipients to keep a greater share of their benefits as their labour market earnings rise, providing direct wage subsidies, increasing earned income tax credits, and so on.

"Sticks," however ? a disagreeable but perhaps useful term if only used to represent certain incentive structures coming from the other side ? also appear to play an important role: individuals can be further encouraged to take full advantage of the opportunities provided with carefully designed benefit structures. Not, for example, workfare for its own, punitive sake or as a malevolent club directed at the most disadvantaged members of society in the absence of other pro-active initiatives, but instead initiatives like providing extra benefits as an additional incentive to take advantage of a set of real opportunities which are being offered and withdrawing those benefits if these are not acted upon in order to help prod those who have perhaps lost (or never learned) the ability, willingness, or hope required to better their lives in such ways.

Finally, a strong labour market is the tide that can float even many frailer craft, and the jobs obviously have to be there for any individual to make it into the economic mainstream and stay there.

Some specific programme initiatives could include, at the provincial level, a general shift away from traditional welfare programmes which provide income support and little else, towards the sort of pro-active initiatives intended to bring individuals into the labour market with real career opportunities of the type just described.

At the federal level, funds could be transferred from passive programmes, such as the child tax benefit, towards "pro-work" initiatives such as a USA?style earned income tax credit, which provides a refundable tax credit that benefits low income workers by, in effect, providing wage subsidies. (Attention should, however, be given to the work disincentive effects of the implicit tax-back rate of this programme ? especially in the context of any related provincial initiatives, including any new ones along the lines mentioned below.)

The federal government could, furthermore, selectively borrow certain other elements from the bold experiment in welfare reform instituted in the US in 1996 by providing additional funds to the provinces to be spent on programmes of their own choosing as long as they met the broad goals of increasing the labour market participation of welfare programme recipients and ? to craft a "kinder, gentler" variant of this sort of initiative for Canada ? by including individuals' income levels (or poverty rates) as another element by which the provinces' performance would be judged and future monies allocated. Not only would such an initiative direct more funds towards the sorts of programmes that should both increase work and ? in contrast to certain "workfare" programmes ? the economic well-being of the affected individuals, but it would also generate a panoply of programmes which should both allow each provinces' unique needs to be met in the best manner possible while generating evidence on which programmes work best.

Such pro-active programmes are not inexpensive, and are indeed typically considerably more costly than traditional social assistance programmes in the short run, but should be seen as investments which hold the promise of large long-run payoffs if individuals can be made less dependent on cash handouts and are able to move into the economic mainstream and gradually move up the socio-economic ladder as their initial, supported footholds gradually lead to better jobs, higher earnings, and economic independence.

Such programmes might, furthermore, have additional long-run benefits as the next generation of potential welfare-dependants learns that, ultimately, they will be expected to work and will be given the incentives and opportunities to do so: they might as well move in that direction sooner rather than later, before becoming sucked into the welfare system. Even broader, longer-term benefits should be realized as the children of welfare families experience their parents developing work skills and moving into the labour market and having higher incomes as a result and they learn about the nature and value of work rather than a life of welfare dependency.

Yet while initiatives possessing these characteristics are likely to help many individuals in need of such assistance, preventative measures aimed at reducing the number of individuals in straitened circumstances in the first place might be the most efficacious ? and fairest ? policy route of all. Such measures could, on the one hand, be targeted on the more proximate causes of entry into long-term poverty, such as reducing the number of young single mothers who are unable to support themselves through family counselling and other pro-active programmes. At the same time, broader and even more basic measures might also be implemented, such as trying to ensure that as many individuals as possible enter adulthood possessing the skills required to build a meaningful career and thus support themselves and their families. Associated initiatives should probably extend right back to early childhood and even before, since this is where many of the most basic problems seem to find their origins. Making sure every child is well fed, adequately sheltered and physically safe, would, therefore, be a good starting point, followed immediately by the provision of a rich developmental environment, including an excellent school system, from the cradle through entry into adulthood. Even those who blame the parents of disadvantaged children and fear the adverse incentive structures which the provision of assistance to low income individuals can generate would surely see the benefits ? and simple fairness ? of ensuring a reasonable set of opportunities for the youngest members of society.

8.1.6 Province, Area Size, and Language Effects

Another implication of these findings derives from the provincial differences in poverty dynamics identified here, these presumably pointing to the need for national-level programmes. In particular, the significantly lower rates of exiting poverty for individuals in certain provinces, especially Atlantic Canada and the Prairies, point to higher numbers of longer-term poor requiring special measures in those jurisdictions. The fact that lone mothers tend to be particularly characterised by such differences is especially worth noting.

Regarding the minority language effects, the analysis has pointed to the potential benefit of implementing special initiatives in this respect as well ? for anglophones living in Quebec as well as francophones in the rest of Canada.

The substantial effects of living in a rural area ? generally lower exit rates but also higher entry rates in the case of lone mothers in particular ? suggest that a focus along this dimension would be similarly appropriate. In other cases, large urban areas are also identified as problem areas.

8.1.7 The Time Trends

One final broad policy implication stems from the observed deterioration of the situation for the most dependent groups over the 1992-96 interval studied ? couples with children and lone parents ? despite the economic recovery which began and then took more force over this period. This dynamic points to the underlying dependency of these groups on government sources for direct income support and their vulnerability to the cut-backs which were implemented over this period and in subsequent years, while also indicating that a strong economy alone is not likely to be sufficient to raise these most vulnerable groups out of their straitened circumstances and that other interventions are required.

One particular contribution of this dynamic analysis which focuses on entry, exit, and re-entry rates is, furthermore, that it points to a significant deterioration of the longer-run poverty situation in a way which cross-sectional (annual) data could not, with further implications for future poverty rates as these effects gradually work their way through the system and slowly but surely drive up poverty rates in a way which the more traditional data sources and annual poverty measures would be slow to capture and unable to predict in anything like the same way. In thus providing a more sensitive measure of the underlying dynamics, this analysis also provides the opportunity for addressing the underlying problems before poverty rates rise too high or the longer-run poor get too stuck in their disadvantaged situations.

8.2 Parting Comments: Future Research

This is but a first analysis of poverty dynamics and future research could go in any number of useful directions. A few suggestions in this regard are offered here.

Study further the records of individuals with specific patterns of low income dynamics ?especially the long-run poor. What, for example, are their different sources of income at various points in time? ? earnings, social assistance, and so on. What do their even longer-term profiles look like along various dimensions? What are the precipitous events in their lives (job loss, marital disruption, etc.) or do they tend to be on the economic edge from the beginning?
In a similar fashion, probe more deeply the poverty dynamics of certain specific groups ? such as lone mothers or younger individuals ? whose poverty profiles are generally worse than others and perhaps deteriorating further over time.
Add additional variables to the analysis, such as neighbourhood characteristics (general levels of education, average incomes, age profiles, immigrant population).
Break down the specific factors which determine the movements into and out of poverty, such as identifying the percentage of such movements due to changes in individuals' earnings levels (head, spouse, others), those due to changes in transfer payments (perhaps even broken down individually, such as social assistance, unemployment insurance, and so on), those due to changes in family status per se, and so forth.
Study social assistance dynamics and their relation to poverty dynamics, perhaps concentrating on long-run recipients and the long-run poor. It would be especially interesting to analyse the effects of recent welfare reforms on welfare participation, poverty status, and income levels generally. Which initiatives have really worked in the sense of getting people off welfare and into decent jobs, which appear to have simply punished recipients by cutting benefits, and so on?
Investigate the inter-generational transmission of low income status and low income dynamics, which could be facilitated here by looking at individuals who are initially (in the earlier years of the data) observed in their parental families and then observing their situation in later years so as to identify the relationship between "childhood" income levels (and perhaps neighbourhood characteristics ? see above) and later low income profiles.
Compare the record of immigrants ? whose cross-sectional poverty rates have been rising ?with the general population, as could be facilitated by a matching of the LAD data with the "IMDB" database, another recently available tax-based longitudinal file which captures the entire population of immigrants who have arrived in the country since 1981, but which does not yet contain the sort of family level information which would be required to do such a comparative analysis of low income dynamics (which is of course defined at the family level).

The author has in fact already embarked upon some of these endeavours, while others remain completely open and many other useful projects could be identified. It is a cliché to say that a particular project has raised more questions than it has answered, but it can be said that in providing an initial survey of the situation, this study has at least provided a first view of poverty dynamics in Canada and should thus also constitute a useful starting point for future work.

³²The figures rise to 9.5 percent of the total population representing 60 percent of the poor in any year when those who are poor four years out of five are included and 13.4 percent of the population representing 75.4 percent of the poor at any point when those who are poor three of the five years are considered as well.

Low Income (Poverty) Dynamics in Canada: Entry, Exit, Spell Durations, and Total Time - June 2000