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Poverty: a bias toward exaggeration.

The statistics commonly cited to track poverty in Canada are not merely deceptive: they are systemically flawed. They cannot help but exaggerate what they are supposed to measure. Their use may enhance the prospects of anti-poverty activists, who have learned from feminists, minority group leaders and environmentalists that you can make a good living out of hyperbole. Their constant repetition trivializes the plight of those coping with real poverty and the pathological effects of dependency.

These popular statistics are structurally inadequate because they are based on reported income, a highly misleading proxy for material well being; they give only a static image of a dynamic reality; and they miss important qualitative aspects of economic behaviour.

Surely enough has been written about Statistics Canada's low-income cut-off (LICO) to discredit it as a poverty line. LICO measures inequality, not poverty. But even as a measure of inequality LICO is defective. Because it is based on reported income, it fails to take into account savings, loans, and private assistance, or such valuable assets as a fully owned home or car, and much else.

Consequently, many who fall below LICO would be surprised to learn that political activists consider them poor. As Christopher Sarlo has pointed out, they include post-secondary students who live independently during the school year and whose loans and gifts do not count as income; senior citizens who own their homes mortgage-free and are supplementing low incomes with savings; people in transition (first-time workers, immigrants, the divorced and widowed, released prisoners, etc.), who may begin employment part-way through the year and therefore report a low annual wage; self-employed business people and farmers, whose reported incomes, but not necessarily their standard of living, may fall in some years, perhaps due to capital losses or other write-offs against earnings; some clergy and others who voluntarily accept a low income.

Unfair economy

The statistically poor also include many participants in the underground economy, who may report less income than they make. Robert Rector has cited US government surveys which indicated that low-income households typically spent $1.94 for every $1.00 of income reported to the Census Bureau.

Even if reported income accurately identified the poor, the division of total income into quintile shares, ranging from the lowest fifth of all households to the highest, would be misleading. This is because households are constantly moving from one quintile to another, up and down the income scale. But, like single frames from an action film, the quintile charts reveal none of this economic dynamism.

They show that in both Canada and the United States, the top fifth of all households receive some 45 percent of the income and the bottom fifth less than five percent. What's more, the percentages have not changed much over half a century. This suggests that the economy is rigidly unfair because the poor never seem able to escape scarcity and the rich cling tenaciously to affluence.

But if the percentages of total income don't change much, the people behind them rarely stop changing. The US Treasury Department reports that 86 percent of Americans with incomes in the bottom fifth in 1979 were in a higher bracket nine years later. Of these, 40 percent were in the upper two fifths and 15 percent had reached the top fifth.

Why don't anti-poverty activists tell us about this? Why didn't they give a collective cheer when StatsCan released a study which indicated that Canadians are much better off than the quintile charts suggest? The study found that roughly half of those who earned low incomes in any year from 1993 to 1996 received normal incomes the following year. Up to twenty percent earned low incomes for at least one year; only five percent did so for all four years.

When we peer behind the quintile charts, we see that many families with low incomes are just starting out. As they move up, on the way to their peak earning capacity, new families replace them at the bottom. At the same time, many older families in the middle or upper quintile settle into the lower ones as they enter retirement and need less money to live. If an ethnic group has a higher proportion of young people than exists in the general population, it can expect to report lower than average incomes, not because of discrimination but because of demographics.

Immigrants often start at the bottom of the income scale, sometimes doing jobs that others refuse, but these newcomers don't necessarily stay there. On the contrary, they may eventually earn more than those who were horn here. In most occupations, wages at the peak are from two to three times higher than at the entry level. This recognizes that as employees mature in age and experience, their work increases in value. Even if they recorded identical lifetime earnings, differences in age and experience would show up as inequalities in the quintile charts.

Because the commonly used poverty statistics focus on the quantitative, differences in outlook and lifestyle escape their accounting. It then becomes easy for antipoverty activists to suggest that because lack of money is what obviously characterizes the poor, this is what we need above all to address.

But poverty is not just a dearth of income. If the poor are alike in that they lack funds, they are not necessarily alike in ways that the income charts are unable to measure. They may--and many do--differ in aptitude, discipline, competence, motivation and preferences. Money is not likely to change that.

Anti-poverty activists, nevertheless, are attracted to redistributive policies that fail to distinguish between able-bodied scroungers and the genuinely needy, and to affirmative action programs that ignore or dismiss differences in aptitude and attitude between groups steeped in traditions of economic activism and others with little or no such cultural experience.

If they have any integrity, these activists will admit to the built-in biases of the statistics they use and correct for them.

Joe Campbell writes from Saskatchewan and contributes frequently to Catholic Insight on a wide range of issues but especially on social teaching.
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Author:Campbell, Joe
Publication:Catholic Insight
Geographic Code:1CANA
Date:May 1, 2003
Words:1011
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