Alternatives to a Guaranteed Annual Income

For Reducing Poverty in Canada

I begin this blog with apologies to my readers for the delay in posting it. My original intention was to provide a much quicker follow-up to my critique of a comprehensive Guaranteed Annual Income (GAI) for Canada, “Eliminating Poverty with a Guaranteed Annual Income: Right Goal, Wrong Approach” proposing alternatives to the GAI.

My critique of the GAI began with the observation that Canada had made considerable progress in reducing its poverty rate from 15.2% to 8.8% between 1996 and 2011. No surprise then that my alternative approach for reducing poverty in Canada is to build on the successful strategies which led to that result.

Those strategies can be summed up as follows:

1)       Increase the percentage of working-age adults (persons aged 18-64) with earnings, particularly among groups such as lone parents and single unattached individuals where there is only one potential adult earner in the household;

2)       Redesign income support programs for low-income households in which the main income recipient is a non-elderly adult so that at a minimum they reduce disincentives to earn and, where possible, provide positive incentives to do so; and

3)       Once the income support programs have been reformed to achieve these goals, enrich the support they provide to such households.

To reduce poverty further governments should:

1)      Adopt monetary, fiscal and policies which encourage sustained employment creation and, at a minimum, avert and shorten recessions which throw households into poverty by reducing earnings opportunities and the paid hours and real wages of those who hold onto their jobs;

2)      Increase the maximum benefits under the Working Income Tax Benefit  (WITB) and the
National Child Benefit Supplement Programs which efficiently target support to low income families and provide incentives to earn; and

3)      Partially reverse the steady and significant decline which has occurred in the financial support provided by welfare in most provinces since the early 1990’s.

Let me anticipate some of the objections that will be made against this three-pronged approach.

Objection 1– A policy that encourages non-earners to move into low-paid jobs simply exchanges welfare dependency for working poverty.

First, this objection is factually incorrect. Second, even if it were true, working poverty would still be better than welfare dependency for those households making that transition.

Between 1996 and 2010 the number of persons in families headed by a single mother with an earner rose by 224,000. Over the same period the number of poor persons in such families fell by 187,000 as the poverty rate for persons in single mother families with an earner fell from 32.7% to 9.5%. The persons supported by these new earners were not just moving from welfare dependency to working poverty, but out of poverty altogether. [1]

What about the assertion that working poverty is better than welfare dependency? Recent research[2] has identified three areas where poor working-age adults who are earners and their children fare better than their counterparts who are not earners. They are more than twice as likely to escape multi-year persistent poverty. They have better health outcomes and are less likely to experience deterioration in their health status. [3] And their pre-school children exhibit higher levels of verbal development in standardized vocabulary tests.

Objection 2– Raising the minimum wage is a more effective way to alleviate poverty than supplementing low earnings through the WITB and the NCBS.

While it is good labour market policy to maintain the purchasing power of the minimum wage, raising it  cannot guarantee that earners will have enough paid hours of work to escape poverty. Moreover, raising the minimum wage is an inefficient approach to addressing poverty because barely a quarter of minimum wage workers are the main earner in their household.[4] In contrast, family-income tested programs like the WITB efficiently target support to working poor households.

Objection 3- It is inconsistent to propose raising real welfare benefits at the same time as promoting policies to encourage people to earn their way out of poverty.

It is true that raising welfare rates to the point where they approach adequacy levels (as occurred in Ontario in the early 1990’s) discourages adults from taking low paid jobs which often lead to better-paid work and a quicker escape from poverty than remaining dependent on welfare. However, over the past twenty years welfare rates in most provinces have been allowed to fall so far below adequacy levels, particularly for non-disabled single adults, that there is ample room for significant increases in rates without approaching levels where they would be a disincentive to earn. Even that tiny risk could be offset by simultaneously enriching the WITB. It is undeniable that increases in welfare rates would reduce the depth of poverty.

It is a sad reality that, despite their best efforts, and even in the presence of strong demand for labour and an income support system for working-age adults and their children which efficiently encourages earnings, many Canadian households will remain unable to place even one person into paid employment. The financial support available to them should no longer remain as inadequate as it has become. Though a skeptic about an adequate GAI, “I know for sure”, in the words of Cat Stevens, “nobody should be that poor” in a country as rich as Canada.

[For readers interested in a more detailed technical discussion of the anti-poverty strategy outlined in this blog and the evolution of the programs and policies which have reduced poverty so significantly over the past 15 years I have written a five-page article which I will send on request. My e-mail address is michaelfrederickhatfield@hotmail.com.