Low income measures

What is the LIM?

For the purpose of making international comparisons, the LIM is the most commonly used low income measure. The use of the low income measure (LIM) was suggested in 1989 in a discussion paper written by Wolfson, Evans, and the OECD1 which discussed their concerns about the LICOs. In simple terms, the LIM is a fixed percentage (50%) of median adjusted household2 income, where “adjusted” indicates that household needs are taken into account. Adjustment for household sizes reflects the fact that a household’s needs increase as the number of members increases. Most would agree that a household of six has greater needs than a household of two, although these needs are not necessarily three times as costly.

The LIMs are calculated three times; with market income, before-tax income, and after-tax income using the Survey of Labour and Income Dynamics (SLID). They do not require updating using an inflation index because they are calculated using an annual survey of household income. Unlike the low income cut-offs, which are derived from an expenditure survey and then compared to an income survey, the LIMs are both derived and applied using a single income survey.

How is the LIM calculated?

In order to calculate the LIMs3, first calculate “equivalent household income” for each household by dividing household income by its “adjusted size”, that is the square root of the number of persons in the household. Next, assign this adjusted household income to each individual in the population. Then determine the median of this “equivalent household income” over the population of individuals, that is the amount where half of all individuals will be above it and half below. The LIM for a household of one person is 50% of this median “equivalent household income”, and the LIMs for other sizes of households are equal to this value multiplied by their “equivalent household size”.

Notes

  1. ‘Statistics Canada’s Low Income Cut-offs: Methodological Concerns and Possibilities’ (Wolfson, Evans, and OECD).
  2. A household is defined as a person or group of persons residing in a dwelling.
  3. The methodology utilized for calculating the LIMs changed substantially beginning with the release of “Low Income Lines, 2008-2009” and the 2008 Survey of Labour and Income Dynamics.  These changes relate to the accounting unit utilized, the unit of analysis and the equivalence scale. For a complete description of the changes, please see “Low Income Lines, 2008-2009”.
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