Data and definitions of income and low-income lines

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The data are from the Survey of Labour and Income Dynamics (SLID 2000). The sample includes everybody in the survey, and the family is defined as the economic family. In 2000, a total of 76,846 individuals are included, with Ontario constituting the largest sample (n=23,130) and Prince Edward Island (P.E.I.) the smallest (n=2,225). Income refers to total economic family income after government transfers and after taxes. In order to make the income distributions among regions comparable in real terms, income is family-needs adjusted (by an equivalence scale) and also spatial-price adjusted (by a set of cost-of-living deflators). Income-after-adjustments refers to equivalent income. For the base-case model, adjustments are made through scaling factors used for the calculation of the low-income cutoffs (LICOs).⁸ By using equivalent income, it is similar to saying that the 35 LICOs are standardized into one single cutoff, with the baseline case set to one person living in a metropolitan area in a population size of 500,000 or above.

While low-income comparisons are made conditional on prior choice of scaling factors used to compute equivalent income, there is, however, no consensus on the choices of such factors. It is often argued that the cost-of-living index used for the LICOs is not satisfactory because it only differentiates prices among five community sizes, without taking into account the inter-provincial and city-specific differences in prices. Also, the LICOs apply a unique equivalence scale to adjust for family composition that is not commonly used in the literature. It is highly possible that a change in such underlying factors may modify the shape of income distributions and, therefore, may alter dominance results.

To examine whether dominance relations are robust to different scaling factors chosen, tests of dominance are also evaluated separately for equivalent income, based on two other equivalence scales—the square root of family size and the modified OECD scales⁹—that are widely used in the literature, and also based on an alternative cost-of-living index that was recently developed for the calculation of the market basket measure (MBM).¹⁰It is noteworthy the MBM is a federal-provincial-territorial-funded low-income measure calculating the costs of standard of consumption for a fine detail of 48 regions in Canada, including 29 rural/urban areas across provinces and 19 specific urban centres.¹¹ Although the MBM is not designed to measure price differences in general, such costs of baskets across finer regions, nevertheless, provide a good proxy for spatial differences in prices.

Furthermore, particularly in low-income comparisons across time or across countries/regions, it is often more desirable to view low income in relative terms, as the low-income line is defined as some proportion of median or average income in respective time periods or regions. In otherwords, it allows for different low-income lines (zA, zB) for different income distributions.¹² For example, by setting the low-income line as a proportion of the provincial median income, it assumes that the appropriate community for reference is at the provincial level, not at the national level. It should be noted that this is not an issue of appropriate cost-of-living adjustment. Although 'standards of living or consumption' may vary across regions, due to differences in relative prices, they may also vary because of differences in tastes and also the availability of particular resources. The choice between relative and absolute lines, therefore, entails value judgments. In this paper we do not take a stand on the appropriate choice between these, but it is interesting to see whether or not the rankings of low income are sensitive to the choice of relative or absolute low-income lines.

Finally, analyses in the paper are weighted by the SLID cross-sectional weights, which not only compensate for non-response, but also make proper adjustments for complex survey designs to ensure that estimates on relevant population characteristics respect population totals from sources other than the survey.