Material Deprivation in Canada Geranda Notten, University of Ottawa - - PowerPoint PPT Presentation

Geranda Notten, University of Ottawa Julie Charest, Statistics Canada Andrew Heisz, Statistics Canada

Prepared for Canadian Economic Association Annual Conference 2017

Material Deprivation in Canada

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We test and construct a material deprivation index using Canadian data Study the incidence of material deprivation across socio- demographic groups Explore the overlap in incidence between material deprivation and low income

Overview

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Poverty: experiencing adverse material outcomes due to a lack of financial resources

• Traditionally measured using low-income indicators
• More recently, also measured using material deprivation

indicators

A large body of research finds that there is a positive but imperfect correlation between low-income and material deprivation indicators.

• Two studies using Canada and Ontario data (Heisz and Langevin

2011; Notten 2015) → Population identified as ‘poor’ according to one indicator only partially overlaps with that identified as ‘poor’ by the other.

Measuring poverty – two distinct indicators

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Measure whether family has enough income to purchase goods and services needed for an acceptable level of well-being.

• Monetary, resource-based

Measurement issues:

• Income is not the only source for financing needs

Low income does not necessarily lead to adverse material outcomes

• Income is a resource, not an outcome

Persons above low-income line can experience adverse material

• utcomes
• Reporting error

Low income indicators

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Measures whether family is missing an item or aspect considered necessary in their society due to insufficient financial resources.

• Non-monetary, outcome-based

Measurement issues:

• Assumption of common needs and priorities
• Under-reporting due to adaptive preferences and shame

Material deprivation indicators

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The two types of indicators will always disagree. Relying on low income alone biases poverty analyses. Material deprivation indicators are thus considered complementary to low income indicators.

• Use in policy-making and poverty research has become more

common over past decades.

In our paper, we construct a material deprivation index to identify those at risk of poverty in Canada.

Why use a material deprivation index

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Canadian Survey of Economic Well-being (CSEW) conducted

• n one-time basis in 2013

Final sample of 24,258 households, 57,911 individuals Collected information on households’ ability to satisfy 17 basic material or social needs (material deprivation items)

• For each item, respondent was asked if the household has the item
• Those answering “no” were then asked: “Is this because you cannot

afford it or for some other reason?”

• Those who said they could not afford it are deprived of that item

Five questions on economic hardship

• Whether the household experienced financial difficulty in past 12 months

Income information self-reported

Data

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High-incidence items

Item % deprived Replace worn-out furniture 16.6 Cover an unexpected expense of $500 from own pocket 16.5 Regular dental care for all household members 10.3 Small amount of weekly spending money for each adult household member 9.7

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Medium-incidence items

Item % deprived Replace a broken or damaged appliance 7.1 Pay bills on time 4.9 All household members have a hobby 4.7

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Low-incidence items

Item % deprived Have friends and family over for a meal once a month 3.2 Eat fresh fruits and vegetables every day 2.4 Job interview clothing for each adult 2.1 Buy small gifts for family or friends once a year 2.1 Two pairs of suitable footwear per household member 2.0 Eat meat or equivalent every day 1.5 Keep home at a comfortable temperature 1.5 Access Internet in or outside the home 1.1 Live in a home free of unwanted pests 0.9 Get around in community by car or public transportation 0.6

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Four test criteria

First step in calculating the index was determining which items in CSEW are fit to be included in the index. Following Guio et al (2016), used four scientific criteria to test the items:

• Suitability, Validity, Reliability, Additivity.

We concluded that all items meet the criteria and could be used in the index.

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Criterion Testing method Pass /Fail

Suitability

• Share of households ‘wanting’ the item is high
• Most people view the item as necessary (auxiliary data)

Pass Validity

• Correlation between item and known risk factors:
• Low income (LIM), difficulty meeting expenses, and

economic hardship Pass Reliability

• Cronbach’s alpha:
• Together, items measure latent concept
• Item Response Theory (unidimensional 2-parameter test):
• Severity: Items measure varying degrees of

deprivation

• Discrimination: All items sufficiently differentiate

between deprived vs. non-deprived individual Pass Additivity

• For each pair of items (136), ANOVA model shows that

average income is lower for:

• Those deprived of one item compared to none
• Those deprived of both items compared to one

Pass

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Setting a threshold

Need to set a cumulative deprivation threshold (minimum number of deprivations).

• Goal is to separate population into group that is (likely)

materially deprived and a group that is (likely) not materially deprived.

The choice of threshold has a large impact on the index.

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Setting a threshold

28.8 18.6 12.9 9.1 6.2

5 10 15 20 25 30

1 or more 2 or more 3 or more 4 or more 5 or more % deprived Cumulative deprivation threshold (number of items) Material deprivation rate at different cumulative deprivation thresholds

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Index construction

We use a headcount index – equal to the percentage of the population that is deprived of at least two items. All deprivation items are equally weighted. Advantage is ease of interpretation.

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Results

In 2013, 18.6% of individuals were materially deprived according to the material deprivation index we constructed (threshold of 2+ items).

• Higher than the low income rates published for Canada in 2013:

LIM after-tax 13.4%; Market Basket Measure 12.2%; Low- income cut-off 9.8%.

Using CSEW data, 15.9% of individuals have a low income (LIM before-tax). Difference in incidence rates hides two main insights:

• Population groups with a high risk of low income often, but not

always, also have a high risk of material deprivation.

• A large share of those identified as ‘poor’ by one indicator are not

by the other.

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Higher risk of material deprivation

Nova Scotia (25.3%) or New Brunswick (22.3%) Rented dwelling (36.7%) Main household income source is gov. transfers (44.6%) Live alone (24.1%) or lone-parent (50.4%) Household reference person:

• Unemployed (42.2%)
• Not in labour force, unable to work (55.0%)
• High school diploma (22.9%) or less (31.0%)
• Immigrant (22.7%) or Aboriginal (33.0%)

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Lower risk of material deprivation

Saskatchewan (14.0%) Live in owned dwelling (13.3%) Main household income source is employment (16.2%)

• r investment/retirement (6.2%)

Couple household without children (11.6%) Household reference person:

• Employed (15.7%)
• Bachelor’s degree (11.7%) or higher (10.4%)

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Discrepancies in risk characteristics

Material deprivation risk Low income risk Newfoundland and Labrador

• High

Saskatchewan Low

• Alberta
• Low

Couple household with children

• Low

Reference person not in labour force, able to work

• High

Reference person highest education high school diploma High

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Overlap with low income

Materially deprived (18.6%) Low income (15.9%) Only deprived (10.6 %) Both (8.0%) Only low income (7.9%)

26.5% of the population could be experiencing poverty

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Also a limited overlap at the population-group level. Total percentage of individuals identified as ‘poor’ by one

• r both indicators is:
• Much higher than at the national level for groups with a

high-risk characteristic.

• Much lower than at the national level for those with a

low-risk characteristic.

• Examples:

50% of individuals in a rented dwellings identified as ‘poor’ by one or both measures. 18% of individuals in couple households without children identified as ‘poor’ by one or both measures.

Overlap with low income

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Conclusions

The choice of cumulative deprivation threshold has a large impact on the index. Limited overlap between the low-income and materially deprived population.

• The population who may be experiencing poverty is

underestimated when using low-income alone.

Risk factors for material deprivation often, but not always, align with those for low income. Conclusions are the same using threshold of 3+ items. A material deprivation index has the potential to provide a useful complement to low-income measures in Canada.