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Measuring Poverty: A New Approach
The United Kingdom recently began to publish estimates of the proportion of households with incomes below various proportions of average income. Analysts most commonly cite the estimates based on 50 percent of average income, using them in place of the earlier practice of using the welfare benefit ("supplementary benefit") standard as an unofficial poverty line (Johnson and Webb, 1992).
In Canada, Statistics Canada has for a number of years published a time series of statistics on the low-income population that is similar to a poverty rate series. The determination of low-income status has been based on a set of "low-income cut-offs" (LICOs), which were developed by means of a hybrid approach that involved a set of quite complex procedures (Wolfson and Evans, 1989). The LICOs were developed by first determining the average expenditure of all families on food, shelter, and clothing as a percent of gross income. To this percentage was added an arbitrary 20 percentage points. Then, log-linear curves were fit between food, shelter, and clothing on one side and before-tax income on the other, taking account of variations in family size and urbanization (size of community).23 Finally, on the basis of these curves, the LICO for each family type that corresponded to the designated proportion of spending on food, shelter, and clothing was determined.
The idea behind the LICOs, originally developed by Jennie Podoluk on the basis of a 1959 Survey of Family Expenditures, was that families spending more than the specified proportion on "necessities" (i.e., the average proportion plus 20 percentage points) were constrained in their spending on other items and hence could be considered "lowincome." The LICOs were revised subsequently on the basis of new expenditure data for 1969 and 1978.24 The "straitened circumstances" proportion (i.e., the average plus 20 percentage points spent on food, shelter, and clothing) was estimated at 70 percent of income in 1959, 62 percent in 1969, and 58.5 percent in 1978, thus adjusting the LICOs for changes in real consumption. Between revisions, the LICOs were adjusted for price changes. The approach is a hybrid in that it refers to specific types of goods as necessities but determines the key parameter for the
This curve-fitting approach is similar to the Engel or iso-prop method of developing equivalence scales; see Chapter 3 for a critique.
Most recently, the LICOs were revised on the basis of 1986 expenditure data (see Statistics Canada, 1991: App.).