Again, there is no necessary relationship between a decline in the poverty threshold and a lower poverty rate or between an increase in the threshold and a higher rate (see Stephenson, 1977, on this point). Indeed, Wolfson and Evans (1989:52-53) found that poverty rates declined in Canada over the period 1967-1986, whether a relative updating method (based on adjusted median family income) or an absolute updating method (based on price inflation) was applied to the original LICOs. The decline was greater, however, for the absolute method. Also, during the recessionary conditions experienced in 1981-1986, poverty increased in Canada with either updating method, although the increase was greater for the absolute approach.31

If one believes that poverty thresholds must inevitably be adjusted for changes in real consumption, at least eventually, then a relative approach, which automatically updates the thresholds each year, has advantages. It will better preserve the continuity of time series over an approach that sporadically updates the thresholds. Nonetheless, the year-to-year variations in real terms exhibited by the relative poverty thresholds in Table 2-3 are disconcerting. To smooth out these variations, one suggestion is to develop the thresholds on a 3-year moving-average basis. Another suggestion, made by the Expert Committee on Family Budget Revisions (1980), is to take a "ratchet" approach, that is, to let the thresholds increase with real economic growth but not let them decline below the previous year's level in real terms.

SUBJECTIVE THRESHOLDS

An approach to defining poverty thresholds that has been the subject of considerable research, especially in Europe, makes use of public opinion data. Responses by samples of households to survey questions that ask for the minimum level of income or consumption needed by a certain type of household (or a household like theirs) to "getalong" or to "make ends meet" are used to construct poverty thresholds, which are commonly labeled "subjective" thresholds.32

The subjective approach has the advantage that it obviates reliance on experts and relies instead on prevailing opinion in a society to set a poverty line for that society. There are many problems, however, in implementing a subjective approach, and the resulting thresholds must be interpreted with

31  

Similarly, Vaughan (1993: Table 1) estimated that the use of a subjective poverty threshold, which behaved in much the same manner over the post-World War II period as a relative threshold, would have produced a similar time trend of poverty rates as the official threshold. With the subjective threshold, poverty rates declined through the mid-1970s and then rose somewhat; poverty rates with the official threshold showed a similar but more pronounced decline followed by a similar but less pronounced increase.

32  

This label is unfortunate, given that all types of thresholds involve subjective elements.



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