Research Briefs - Canada’s Working Poor

Dominique Fleury and Myriam Fortin1, Social Development Canada

Dominique Fleury is a Research Analyst and Myriam Fortin is a Senior Policy Analyst, both with Research and Qualitative Analysis Division of Social Development Canada.

Introduction

In industrialized countries, it is widely accepted that anyone with paid employment should be able to earn a decent living and support a family. But for some Canadians, having at least one employed person in the family is no guarantee against low income. By the 1960s, studies were already showing that a large percentage of low-income persons were in families with at least one worker exerting a significant work effort. For the past few years, the United States and several European nations have been trying to better understand the situation facing their low-income workers. In Canada, however, the few studies that have examined this subject have focused more on low-paid workers, thereby emphasizing labour market characteristics. However, there has been a renewed interest in low-income workers following the massive restructuring of social assistance in the 1990s and the accompanying reduction in the number of social assistance recipients (an average decrease of 40.6% between 1994 and 2002).2 This article offers a look at the circumstances facing Canada’s working poor.

The most striking observations are that low-paid workers face a very different situation from low-income workers, and that family circumstances have more to do with their low incomes than the labour market. In fact, most low-paid workers do not have a low family income. (In 2001, only 24% of low-paid workers lived in a lowincome situation.) In general, family circumstances play a bigger role in determining low income than the fact that an employed person may not work many hours. (On average, low-income workers worked about the same number of hours as those who did not have a low family income in 2001.) In Canada, in particular, a worker with a significant work effort is particularly vulnerable to low income if he or she is the only person meeting the family’s financial needs, and this vulnerability increases with the number of dependent children. Consequently, possible policy options to assist low-income workers could vary greatly from those to assist lowpaid workers.

Distinguishing Between “Low-Income Workers” and “Low-Paid Workers”

One of the main difficulties in studying low-income workers is defining who they are. It’s not a simple matter since it involves the interplay of two usually distinct fields of study: work (which focuses on the individual) and low income (which focuses on the family). There is a great deal of confusion about low-paid workers and lowincome workers. Low-paid workers are individuals whose work effort is high, but whose earnings are low. However, they are not necessarily low-income workers if their needs are met only through their own earnings as well as those of other family members. In Canada, a person who works full time throughout the year for minimum wage is considered a low-paid worker.3 However, if this person lives with a spouse who earns $100,000 a year, for example, he or she is obviously not in a low-income situation and could not be considered a low-income worker. The data show that slightly more than three out of four low-paid workers did not have a low family income in 2001.4 A low-income worker, therefore, is a person whose work effort is high throughout the year, but whose family income is below the low income cut-off.5

FIGURE 1 Number of Low-Income Persons and Low-Income Workers in the Target Population in 2001 (Aged 18-64, Non-Full Time Students)

Number of Low-Income Persons and Low-Income Workers in the Target Population in 2001 (Aged 18-64, Non-Full Time Students)

FIGURE 2 Predicted Probability* of Low Income Among Workers, According to Type of Family and Numbers of Income Earners in 2001

Predicted Probability* of Low Income Among Workers, According to Type of Family and Numbers of Income Earners in 2001

Note:

* The predicted probabilities are derived from computerized regression outputs following estimations of the specific impact of each variable in the low-income probability model for workers.

Profile of Low-Income Workers in Canada – 2001

Number of Low-Income Workers and Dependants

In 2001, there were 653,000 lowincome workers in Canada and 1.5 million persons directly affected by low income, more than one third of whom were children under the age of 18. This group of 1.5 million represented more than 50% of all low-income persons in Canada.

Work Effort of Low-Income Workers

In 2001, most low-income workers demonstrated a significant work effort: 76% of them stated they had had 1,500 hours or more of paid work during the year. This percentage is slightly lower than that of workers who were not in a low-income situation in 2001 (88%). However, the average number of hours of work by low-income workers was very close to that of other workers6 and even slightly higher (2,090 hours compared to 2,050 hours in 2001).

Labour Market Conditions for Low-Income Workers

On average, low-income workers had less favourable working conditions than other workers despite a similar work effort. The hourly wage of lowincome workers was well below that of workers who did not have a low family income in 2001 ($12/hour compared to $19/hour). The average hourly wage of low-income workers was also much higher than the minimum wage in effect in all the provinces in 2001. Therefore, the minimum wage would have to increase substantially to have a significant impact on reducing the number of low-income workers in Canada.

In addition, low-income workers were much less likely to have access to a safety net through their employment (see tables 1 and 2). In 2001, low-income workers were about three times less likely than other workers to have access to various work-related benefits, such as union membership, disability insurance, and a family dental plan.

Low-income workers were also much more likely to be self-employed or to have non-standard working hours. Of the 653,000 low-income workers noted in 2001, 41% stated they had had at least one period of selfemployment during the year, while only 13% of workers who did not have a low income that year stated they had been self-employed. Last, nearly 40% of the low-income workers in paid employment during the year did not have a standard daytime work schedule, whereas this percentage was significantly lower (25%) for other workers.

Given these less favourable work conditions, can current programs help low-income workers effectively and efficiently? For example, since lowincome workers are more likely to be self-employed and have non-standard working hours, they have less access than other workers to income support programs such as Employment Insurance. Many of them also find that the current 9-to-5 schedule for subsidized day care is inadequate as well.

Main Determinants of Low Income Among Workers

Aside from wages, what makes some workers more likely to experience financial poverty than others? Lowincome workers are a mixed group. However, certain characteristics (personal, family, or work-related) are more closely associated with lowincome workers, making it possible to target the related risk factors.

TABLE 1 Percentage of Workers with Access to Work-Related Benefits, by Low-Income Worker Status in 2001
 Low-Income Workers in 2001
%
Workers Who Did Not Have a Low Income in 2001
%
% with access to life or disability insurance 17.9 61.5
% who are union members 10.8 30.3
% whose employer offers a pension plan 15.1 48.7

Family plays the greatest role in determining the probability of a worker experiencing a period of low income. Workers who are the sole earners in the family are much more likely to have a low family income than other workers. Unattached individuals, lone parents, and workers whose spouse does not work are most likely to be low-income workers. In addition, the more dependent children that workers have, the greater the probability of a low family income, whether they are the only earners in the family or not. As indicated in Figure 2, the probability of low income is only 2% if a worker is part of a childless couple or if both spouses work. This figure increases to 26% when the worker is the only earner and has more than two dependent children.

TABLE 2 Percentage of Family Members with Access to Work- Related Benefits,* by Low-Income Family Status in 2001
 Persons in a Low- Income Family with at Least One Worker in 2001
%
Persons in a Non- Low Income Family with at Least One Worker in 2001
%
% with access to a dental plan 25.6 74.6
% with access to a health or medical care plan 26.6 74.6

Note:

* It is assumed that the work-related dental or health plan covers all family members of the eligible worker.

Table 3 shows the other characteristics that significantly increase the probability of being a low-income worker. They include being young, selfemployed, a recent immigrant or an Aboriginal person living off reserve, or not working full time throughout the year, etc.

It is interesting to note that among the persons who work many hours (910 hours or more during the year), those who belong to certain high-risk groups are more likely to have a low income than those who do not belong to these high-risk groups.7

Low-Income Trends Among Workers, 1996 to 2001

By examining low-income trends among workers over several consecutive years, we can determine such issues as whether their low-income situation is temporary and how they emerge from it.

Percentage of Individuals Who Are Low-Income Workers

While a small percentage of individuals were considered low-income workers in 2001 (4%), a much larger percentage of Canadians experienced at least one period of low-income employment between 1996 and 2001. One out of ten persons aged 18 to 59 in 1996, and not a full-time student, was a low-income worker for at least one year between 1996 and 2001.

Labour Market Experiences of Low-Income Workers

At first glance, people may think low-income workers do not exert a significant work effort and tend to alternate between employment, unemployment, and inactivity based on choice or circumstances beyond their control. But what is the real story? Table 4 shows that very few of the low-income workers identified in 1996 left the labour market in subsequent years. Between 1997 and 2001, only 15% of the low-income workers identified in 1996 experienced at least one year without any hours of work, and this percentage is only slightly lower among other workers (11%). However, while they remained in the labour market, these lowincome workers were much more likely than others to slip under the threshold of 910 hours of work at least once during the five subsequent years (46% compared to 29%).

TABLE 3 Non-Family-Related Characteristics that Increase the Predicted Probability of Low Income Among Workers in 2001
 Difference in Predicted Probability of Low Income with the Category for which This Probability Is the Lowest* %
Is self-employed 8.3
Is a recent immigrant or Aboriginal person living off reserve 4.7
Has not worked full time through the year 4.5
Works for a small firm (< 20 employees) 3.8
Is young (18-24) 3.6
Lives in an area with an above-average poverty rate 3.5
Has not completed secondary school 3.3
Works in sales or service 3.1
Has work limitations 2.7
Has little work experience (< 3 years) 1.8

Note :

* For example, if a worker has had at least one period of self-employment during the year, the percentage of probability that this person may have a low family income that year increases by 8.3 points compared with a worker who has never been self-employed.

Long-Term Low-Income Status Among the Working Poor

Low-income workers do not often exit the labour market, but do they manage to exit low income? As may be expected, employment is a determining factor (see Table 5). In fact, while 40% of low-income workers experienced persistent poverty between 1996 and 2001, they escaped poverty more often than low-income persons who were not working in 1996 (61% compared to 26%). In addition, between 1997 and 2001, 85% of the low-income workers identified in 1996 escaped poverty at least temporarily.

It is interesting to note that, between 1996 and 2001, persistent poverty rates and low-income exit rates were very consistent, whether the individuals had worked a little (between 1 and 909 hours) or a lot (910 hours and more) in 1996. Over the long term, it seems that the number of hours worked has little to do with an individual’s chances of exiting low income. The more determining factor is whether the individual had connected with the labour market.

TABLE 4 Trajectory on the Labour Market (1997–2001) of Individuals Identified as Workers in 1996, By Low-Income Status in 1996
 Low-Income Workers in 1996Workers Who Did Not Have a Low Income in 1996
 #%#%
All 513,700 100.0 8,895,200 100.0
Worked at least 910 hours every year 199,400 38.8 5,265,100 59.2
Were consistently employed but had at least one year of < 910 hours of work 237,800 46.3 2,614,600 29.4
Experienced at least one year without any work hours 76,600 14.7 1,015,500 11.4
TABLE 5 Long-Term Low-Income Statistics (1997–2001), by Labour Market Attachment of Workers in 1996
 Low-Income Workers in 1996 (910+ hours)Worked 1,500+ Hours in 1996Worked 1 to 909 Hours in 1996Did Not Work at All in 1996
No. of persons in the group 513,700 358,200 227,600 708,500
% who exited LI at least once before 2002 85.3% 84.5% 85.4% 57.1%
% who were LI for one year only 26.1% 25.7% 29.4% 7.9%
% who were LI for 2 or 3 years 38.3% 37.7% 34.1% 20.6%
% who were LI for 4 or more years 35.6% 36.5% 36.5% 71.5%
Average no. of years in low income 2.99 years 3.03 years 2.98 years 4.44 years
% who have experienced persistent poverty* 39.3% 40.3% 38.4% 73.6%

Note:

* A person has experienced persistent poverty if the total disposable family income from 1996 to 2001 is lower than Statistics Canada’s total after-tax low income cut-off for the same period.

Nevertheless, not all workers manage to exit low income in the short term. From 1996 to 2001, the low-income workers identified at the beginning of the period spent on average three years below the low income cut-off, and nearly 40% of them spent four years or more below the cut-off. More than one third (36%) of those who left low-income status quickly (in 1997) fell below the low-income cutoff in the short term (between 1998 and 2001). In summary, although the working poor generally do not stay in a low-income situation for as long as other low-income persons, most of them experience a period of financial uncertainty that is more than temporary.

Nearly half of the low-income workers who managed to exit poverty did so because of their family environment and not their advancement in the labour market (see Figure 3). Fifty-four percent of the low-income workers identified in 1996 who managed to exit low income before 2002 did so mainly because of an increase in their own earnings. Forty-six percent of them exited low income primarily because of a change in their family structure (14%) or an increase in the income of other family members (32%).

Even after they had left low income, former low-income workers had a family income well below that of the rest of the population. From 1996 to 2001, the average disposable family income of all persons who did not have a low income in 1996 was $57,000. However, this figure was nearly 40% lower among low-income workers who had exited poverty ($34,600).8

FIGURE 3 Main Reasons for Initially Exiting a Low-Income Situation Between 1997 and 2001 for Low-Income Workers Identified in 1996

Main Reasons for Initially Exiting a Low-Income Situation Between 1997 and 2001 for Low-Income Workers Identified in 1996

Use of Social Assistance and Employment Insurance by Low-Income Workers

It is easy to imagine that the boundary between low-income worker, social assistance recipient or Employment Insurance recipient can sometimes be tenuous. The more uncertain a job is, the fewer advantages it offers as (opposed to inactivity), and the more likely it is that the worker will quit the job or lose it. It is therefore worth examining the relationship between being employed and receiving social assistance or Employment Insurance benefits among individuals identified as low-income workers at a certain point.

Low-income workers tended to use social assistance more than other workers. In 1996 as in 2001, lowincome workers were much more likely than other workers to have received social assistance benefits during the year (13.5% compared to 1.5% in 1996, and 9.6% compared to 1.2% in 2001). While only 6% of the workers who did not have low incomes in 2001 had received social assistance in previous years, this figure rose to 30% among low-income workers and, for the majority of this group, social assistance benefits accounted for most (80% or more) of their family income. The low-income workers identified in 1996 were also more likely to receive social assistance benefits in the five subsequent years than other workers (18% compared to 3%) although, in this case, very few of them counted on social assistance as a main source of income.

However, low-income workers did not make greater use of Employment Insurance than other workers. While 12% of low-income workers in 2001 drew Employment Insurance benefits in that year, this rate was 13% among other workers.

Conclusion

Despite efforts to combat low income and social exclusion, many Canadians still have difficulty integrating into the labour market. For the past few years, social policy has leaned heavily on employment in its fight against low income. While employment is an effective way to avoid low income, it is by no means a panacea. In Canada, as in other countries, there are people who enter the labour market and exert a significant work effort, but who find it difficult to make ends meet. These people are the working poor.

Very little research has focused on describing and understanding the circumstances facing the working poor in Canada. The purpose of this study is to shed light on some aspects of this poorly understood issue. The highlights of the study from which this article is taken are as follows.

  • In 2001, about 50% of low-income Canadians had at least one earner in the family.

  • Between 1996 and 2001, one out of ten persons who was able to work was a low-income worker.

  • The work effort of low-income workers is significant. However, their work conditions are much less favourable than those of workers who do not have a low family income.

  • Family circumstances are a major factor for low-income workers. In Canada, families with only one earner face a greater risk of poverty, and this risk increases with the number of children in the family.

  • While employment helps people exit poverty, the situation in which low-income workers find themselves is more than temporary.

The study enabled us to gain a better understanding of low-income workers in Canada and to distinguish between them and low-paid workers. The next major step is to consider the types of policies and programs that could be developed to help low-income workers achieve greater self-sufficiency.

Notes

  1. The present article summarizes the main findings of a broader in-progress research on the working poor in Canada. Results of this broader research have not been released yet. However, a draft of the first article entitled “A Profile of the Working Poor in Canada” is available at the following address: <http://cerf.mcmaster.ca/conferences/June2004/fortin.pdf>.

  2. Karabegoviæ, Amela (May 2003).

  3. The Canadian Policy Research Networks define a low-paid worker as someone who works full time throughout the year but who earns less than $20,000.

  4. All statistical information in this article is based on the authors’ calculations using the master files of the Survey of Labour and Income Dynamics, 2001.

  5. For the purpose of this empirical study from which this article is drawn, the authors define low-income workers as follows.

    Period analyses: Individuals aged 18 to 64 who are not full-time students, have worked a minimum of 910 hours for pay and who, using their disposable family income, cannot purchase the market basket of goods and services specified by the Market Basket Measure (MBM) during the year in question.

    Longitudinal analyses: Individuals aged 18 to 64 who are not full-time students, have worked a minimum of 910 hours for pay and whose disposable family income does not exceed Statistics Canada’s after-tax low income cut-off during the year in question.

    For the purpose of the longitudinal analysis, the authors had to change the measurement of low income in order to identify low-income workers since the MBM thresholds are not available prior to 2000. However, they conducted tests to determine the soundness of results for 2001 and found that, although the number of low-income workers is higher when the MBM is used, the profile for low-income workers is very similar whether the MBM is used or the after-tax low income cut-off.

  6. In this article, “other workers” refers to individuals aged 18 to 64 who are not full-time students and have worked at least 910 hours for pay during the year but do not have a low family income.

  7. Research has led to the identification of certain groups who are particularly at risk of experiencing long periods of low income, exclusion from the labour market or social marginalization in Canada. These groups are lone parents, Aboriginal peoples, persons who have immigrated to Canada within 10 years prior to the year in question, persons with a longterm illness or a physical or mental condition that limits their ability to work, and persons aged 45 to 64 living alone.

  8. The ratio between average disposable incomes ([57,000/34,600] = 1.6) remains fairly consistent even when adjusted to reflect family size ([33,000/20,000] = 1.65).

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2017-09-29