Sensitivity of the Index of Economic Well-Being to Different Measures of Poverty: LICO vs LIM

Brendon Andrews

No 2015-10, CSLS Research Reports from Centre for the Study of Living Standards

Abstract: This report uses an exercise similar to comparative statics to show that the growth rate of the Index of Economic Well-being (IEWB) for 1981-2011 was much greater when poverty was measured using Statistics Canada’s Low Income Cut-Offs (LICOs) than it was when poverty was measured using Statistics Canada’s Low Income Measures (LIMs). The LICO, an absolute definition of poverty, also exhibited greater cyclical variation than the LIM, a relative definition of poverty. The IEWB appears to reflect these trends. Real income growth was determined to be a key factor in explaining these trends because absolute poverty lines remain fixed while relative poverty lines shift in response to changes in real income. The report concludes that there is a significant difference in the growth rate of the IEWB between measures, although not as large as it would be in the absence of linear scaling methodology. Consequently, the use of the LIM instead of the LICO results in a downward bias on economic well-being growth in Canada. The choice of the ‘appropriate poverty measure’ therefore has significant consequences for the discussion of trends in economic well-being.

Keywords: Poverty; Poverty Gap; LICO; LIM; Poverty Ratio; Well-Being; Economic Security; Equality; Index; Canada; Provinces (search for similar items in EconPapers)
JEL-codes: I30 I31 I32 I39 N32 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-hap
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Citations: View citations in EconPapers (3)

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