TORONTO – Roger Martin is dean of the Rotman School of Management at the University of Toronto and James Milway is formerly executive director of the Institute for Competitiveness and Prosperity and the Rotman School’s Martin Prosperity Institute. The following is adapted from their new book, “Canada: What it is, What it Can Be.”
If Canada is to meet its maximum economic potential, individual Canadians need to be meeting theirs — and the latest numbers from the 2011 census make it clear that’s not the case.
Poverty in Canada falls mainly on six specific high-risk groups: high school dropouts, lone parents, persons with disabilities, unattached individuals between the ages of 45 and 64, recent immigrants, and Aboriginal Peoples.
Each risk group presents its own set of challenges for public policy. Let’s focus on what the census and other data tell us about single parents.
The number of lone parents and children in lone-parent families has been increasing in recent years, and families with lone parents typically experience the worst economic outcomes.
The number of single parents increased eight per cent between 2006 and 2011, including a 16 per cent spike in the number of single fathers, Statistics Canada reported Wednesday. Single mothers, who still comprise about 80 per cent of all single-parent families in Canada, increased by six per cent.
Lone-parent families are more likely to be living in poverty. Yet single parents have made the most progress in improving their circumstances; welfare policies have responded to their challenges, and they have been more involved in the labour force.
Participation rates of single mothers have risen faster than those for other Canadians. Their unemployment rate fell faster between 1995 and 2005 (after increasing fastest between 1990 and 1995). Still, despite increased participation in the labour force, lone parents trail all others in market income and after-tax, after-transfer income.
Participation and employment results differ by level of education. Single mothers who are high school dropouts have a much lower attachment to the labour force than other Canadians, with lower participation rates and higher unemployment rates.
Single mothers who are university graduates actually have slightly higher participation rates and about the same unemployment rates as other Canadian university graduates.
The key public-policy challenge is to create incentives for low-skilled single mothers that make it economically advantageous for them to find and keep employment. As we discussed elsewhere in our book, “Canada: What It Is and What It Can Be,” low-income Canadians face very high marginal effective tax rates as they move up the income ladder, to around the $20,000 mark.
A recent experiment by the Social Research and Demonstration Corporation, funded by Human Resources and Skills Development Canada (HRSDC), indicates that programs can be designed to encourage single mothers to work. The Self-Sufficiency Project, based heavily on incentives to make it economically advantageous for lone mothers to work, initially delivered positive employment results. The experiment supplemented wages for single mothers who made the transition from welfare to work.
The supplement covered the difference between the actual wage and an annual benchmark of $37,500. Early results were encouraging, improving employment outcomes and reducing welfare receipts.
However, the supplement was in effect for only three years. Once it ended, a significant percentage of the participants’ employment fell and the long-term benefits did not match the three-year costs.
The key lesson learned is that incentives can succeed in helping single parents and other low-income people find work. But the incentives must persist for the benefits to last. The experiment lends support to the positive potential of the working income tax benefit.
An individual in one or more of the high-risk groups is 3.3 times as likely as other Canadians to have insufficient income to afford the necessities of life. That likelihood increases dramatically for each risk group when the individuals are unemployed, and again when they haven’t earned a high school diploma.
For those aged 45 to 64, living alone is associated with a 25 per cent probability of living in poverty, according to our analysis of data from the 2006 census. Unattached individuals in this age group who did not obtain a high school diploma experience an even higher probability — 39 per cent — of being poor.
Canadians outside of the risk groups are much less likely to live in poverty — the probability was less than 7 per cent in 2005. It’s clear from the data that poverty is highly concentrated across these identifiable risk groups, and Canada needs to ensure that poverty-fighting initiatives are aimed at the specific challenges they face.
We need strategies that make real inroads into reducing poverty and increasing prosperity for as many Canadians as possible. It is more important to focus on public policy that reduces poverty among single parents and the other high-risk groups than to strive for greater equality by holding back opportunities for other Canadians. Since each of these groups, like single parents, is excluded from Canada’s prosperity for its own reasons, each requires its own tailored solution.
Innovative and highly focused public policies and programs must be established, with education being an important — if not the most important — solution to reducing poverty. Innovative programs such as the working income tax benefit and wage insurance can provide encouragement for individuals in high-risk groups to find work and potentially foster job creation.
We should continue to strive for the best policy initiatives for helping people escape poverty. If we are not successful in assisting individuals in these groups to move out of poverty, we are hurting our future prosperity potential.
We need the skills and capabilities of all Canadians to create economic success, and we cannot afford to ignore people in these high-risk groups. If Canada succeeds in realizing its full economic potential by pursuing focused and innovative solutions for addressing poverty, more Canadians will contribute to and participate in the rewards of enhanced prosperity.
Adapted from Canada: “What It Is, What It Can Be,” Rotman-UTP Publishing, by Roger Martin and James Milway.