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

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  • Brendon Andrews

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.

Suggested Citation

  • Brendon Andrews, 2015. "Sensitivity of the Index of Economic Well-Being to Different Measures of Poverty: LICO vs LIM," CSLS Research Reports 2015-10, Centre for the Study of Living Standards.
    • Handle: RePEc:sls:resrep:1510
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    File URL: http://www.csls.ca/reports/csls2015-10.pdf
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    References listed on IDEAS

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    1. Andrew Sharpe & Lars Osberg, 2009. "New Estimates of the Index of Economic Well-being for Canada and the Provinces, 1981 - 2008," CSLS Research Reports 2009-10, Centre for the Study of Living Standards.
    2. Andrew Sharpe & Lars Osberg, 2009. "New Estimates of the Index of Economic Well-being for Selected OECD Countries, 1981 - 2007," CSLS Research Reports 2009-11, Centre for the Study of Living Standards.
    3. Lars Osberg, 2009. "Measuring Economic Security in Insecure Times: New Perspectives, New Events, and the Index of Economic Well-being," CSLS Research Reports 2009-12, Centre for the Study of Living Standards.
    4. Lars Osberg & Andrew Sharpe, 2011. "Beyond GDP: Measuring Economic Well-Being in Canada and the Provinces, 1981-2010," CSLS Research Reports 2011-11, Centre for the Study of Living Standards.
    5. Lars Osberg & Andrew Sharpe, 2010. "The Index of Economic Well-Being," Challenge, Taylor & Francis Journals, vol. 53(4), pages 25-42.
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    Cited by:

    1. Kimberly Wong & Alex Stephens & Andrew Sharpe, 2020. "The Index of Economic Well-being for Newfoundland and Labrador, 1981-2018," CSLS Research Reports 2020-05, Centre for the Study of Living Standards.
    2. Shannon Kindornay & Centre for the Study of Living Standards, 2015. "Canada 2030: An Agenda for Sustainable Development," CSLS Research Reports 2015-02, Centre for the Study of Living Standards.
    3. Jasmin Thomas & James Uguccioni, 2016. "A Tepid Recovery: The Index of Economic Well-Being for Canada and the Provinces, 1981-2014," CSLS Research Reports 2016-05, Centre for the Study of Living Standards.

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    More about this item

    Keywords

    Poverty; Poverty Gap; LICO; LIM; Poverty Ratio; Well-Being; Economic Security; Equality; Index; Canada; Provinces;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I39 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Other
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-

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