Lars OsbergEconomics Department

Dalhousie UniversityApril 19, 2009

Poverty and Recessions: Nova Scotia's Vulnerable in

Tough Times

The Poverty Rate in Nova Scotia & Canada rises & falls at the same time

Because unemployment rises and falls with the business cycle

In Nova Scotia, as elsewhere, unemployment drives poverty

But there has been a big change - Poverty is much deeper now in Nova Scotia

So what’s happening to unemployment?

And now that we need a safety net…OECD Economic Outlook March 2009 http://www.oecd.org/dataoecd/18/1/42443150.pdf

2006 2007 2008 2009 2010Canada - Unemployment 6.3% 6.0% 6.1% 8.8% 10.5%

What’s there ?

UI/EI Replacement Rate – 38 years of decline The average of the gross unemployment benefit replacement rates for two earnings levels, three family situations Source: OECD, Tax-Benefit Models. http://www.oecd.org/document/3/0,3343,en_2649_34637_39617987_1_1_1_1,00.html ; The Canadian Labour Force Participation Rate Revisited: Cohort and Wealth Effects Take Hold Steven James, Tim Sargent, Russell Barnett and Claude Lavoie Working Paper 2007‐01, Finance Canada, Page 11

EI Replacement Rate: Relatively low by OECD standards

OE C D S ummary Meas ure 2005Averag e G ros s Unemployment B enefit

R eplac ement

2232 41 49

35 3924 33 35 26 34

24 3312 1312

S eries 1

Net Replacement Rate over 60 months of unemployment, 2006

Average over 4 Family types 67% and 100% of AW without Social AssistanceOECD, Tax-Benefit Models w ww.oecd.org/els/social/workincentives

0

10

20

30

40

50

60

70

Only insurable earnings up to the MIE covered by the Employment Insurance REPORT OF THE CHIEF ACTUARY TO THE EMPLOYMENT INSURANCE COMMISSION ON THE EMPLOYMENT INSURANCE PREMIUM RATE AND MAXIMUM INSURABLE EARNINGS, 2009:

2007 2008 2009

Maximum EI insurable earnings $ 40,000 41,100 42,300Proportion of claims at maximum 42.9% 43.5% 44.2%

Maximum weekly benefits $ 423 435 447 Average weekly benefits $CANSIM, table 276-0016 318 331

% of insurable earnings below MIE 41.5% 40.9% 40.4%

% of insurable earnings above MIE 58.5% 59.1% 59.6%2007 actual: 2008, 2009 estimated

The Big Problem The Big Problem – EI is – EI is muchmuch harder to get, especially since harder to get, especially since 19961996

Responding to Need (a bit)EI Eligibility & Benefit Duration March 15 - April 11, 2009

EI Regular BenefitsToronto Montreal Windsor Halifax

Unemployment Rate 8.3 8.2 12.1 5.9

Number of Insured Hours Required to Qualify 595 595 455 760Minimum Weeks Payable 23 23 29 19Maximum Weeks Payable 47 47 50 41

Unemployed Persons February 2009 267,800 98,100 38,700 13,400

Social Assistance – low & falling ATIONAL COUNCIL OF WELFARE: WELFARE INCOMES 2005

Poverty is NOT inevitable

How much of market income would it take to completely eliminate the poverty gap ?Canada – 1.7%Nova Scotia – 1.7%Halifax – 2.1%

V25746680, v25746752, v25746914; Low income cut-offs after tax, 1992 base; Aggregate low income gap as a percentage of market income (Percent); All family units

For people who do not have much, it does not take much to make a big difference in their lives.

Canada’s total poverty gap – approximately equal to foregone revenue of 2% cut in HST/GST

Appendix G Page 81 Low Income in Canada: 2000-2006 Using the Market Basket Measure HRSDC. October 2008; Table 1, page 12 The Evolution of Poverty Measurement - with special reference to Canada Osberg (2007)

Poverty Line for 2 adult 2 child family (boy 13, girl 9) $2006 Market Basket Method

LICO IAT rural = 21,860100-499K = 28,200500K+ = 30,000

LIM after tax = 29,600

So where is the NDP?What Policies are proposed?Nova Scotia – Total buy-in to “Targeted Tax Cut”

Politics“Conservative tax hike on electricity makes life more

expensive for families”“NDP will invest in jobs for Nova Scotians by introducing a

10 per cent Nova Scotia manufacturing and processing tax credit”

Balanced Budgets ?

Tax-free Electric Energy Biggest benefits if you turn up thermostat, have huge

houseBad for environment, equity and efficiency

Tax credits have nil impact on job creation in a recession