Globe and Mail Blog
Posted on Tuesday, May 29, 2012 7:13AM EDT
Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. A more detailed version of this post is available at milescorak.com by clicking here.
David Morely, UNICEF Canada’s executive director, has just issued a bold challenge. “It is clearly time for Canada to prioritize children when planning budgets and spending our nation’s resources, even in tough economic times,” he said in a press release announcing the publication of a report on child poverty.
In fact, the UNICEF Innocenti Report Card released Tuesday is the 10th in a regular series on child poverty in rich countries, each report hitting the headlines every second year or so.
UNICEF documents that, at 13.3 per cent, Canada’s child poverty rate is almost two percentage points higher than the overall national rate, and that Canada ranks 24th, in the bottom third of the 35 countries studied.
You think that’s bad, check out the US figures: at 23.1 per cent, and 34th out of 35.
It is just these sort of cross-country comparisons the structure of the report encourages: Iceland, Finland and Cyprus finish 1st, 2nd, and 3rd; the U.S., 34th, just ahead of — wait for it — Romania.
The UNICEF report spends a quite a few pages defending its methods. And for good reason. Most reports on poverty are criticized because the calculations are based upon a relative rather than an absolute poverty line. Relative poverty rates are not poverty at all, they are measures of inequality, the critique continues, and as such can never be eliminated.
An “absolute” poverty line is often said to be a line determined by the cost of buying a basket of goods associated with a minimally necessary standard of living; a “relative’ poverty line is tied to some typical level of income, and it changes through time according to what is considered typical, encouraging us to think about what it takes to participate normally in society, rather than merely “survive”.
The UNICEF report takes these concerns head-on.
The best economic theorists have taught over and over again, from Adam Smith in 1776 to Amartya Sen two hundred years later, that the distinction between “absolute” and “relative” poverty lines is a false one; there are only relative lines with disagreement on how rapidly they should be updated.
Further, the argument that poverty can’t be eliminated when it is measured in relative terms is just plain wrong, reflecting at best a misunderstanding of basic statistics.
The poverty line in each country examined by UNICEF is considered to be one-half of the median individual income in that country.
If all income earners were ordered from lowest to highest, the income earned by the individual who had as many people ranked below as above would be the median income.
Give a whole bunch more money to Mr. High Tech who is already at the very top, and inequality will increase, but the median will not change one bit because the rankings have not changed. The ‘median’ is the individual exactly in the middle, and that person is still exactly in the middle.
Poverty defined on the basis of one-half of the median is about inequality in the bottom half of the income distribution. It can be completely eliminated by not letting the poorest fall too far below those in the middle, with the median representing what it takes to participate normally in society.
The more time spent on this discussion, the less that will be devoted to examining what the report actually tells us and how UNICEF should improve future versions.
Country rankings are a valuable communication device, destined certainly to get headlines, and perhaps to shame some into action. But there is a counterproductive element to them as well.
The United States, for example, perennially appears at the bottom of these comparisons. Just what are we to make of the fact that the U.S. is ranked just ahead of last place Romania.
The message that roughly one-quarter of children live in households with incomes significantly below a typical income gets lost in the totally inappropriate juxtaposition of two countries differing so dramatically in what is typical.
Cross-country comparisons can be helpful when the contrast is potentially relevant for public policy. The best example in the report is the contrast between Canada and the U.S.: UNICEF claims that child poverty rates based upon market incomes are roughly the same in the two countries, but are 10 percentage points lower in Canada when taxes and transfers are taken into account.
All this said, try as policy makers might, but they will never change a United States into an Iceland, or frankly, for that matter, into a Canada. But they might just improve the situation of children in the U.S. compared to where it was five years ago.
But the most obvious indicator is missing from this report: how has child poverty changed in each country since the last report in this series in 2005?
Isn’t that just as relevant for American policy makers as knowing that the country ranked 34th out of 35?
It turns out that Canada’s child poverty rate of 13.3 per cent is apparently a bit lower than the 14.9 per cent published by UNICEF five or so years ago. Contrast that with the much more significant drop in the United Kingdom, a country that over this period did adopt the type of policies Mr. Morley is calling for, and you probably have a stronger case for making children more of a priority.