The following OECD assessment and recommendations summarise Chapter 4 of the Economic Survey of Canada 2006 published on 26 June 2006.
Provincial governments need to promote economic independence
for low income families
Canada’s economic success also provides a strong backdrop for the task of tackling some outstanding social issues and improving equality of opportunities. Although considerable progress has been made in recent years, low income families still face very high METRs, which reduce the reward from working longer hours, taking on greater responsibilities or investing in upgrading skills. There is still scope for some provinces to reduce the cost of shifting from welfare to work by adjusting rules on the loss of benefits, including health coverage and housing. Working parents also face high METRs, as family benefits are clawed back over a range that reaches up towards the median income level. This problem is far from unique to Canada and can be difficult to tackle without shifting from means-tested to universal child benefits, but this would involve either lower benefits for low income families or high budgetary costs. The government’s new Universal Child Care Benefit enhances horizontal equity for families with children aged less than six years. It points towards one option for managing the trade-off, namely shifting away from means-testing towards universal benefits but limited to young children. Households with school-age children would then have to rely more heavily on earned income, but all families would face lower METRs. However, poverty risks remain elevated for low-paid working single-parent households: these could be attenuated through well designed in work benefits and additional help with out of school childcare costs. Further policy reform is needed to strengthen work incentives by reducing high METRs faced by lower-income families, without increasing poverty risk or putting budgets under undue pressure. And in general, the implementation of effective activation policies would help to improve employment prospects of low wage job seekers.
Relative poverty rates for jobless and working households1
Per cent, 20002
1. Poverty rates are defined as the share of individuals with equivalised disposable income less than 50% of the median for the entire population.
2. 1999 for Australia, Austria, Greece and Luxembourg; 2001 for Germany, New Zealand and Switzerland; 2002 for Mexico and Turkey.
Source: Förster, M. and M. Mira D'Ercole (2005), "Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s", Social, Employment and Migration Working Papers, Paris.
Social policies need to address the underlying causes of poverty
Economic growth over the past decade has significantly reduced the share of Canadian families with incomes below the Low Income Cut Off (LICO) level, especially those headed by a female lone parent. Nevertheless, almost 13% of children under the age of 18 are living in low-income families, with Aboriginals or immigrants forming a disproportionate share. The underlying reasons are complex but are reflected in higher rates of educational failure, health problems, family dysfunction and so forth. Tackling the underlying reasons for poverty, especially by enhancing literacy skills and continuing to promote educational attainment, will both help productivity growth and improve equity and social cohesion. In the short run, successful programmes to tackle these problems may be more expensive than just giving people income transfers. But it is an investment approach to social policy that would raise the prosperity of all Canadians in the longer run. One effective strategy to break the inter-generational cycle of poverty would be to provide the means for disadvantaged children to access parenting support services from the first months of life and high-quality early childhood education from an early age.
The option of providing free early education for three and four year olds
should be considered by provinces and territories
Canada could gain a payoff from extending free high-quality early education to all children from an earlier age – a point that has been largely overlooked in the current debate over the provision of childcare for working parents. In most Canadian provinces and territories children are offered free education only from age five, although Ontario has reasonably widespread coverage for four year-olds. This is somewhat later than in many OECD countries. Lowering the age at which free education is available would mean increasing provincial expenditure, but the available evidence indicates that early education provides a significantly higher social return than post-secondary education, which is currently more generously funded. Indeed, on several occasions in recent years, provincial governments have individually and collectively acknowledged the importance of early learning. Provinces and territories should recognise the benefits of high-quality early education with the idea of moving towards providing this service free for all three and four year olds. Although this is likely justified on its own merits, it would also reduce the need for full time childcare for working parents, lowering their weekly out of pocket costs.
Working parents need access to affordable childcare
The availability of suitable wrap-around childcare for out of school hours and high quality all-day care for young children remains a contentious issue. Childcare availability and cost can affect both the decision to take up paid work or to increase working hours, especially for mothers. However, employment rates for mothers are reasonably high, suggesting that cost may be a barrier only for lower-income households and that higher childcare subsidies overall could have significant deadweight costs. Options to provide additional assistance for low-income working parents to defray childcare costs should be examined. It is difficult to assess whether availability of suitable childcare is a separate obstacle for working parents and why the supply response has not been stronger, given reports of long waiting lists for some childcare centres. However, provinces and territories need to monitor their childcare policies carefully to ensure that they both allow supply to respond to parental preferences and avoid imposing prohibitively expensive regulatory requirements.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assesment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Canada 2006 is available from:
For further information please contat the Canada Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Deborah Roseveare and Annabelle Mourougane under the supervision of Peter Jarrett.