Fighting Poverty in Québec - Guaranteed Minimum Income versus Wage Subsidies

Fighting Poverty in Québec :

Guaranteed Minimum Income versus Wage Subsidies

Nicholas-James Clavet, Jean-Yves Duclos, Guy Lacroix

CIRPÉE, CIRANO, Université Laval

IRPP-CLSRN ConferenceInequality in Canada : Driving Forces, Outcomes and Policy

Ottawa, 24–25 February 2014

1/15

Political Context

Bill 112, 2007 "An Act to Combat Poverty and Social Exclusion"

«The object of this Act is to guide the Government of Québec andsociety as a whole towards a process of planning and implementingactions to combat poverty, prevent its causes, reduce its effects onindividuals and families, counter social exclusion, and strive towards apoverty-free Québec.»

2/15

Political Context

Bill 112, 2007 "An Act to Combat Poverty and Social Exclusion"

«The object of this Act is to guide the Government of Québec andsociety as a whole towards a process of planning and implementingactions to combat poverty, prevent its causes, reduce its effects onindividuals and families, counter social exclusion, and strive towards apoverty-free Québec.»

Comité consultatif de lutte contre la pauvreté et l’exclusion sociale

«The CCLP is a public agency whose main mission is to advise theMinister responsible for application of the Act . . . and to present theMinister with its comments and recommendations. »

2/15

CCLP Report 2009

Recommandation # 1 :

The CCLP recommends that, as a first step, baseline financial support be set at80% of (Statistics Canada’s) Market Basket Measure (MBM) for every adult (18and over).

Recommandation # 2 :

The CCLP recommends that individuals who work an average of 16 weekly hoursat the minimum wage have a disposable income that is no lower than the MarketBasket Measure.

3/15

Goals

Ex ante evaluation written for the Ministère de la solidarité sociale.Estimate a structural discrete choice labour supply model ;Simulate the impact of Recommendations #2 and # 13 ;Simulate other more or less generous potential policies ;Compute the cost of each scenario.

4/15

Scenarios :

1 CCLP :Baseline support at 80% of Market Basket Measure.Individuals who work an average of 16 weekly hours at the minimum wagehave a disposable income equivalent to the Market Basket Measure.

2 Change the 80%-100% MBM cut-off from 16 hours per week to30.

3 Raise the financial support to 100% of the MBM to everyone,irrespective of hours of work.

4 Provide a 3$/hour subsidy to individuals who find a job and workat least 30 hours per week (SSP, Action Emploi 2002).

5/15

Scenarios :

0

4000

8000

12000

16000

20000

5 10 15 20 25 30 35 40 45 50

Net

Ear

ning

s

Weekly Hours of Work

5/15

Scenarios :

0

4000

8000

12000

16000

20000

5 10 15 20 25 30 35 40 45 50

Net

Ear

ning

s


CC

LP T

hres

hold

= 1

6

CCLP with Threshold at 16 hours

5/15

Scenarios :

0

4000

8000

12000

16000

20000

5 10 15 20 25 30 35 40 45 50

Net

Ear

ning

s


CC

LP T

hres

hold

= 1

6

CC

LP T

hres

hold

= 3

0



16967

13573

5/15

Scenarios :

0

4000

8000

12000

16000

20000

5 10 15 20 25 30 35 40 45 50

Net

Ear

ning

s


CC

LP T

hres

hold

= 1

6

CC

LP T

hres

hold

= 3

0



CCLP with 100% MBM16967

13573

5/15

Scenarios :

0

4000

8000

12000

16000

20000

5 10 15 20 25 30 35 40 45 50

Net

Ear

ning

s


CC

LP T

hres

hold

= 1

6

CC

LP T

hres

hold

= 3

0



CCLP with 100% MBM16967

13573

3$/hour subsid

y

5/15

Estimation Strategy

6/15

Estimation Strategy

0

4000

8000

12000

16000

20000

5 10 15 20 25 30 35 40 45 50

Net

Ear

ning

s


16967

13573

6/15

Estimation Strategy

Empirical approach1 Compute net earnings at each discrete interval for each individual using the

Canadian Tax and Credit Simulator (CTaCS), Milligan (2008)2 Estimate a discrete choice model based on individual budget sets3 Compute net earnings at each discrete interval for every individual under each

scenario4 Compute optimal choice for each individual

7/15

Data : Statistics Canada’s Social Policy Simulation Database (SPSD/M), 2004

Descriptive StatisticsVariables Single men Single women Single mothers

Mean Std-dev Mean Std-dev Mean Std-devAge 38.08 11.23 43.12 13.29 40.96 8.13Weekly hours of work 34.51 13.70 27.53 15.73 28.02 14.86Earnings ($1000) 43.42 66.23 23.42 34.86 21.45 16.84Non-labor earnings ($1000) 4.39 32.60 3.57 10.01 3.01 4.86Hourly wage rate ($) 16.51 5.14 14.50 4.09 14.75 3.99# Children 0–18 1.72 0.95Have preschool children 0.18 0.38Sample size 1 809 831 391Sample weights 385 962 265 469 100 669Census weights 327 246 291 841 186 966

8/15

Model Fit for Different Samples

[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[ [52, 60[

ObservedPredicted

Predicted/Observed Hours of Work Single Men

Weekly hours of work

Perc

enta

ge

010

2030

4050

60

(a) Single Men

[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[

ObservedPredicted

Predicted/Observed Hours of Work Single Women


Perc

enta

ge

010

2030

4050

60

(b) Single Women

[0, 5[ [5, 15[ [15, 25[ [25, 35[ [35, 45[ [45, 55[

ObservedPredicted

Predicted/Observed Hours of Work Single Mothers


Perc

enta

ge

010

2030

4050

60

(c) Single Mothers9/15

Transition Matrices of Weekly Hours of Work

Single Men

CCLP (Simulated)[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[ [52, 60[

Observed 11.63 2.11 3.98 6.08 11.04 56.24 3.65 5.28Predicted 25.34 4.74 4.26 4.9 9.36 43.85 2.94 4.55Change 13.77 2.63 0.29† -1.18 -1.68 -12.39 -0.71† -0.73†

80%-100% Cut-Off from 16 to 30 hours (Simulated)Observed 11.63 2.11 3.98 6.08 11.04 56.24 3.65 5.28Predicted 25.79 3.84 4.12 4.96 9.45 44.31 2.96 4.57Change 14.16 1.74 0.14† -1.12 -1.59 -11.93 -0.68† -0.71†

10/15


Single Women

CCLP (Simulated)[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[

Observed 25.53 1.6 4.68 6.67 12.49 46.48 2.54Predicted 38.18 3.53 4.94 5.75 9.81 35.78 2.0Change 12.64 1.93 0.26† -0.92 -2.68 -10.69 -0.54

80%-100% Cut-Off from 16 to 30 hours (Simulated)Observed 25.53 1.6 4.68 6.67 12.49 46.48 2.54Predicted 38.51 2.97 4.7 5.79 9.95 36.08 2.01Change 12.97 1.37 0.02† -0.88 -2.54 -10.4 -0.53

10/15


Single Men100% MBM (Simulated)

[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[ [52, 60[Observed 11.63 2.11 3.98 6.08 11.04 56.24 3.65 5.28Predicted 33.66 4.37 3.68 4.42 8.52 38.52 2.62 4.22Change 22.03 2.26 -0.30† -1.66 -2.52 -17.72 -1.03 -1.06

With 3$/hour Subsidy : Inactive : 11.63% TotalPredicted 8.37 0.0 0.0 0.0 0.34† 2.41 0.3† 0.22† 11.63Change -3.26 0.0 0.0 0.0 0.34† 2.41 0.3† 0.22†

11/15


Single Women100% MBM (Simulated)

[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[Observed 25.53 1.6 4.68 6.67 12.49 46.48 2.54Predicted 44.95 3.41 4.18 5.23 8.66 31.82 1.76 .Change 19.41 1.80 -0.5 -1.44 -3.83 -14.66 -0.78

With 3$/hour Subsidy : Inactive 25.53%Predicted 21.5 0.0 0.0 0.0 0.71 3.12 0.21† 25.53Change -4.04 0.0 0.0 0.0 0.71 3.12 0.21†

11/15

Impact of CCLP Recommendations, Net Earnings Percent.

Table 4: Simulated Impact of the CCLP Recommendation on Hours of Work, by Net Earnings PercentilesTotal 0–10 0–25 75-100 90–100

% Change, Intensive MarginSingle males -2.88 %*** -11.41 %*** -8.18 %*** -0.36 %*** -0.23 %***Single females -2.88 %*** -13.06 %*** -9.96 %*** -0.71 %*** -0.54 %***Single mothers -2.04 %*** -0.34 %** -1.22 %** -2.50 %*** -0.45 %***

% Change, Extensive MarginSingle males -16.11 %** -30.22 %*** -26.82 %*** -7.12 %*** -6.41 %***Single females -17.74 %** -29.21 %*** -30.10 %*** -10.06 %*** -6.00 %***Single mothers -4.28 %*** 6.74 % -6.03 %*** -3.49 %** -1.61 %***

% Change, TotalSingle males -19.00 %*** -41.64 %** -35.00 %** -7.48 %** -6.64 %**Single females -20.62 %*** -42.26 %** -40.06 %** -10.78 %** -6.54 %**Single mothers -6.32 %*** -7.08 %*** -7.25 %*** -5.98 %*** -2.07 %***

** Statistically significant at 5%. *** Statistically significant at 1%.

24

12/15

Estimated Cost of the CCLP Recommendation, With and Without Labor SupplyAdjustments (Thousands 2004 $)

Item Single men Single Women Single Mothers Total Per Capita

No Behavioural Adjustments

Government Cost 229 769 178 108 51 826 459 703 611Cost per capita 595 671 515 611

With Behavioural Adjustments

Federal Income Taxes -172,600*** -87,020*** -13,166*** -272,786*** -363***Provincial Income Taxes -189,100*** -90,189*** -14,475*** -293,764*** -391***Federal Transfers -891*** -2,712*** 798*** -2,805*** -4***Provincial Transfers 6,700*** 1,918*** 1,021*** 9,639*** 13***Social Assistance 207,600*** 111,700*** 20,857*** 340,157*** 452***QPP -85,812*** -45,610*** -6,190*** -137,612*** -183***Employment Insurance -38,083*** -20,572*** -2,670*** -61,325*** -82***CCLP 590,900*** 393,100*** 62,007*** 1,046,007*** 1,391***Cost : Provincial + Federal 1,289,829*** 747,352*** 121,184*** 2,158,365*** 2,870***

per capita 3,342*** 2,815*** 1,204***

*** Statistically significant at 1 %.

13/15

Cost of Alternative Policy Simulations (Thousands 2004 $)

Single Single Single TotalMen Women Mothers Total

CCLP recommendationCost/recipient 11,554 9,585 11,028 10,759

Income increase (%) 11.9 14.0 5.3 11.8Income decrease (%) 17.0 15.4 5.6 14.9No change (%) 71.1 70.6 89.1 73.3

CCLP with threshold at 30 HoursCost/recipient 11,446 9,494 10,489 10,632


100% of the MBMCost/recipient 15,681 13,124 11,528 14,377


3$ Wage subsidy for Non-WorkersCost/recipient 4,360 2,951 4,604 3,844

Income increase (%) 3.3 4.0 4.0 3.6Income decrease (%) 0 0 0 0No change (%) 96.7 96.0 96.0 96.4

14/15

Conclusion

1 Different variants of guaranteed minimum income (GMI) schemes have beenproposed to fight poverty ;

2 Assessment of such schemes must be made within a rigorous framework ;Assuming no labour supply adjustments, CCLP is estimated to cost $ 460million ;With labour adjustment, it would cost approximately $ 2 billion.

3 Importantly, a generous GMI may make some low-earners poorer ;4 A conditional wage subsidy has a positive impact on both the income and the

labor supply of inactive individuals.5 Financing the GMI must also be taken into consideration. Taxation may lead

to yet larger adjustments.

15/15

Fighting Poverty in Québec - Guaranteed Minimum Income versus Wage Subsidies

Documents

Transcript of Fighting Poverty in Québec - Guaranteed Minimum Income versus Wage Subsidies