Fighting Poverty in Qubec :

Guaranteed Minimum Income versus Wage Subsidies

Nicholas-James Clavet, Jean-Yves Duclos, Guy Lacroix
CIRPE, CIRANO, Universit Laval
IRPP-CLSRN Conference
Inequality in Canada : Driving Forces, Outcomes and Policy
Ottawa, 2425 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 Qubec and
society as a whole towards a process of planning and implementing
actions to combat poverty, prevent its causes, reduce its eects on
individuals and families, counter social exclusion, and strive towards a
poverty-free Qubec.
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 Qubec and
society as a whole towards a process of planning and implementing
actions to combat poverty, prevent its causes, reduce its eects on
individuals and families, counter social exclusion, and strive towards a
poverty-free Qubec.
Comit consultatif de lutte contre la pauvret et lexclusion sociale
The CCLP is a public agency whose main mission is to advise the
Minister responsible for application of the Act . . . and to present the
Minister with its comments and recommendations.
2/15
CCLP Report 2009
Recommandation # 1 :
The CCLP recommends that, as a rst step, baseline nancial support be set at
80% of (Statistics Canadas) Market Basket Measure (MBM) for every adult (18
and over).
Recommandation # 2 :
The CCLP recommends that individuals who work an average of 16 weekly hours
at the minimum wage have a disposable income that is no lower than the Market
Basket Measure.
3/15
CCLP Report 2009
Recommandation # 1 :
The CCLP recommends that, as a rst step, baseline nancial support be set at
80% of (Statistics Canadas) Market Basket Measure (MBM) for every adult (18
and over).
Recommandation # 2 :
The CCLP recommends that individuals who work an average of 16 weekly hours
at the minimum wage have a disposable income that is no lower than the Market
Basket Measure.
3/15
Goals
Ex ante evaluation written for the Ministre de la solidarit 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 wage
have a disposable income equivalent to the Market Basket Measure.
2
Change the 80%-100% MBM cut-o from 16 hours per week to
30.
3
Raise the nancial support to 100% of the MBM to everyone,
irrespective of hours of work.
4
Provide a 3$/hour subsidy to individuals who nd a job and work
at least 30 hours per week (SSP, Action Emploi 2002).
5/15
Scenarios :
0
4000
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12000
16000
20000
5 10 15 20 25 30 35 40 45 50
N
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E
a
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Weekly Hours of Work
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Scenarios :
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4000
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12000
16000
20000
5 10 15 20 25 30 35 40 45 50
N
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Weekly Hours of Work
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at 16 hours
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Scenarios :
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5 10 15 20 25 30 35 40 45 50
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Scenarios :
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5 10 15 20 25 30 35 40 45 50
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at 16 hours
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0
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CCLP with 100% MBM
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Scenarios :
0
4000
8000
12000
16000
20000
5 10 15 20 25 30 35 40 45 50
N
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Weekly Hours of Work
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0
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CCLP with 100% MBM
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Scenarios :
0
4000
8000
12000
16000
20000
5 10 15 20 25 30 35 40 45 50
N
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a
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Weekly Hours of Work
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CCLP with 100% MBM
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Estimation Strategy
6/15
Estimation Strategy
6/15
Estimation Strategy
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Estimation Strategy
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Estimation Strategy
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Estimation Strategy
0
4000
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5 10 15 20 25 30 35 40 45 50
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Weekly Hours of Work
16967
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6/15
Estimation Strategy
Empirical approach
1
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 sets
3
Compute net earnings at each discrete interval for every individual under each
scenario
4
Compute optimal choice for each individual
7/15
Data : Statistics Canadas Social Policy Simulation Database (SPSD/M), 2004
Descriptive Statistics
Variables Single men Single women Single mothers
Mean Std-dev Mean Std-dev Mean Std-dev
Age 38.08 11.23 43.12 13.29 40.96 8.13
Weekly hours of work 34.51 13.70 27.53 15.73 28.02 14.86
Earnings ($1000) 43.42 66.23 23.42 34.86 21.45 16.84
Non-labor earnings ($1000) 4.39 32.60 3.57 10.01 3.01 4.86
Hourly wage rate ($) 16.51 5.14 14.50 4.09 14.75 3.99
# Children 018 1.72 0.95
Have preschool children 0.18 0.38
Sample size 1 809 831 391
Sample weights 385 962 265 469 100 669
Census weights 327 246 291 841 186 966
8/15
Model Fit for Dierent Samples
[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[ [52, 60[
Observed
Predicted
Predicted/Observed Hours of Work
Single Men
Weekly hours of work
P
e
r
c
e
n
t
a
g
e
0
1
0
2
0
3
0
4
0
5
0
6
0
(a) Single Men
[0, 4[ [4, 12[ [12, 20[ [20, 28[ [28, 36[ [36, 44[ [44, 52[
Observed
Predicted
Predicted/Observed Hours of Work
Single Women
Weekly hours of work
P
e
r
c
e
n
t
a
g
e
0
1
0
2
0
3
0
4
0
5
0
6
0
(b) Single Women
[0, 5[ [5, 15[ [15, 25[ [25, 35[ [35, 45[ [45, 55[
Observed
Predicted
Predicted/Observed Hours of Work
Single Mothers
Weekly hours of work
P
e
r
c
e
n
t
a
g
e
0
1
0
2
0
3
0
4
0
5
0
6
0
(c) Single Mothers
9/15
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 5.28
Predicted 25.34 4.74 4.26 4.9 9.36 43.85 2.94 4.55
Change 13.77 2.63 0.29

-1.18 -1.68 -12.39 -0.71

-0.73

80%-100% Cut-O from 16 to 30 hours (Simulated)

Observed 11.63 2.11 3.98 6.08 11.04 56.24 3.65 5.28
Predicted 25.79 3.84 4.12 4.96 9.45 44.31 2.96 4.57
Change 14.16 1.74 0.14

-1.12 -1.59 -11.93 -0.68

-0.71

10/15
Transition Matrices of Weekly Hours of Work
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 2.54
Predicted 38.18 3.53 4.94 5.75 9.81 35.78 2.0
Change 12.64 1.93 0.26

-0.92 -2.68 -10.69 -0.54

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

-0.88 -2.54 -10.4 -0.53

10/15
Transition Matrices of Weekly Hours of Work
Single Men
100% 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 5.28
Predicted 33.66 4.37 3.68 4.42 8.52 38.52 2.62 4.22
Change 22.03 2.26 -0.30

-1.66 -2.52 -17.72 -1.03 -1.06

With 3$/hour Subsidy : Inactive : 11.63% Total
Predicted 8.37 0.0 0.0 0.0 0.34

2.41 0.3

0.22

11.63
Change -3.26 0.0 0.0 0.0 0.34

2.41 0.3

0.22

11/15
Transition Matrices of Weekly Hours of Work
Single Women
100% 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 2.54
Predicted 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

25.53
Change -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 Percentiles
Total 010 025 75-100 90100
% Change, Intensive Margin
Single 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 Margin
Single 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, Total
Single 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 signicant at 5%. *** Statistically signicant at 1%.
24
12/15
Estimated Cost of the CCLP Recommendation, With and Without Labor Supply
Adjustments (Thousands 2004 $)
Item Single men Single Women Single Mothers Total Per Capita
No Behavioural Adjustments
Government Cost 229 769 178 108 51 826 459 703 611
Cost 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 signicant at 1 %.
13/15
Cost of Alternative Policy Simulations (Thousands 2004 $)
Single Single Single Total
Men Women Mothers Total
CCLP recommendation
Cost/recipient 11,554 9,585 11,028 10,759
Income increase (%) 11.9 14.0 5.3 11.8
Income decrease (%) 17.0 15.4 5.6 14.9
No change (%) 71.1 70.6 89.1 73.3
CCLP with threshold at 30 Hours
Cost/recipient 11,446 9,494 10,489 10,632
Income increase (%) 11.9 13.9 5.3 11.8
Income decrease (%) 16.4 15.0 5.4 14.4
No change (%) 71.7 71.1 89.4 73.9
100% of the MBM
Cost/recipient 15,681 13,124 11,528 14,377
Income increase (%) 12.2 15.5 13.7 13.5
Income decrease (%) 24.1 20.8 8.2 20.8
No change (%) 63.7 63.9 78.1 65.7
3$ Wage subsidy for Non-Workers
Cost/recipient 4,360 2,951 4,604 3,844
Income increase (%) 3.3 4.0 4.0 3.6
Income decrease (%) 0 0 0 0
No change (%) 96.7 96.0 96.0 96.4
14/15
Conclusion
1
Dierent variants of guaranteed minimum income (GMI) schemes have been
proposed to ght poverty ;
2
Assessment of such schemes must be made within a rigorous framework ;
Assuming no labour supply adjustments, CCLP is estimated to cost $ 460
million ;
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