The debate about the most effective way to reduce poverty revolves around striking the appropriate balance between a “benefits strategy” and a “work strategy.” The debate hinges on the apparent trade-off between ensuring adequate income assistance for those in need, while providing incentives for people to work and be self-sufficient.
As noted in an OECD report, “While poverty rates among people belonging to this group depend on a range of factors, the most important is whether household members have a paid job.”2 Canadians of working-age who live in households where no one works have a poverty rate of 66 per cent—five times the Canadian average for this age group. Having a paying job is no guarantee against poverty, however. People living in households with one worker account for 45 per cent of the income poor in Canada, while households with two or more workers still account for a staggering 23 per cent of this group.
The relationship between social spending and poverty rates is striking. Among the working-age population, relative poverty rates are lowest in countries where social spending (as a percentage of GDP) is the highest. One study concluded that the combined effect of the tax and benefits systems in OECD countries lifts more than half of the at-risk population out of relative3 income poverty.4 A minimum benefit is certainly needed to ensure those who are unemployed are not in a state of financial and social distress.
But joblessness and continued reliance on benefits is a key contributing factor to elevated rates of poverty in Canada and its peer countries. Benefits that are too high remove incentives for people to seek employment, leading to greater social exclusion, poorer health, and decreased rates of generational mobility. In an OECD study of minimum wages and the tax treatment of low-wage employment, for example, it was found that tax policy measures can have a sizable impact on the net earnings available to low-wage workers, increasing the incentive for them to work rather than collect benefits.5
Countries that have reduced poverty rates have turned away from passive, benefits-only poverty reduction approaches in favour of national anti-poverty strategies that incorporate a number of “active” policies. Active policies are social policies that integrate strategies across governments, departments and service providers to reduce poverty and increase self-sufficiency. For example, active job policies may be set up to help people overcome obstacles to get jobs through a combination of
- funding jobs training
- providing child care
- introducing tax incentives for lower-paid workers