Still Waiting for Recovery: Recession Increases Poverty Rate in Canada

While recent headlines have proclaimed that economic recovery is proceeding full steam ahead in Canada, recovery is not the reality for far too many Canadian families. The recession created poverty for hundreds of thousands of Canadians, leaving many struggling with the recession’s continuing impact.

While standard poverty measures will not be available until 2011, new research from Citizens for Public Justice (with funding from World Vision Canada) on key economic trends reveals the deep impact of the recession on poverty and economic insecurity. Bearing the Brunt: How the 2008-2009 Recession Created Poverty for Canadian Families was released in Ottawa on Tuesday.

The recession created poverty for families as hundreds of thousands of Canadians lost their jobs. Employment Insurance (EI) failed to adequately support the unemployed, as nearly half of the unemployed did not receive benefits and those who did received a poverty income. As a result of the gap created by EI, social assistance caseloads increased across the country. Low income Canadians were also hit with a rise in the cost of living, as food prices and rent increased more than inflation. As a result, debt loads grew, bankruptcies increased and food bank use skyrocketed.

In 2007, one of the strongest economic years in the past 30 years, 9.2% of Canadians – 3 million people – lived in poverty. Our trend analysis projects that the poverty rate increased to 11.7% in 2009, adding more than 900,000 people to the population living in poverty. The child poverty rate likely increased from 9.5% in 2007 to at least 12% in 2009, an increase of 160,000 children.

The rising poverty and economic insecurity experienced by Canadian families resulted from high unemployment, inadequate EI, and rising cost of living.

Over 400,000 jobs were lost between October 2008 and October 2009. Those who were already economically vulnerable before the recession began suffered disproportionately from job loss. 1 in 4 workers making $10 an hour or less lost their job. Employees with a high school education or less, recent newcomers to Canada and Aboriginal Canadians were also more likely to lose their job.

EI is the program intended to help people who lose their job, providing income based on previous salary or wages to bridge people between jobs. But EI was an utter failure in responding to the ravages of the recession. While EI coverage rose throughout the course of the recession, it only reached 51% in October 2009. In other words, nearly half of the unemployed were not receiving benefits. In October 2009, this meant 777,400 unemployed Canadians were not receiving benefits.

Those who did qualify for benefits received a poverty income – average EI benefits are below the poverty line. So unless they had another household source of income, recipients were living in poverty. As length of unemployment increased, the length of benefits became increasingly too short. As many as 500,000 Canadians may have exhausted their benefits without finding new work in late 2009 and early 2010.

Canadian families without employment income or EI needed to live off of savings and credit, or turn to social assistance. In fact, social assistance directly filled in the gaps for EI, as caseloads increased the most in the provinces with the lowest EI coverage. While EI has problems, it is preferable to social assistance since it is far less stigmatizing and controlling of people’s lives. Social assistance also requires recipients to get rid of all assets and savings, making it harder for people to get back to employment.

Social assistance caseloads increased in every province, but Alberta, Ontario and British Columbia were particularly hard hit. Welfare caseloads in these provinces rose more than 20%. The number of children receiving social assistance increased in all provinces with available data, while the number of families increased in all provinces but one.

While hundreds of thousands of Canadian families saw their income cut, they also had to stretch their meagre incomes farther as the cost of living increased in 2009. Food prices across the country rose 4.9%, compared to core inflation of 0.3%. Average rent for a two-bedroom apartment grew 2.3% between October 2008 and October 2009, compared to core inflation over this period of 0.1%.

The rise in poverty and economic insecurity had an immediate, visible impact. Average debt load per household increased, as Canadians struggled with declining incomes and rising costs. Bankruptcies increased 36.4% between the third quarter of 2008 and the third quarter of 2009. Food bank use experienced its largest ever recorded increase, growing 18% between 2008 and 2009. 794,738 Canadians needed to use a food bank in March 2009.

While 2010 has brought headlines of economic recovery, the employment situation has barely budged. Unemployment has edged down only marginally, to 8.2%. Because unemployment is projected to remain high throughout 2010, it is very likely that the poverty rate will remain at or close to 11.7% for 2010.

Experience from previous recessions also provides caution. After the last recession, it took nearly 8 years for unemployment to decline to its pre-recession rate. It took 14 years for the poverty rate to return to its pre-recession level. While the focus of governments seems to be on recovery and budget cutting, there is a risk that poverty and unemployment could remain high for years to come if they do not receive attention.

It is clear from these trends that the recession’s impact is still being felt by far too many Canadian families, and could be felt for years to come. To make recovery a reality for these families, we need action to reduce and eventually eliminate poverty in Canada.

To join the call for a federal plan for poverty elimination, sign on to Dignity for All: The Campaign for a Poverty-Free Canada.

For more information, check out www.cpj.ca/bearingthebrunt.