What is this metric and why is it important?
The destructive result of a poor income distribution is poverty. Households in poverty have benefited less from the contributions that innovation makes to prosperity and face barriers to full participation. Here we measure poverty as the portion of those earning less than 50% of the median income in a country.
How is Canada doing?
- Canada is slightly below the OECD average of 27.7%, with 25.2% of the population falling under 50% of median household income.
- When taxes and transfers are considered, the poverty rate declines by 13.1 percentage points to 12.1%.
- France, Finland, and Ireland see the greatest improvements in poverty rates through redistribution, lowering their rates by 28.8, 27.9, and 25.0 percentage points respectively.
This measure uses the OECD definition of poverty: “the ratio of the number of people (in a given age group) whose income falls below the poverty line; taken as half the median household income of the total population.” An important piece of this calculation is the definition of income, which can refer to income before or after taxes and is calculated on the household level.
A drawback of this definition is that by its nature it is hard to push down, given that median income is a moving target. This metric measures how well you fare relative to your neighbours, capturing inequality as much as poverty, while the Statistics Canada definition views poverty as not having access to a sufficient basket of basic goods.