How to Calculate the Costs of Poverty in Canada: Comment on the Nathan Laurie Approach and Recommended Improvements

In 2008, Nathan Laurie calculated the costs of poverty in Canada and Ontario for the first time. Since then, several researchers have used the approach he developed to calculate the costs of poverty for most of the Canadian provinces. This research has had a substantial impact on the thinking of the public and policy makers around poverty and poverty reduction in Canada. In this working paper, we distill the central tenants of Laurie’s approach and recommend several improvements that can be made to it. In effect, Laurie’s approach works with readily available data to answer the counterfactual question: what would the savings and gains be to individuals and society if we raised the standard of living of the poor to the modest level achieved by the second income quintile or higher? In several places, however, his approach results in estimates of costs that are insensitive to changes in widely recognized measures of poverty, including Canada’s new Official Poverty Line, otherwise known as the Market Basket Measure (MBM). In the latter sections of this paper, we reproduce Laurie’s original calculations and contrast these with results based on our own recommendations in the same year. Our recommendations generate comparable results.