Academic journal article International Journal of Comparative Sociology

Transfers Matter Most: How Changes in Transfer Systems of Canada and the United States Explain the Divergence in Household Poverty Levels from 1974-1994

Academic journal article International Journal of Comparative Sociology

Transfers Matter Most: How Changes in Transfer Systems of Canada and the United States Explain the Divergence in Household Poverty Levels from 1974-1994

Article excerpt

Introduction

Three decades ago, Canada and the United States shared almost identical relative poverty and inequality levels. Yet, despite experiencing similar macrolevel social and economic transformations from 1974 to 1994, (1) the two countries have experienced diametrically opposite trends in relative household poverty. While levels of poverty increased in the United States during this period, Canada has experienced declining household poverty. Several institutional economists in the United States have utilized the comparative case of Canada to emphasize the important role of one kind of institution for explaining differences in poverty or inequality rates at one point in time. (2) These economists have presented compelling evidence that institutional differences, and not broader cultural or economic differences, explain the poverty and inequality differences between Canada and the United States in the late 1980s. These institutional differences include unionization policies and social welfare packages. Yet, despite the importance of these institutional differences for explaining differences in poverty or inequality levels at one point in time, my analysis of Luxembourg Income Survey (LIS) data on Canada and the United States over this period clearly demonstrates that it is the different ways each country has reformed their transfer systems over this period, and not other institutional differences or reforms, that comprehensively explain the divergent trends in relative household poverty rates from 1974 to 1994. My analysis utilizes harmonized LIS data to identify the relative explanatory strength of different facets of the transfer systems for explaining the divergence in poverty from 1974-1994. Surprisingly, the breakdown analysis reveals that the divergent trends can largely be explained by differences in the structure and reform of each country's Social Retirement benefits, a factor not mentioned as an explanatory factor in the previous literature. Differences in other "Social Insurance" transfers and "Means-Tested" benefits together also help explain the divergence in poverty trends, but with less power than expected. The increased effectiveness of the Canadian transfers for reducing its relative household poverty rate compared to the American system over this period has consequences for explaining divergence in inequality and possibly health outcomes and other measures of well-being between these two countries.

Literature Review: Explaining United States and Canadian Differences at One Point in Time

Past comparative cross-national Canadian-U.S. research has largely focused on explaining differences in poverty and inequality at a specific point in time. This research compellingly argues that institutional differences in unionization policies and social safety nets between Canada and the United States explain differences in union coverage rates, inequality, and poverty.

Unionization Policy Matters

Previous research has proposed that differences in poverty and inequality rates between Canada and the United States can be explained, in part, by differences in labor policies related to unionizing. This research suggests that Canada and U.S. labor policy differences, especially concerning workers' rights to organize and management's ability to block union organizing, played a critical role in observed differences in rates of union coverage between the two countries in the late 1980s. Economist W. Craig Riddell (1993) utilizes data from multiple comparable data sources to examine possible explanations for lower levels of union coverage in the United States. These potential explanations include differences in desire to unionize, changing economy and labor force, management opposition, and the legal regime (Riddell 1993: 15). Riddell's analysis of comparable social attitude data casts serious doubt on Lipset's (1990) hypothesis that the unionization gap between Canada and the United States could be explained by underlying social value differences between Canadians and Americans. …

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