Testing the Validity of the Ontario Deprivation Index

What is a deprivation index? Since the late 1800s, many different ways of measuring poverty have been developed. Beginning in the 1960s and continuing until the last decade, Canada generally used the Low Income Cut-Offs (LICOs) to measure poverty based on what an average family spent on food, shelter and clothing. The LICOs have now been supplemented by two additional measures, which are becoming more widely used. One is the Low-Income Measure (LIM) based on a percentage of median income – 40 or 50 percent of median income, called the LIM40 or LIM50 respectively. The other is the Market Basket Measure (MBM) which attempts to reflect the cost of a basket of goods and services deemed necessary in a modern country such as Canada. All of these ways of measuring poverty have differing advantages and disadvantages, which we will discuss in detail in a future paper, but what they all have in common is the use of income to measure poverty. Each implicitly claims that a family below a certain amount of income is likely to be experiencing a poverty-level standard of living. Yet we know from everyday experience that households may require differing amounts of income. Households have not only income but wealth – positively in the form of assets or negatively in the form of debts. Households have many specia