A Difficult Puzzle Social Assistance Caseloads in the Great Depression and Three Major Post-war Recessions John Stapleton Open Policy May 3, 2012
The Puzzle The Great Recession of 2008-09 is understood to be the largest and steepest economic downturn since the Great Depression It could be expected that social assistance caseloads would be highest during the Depression and in the recent downturn However, this is not the case A Difficult Puzzle 2
The Puzzle The total increase in percentage of population receiving social assistance starting in October 2008 (beginning of the recession) is one percentage point from 5.5% to 6.5% of Ontario's population This makes the Great Recession of 2008-09 roughly equal to the recession of 1980-82 in welfare caseload growth terms (4.5% to 5.2%). A Difficult Puzzle 3
The Puzzle But the 1990-92 recession most resembles the Great Depression of the 1930 s in terms of social assistance recipiency. The puzzle to solve is why, from a welfare perspective, the two big caseload run ups were in the Great Depression (15.5% of population in April 1933) and the 1990-92 recession (13.9% of population in March 1994). A Difficult Puzzle 4
18 Percent of Population receiving Social Assistance in Ontario: Peak Caseloads in the Great Depression and Three Major Recessions 16 14 12 10 8 6 4 2 0 April 1933 December 1983 March 1994 November 1011 A Difficult Puzzle 5
18 Change in % of Population on Social Assistance in Ontario: Before Major Downturns to Peak Caseloads in the Great Depression and Three Major Recessions 16 14 12 10 8 6 4 2 0 1930 1933 1981 1983 1988 March 1994 Oct. 2008 Nov. 2011 A Difficult Puzzle 6
The Wrong Explanation? Level of unemployment doesn't solve the puzzle as unemployment stood at 10.4% of population in 1983 when 5.2% of population received social assistance, with unemployment rates almost as high as in 1992 and 1993 (10.8% and 10.9% respectively). EI changes don't solve the puzzle as EI was much easier to get in the early 1990's than it is now. A Difficult Puzzle 7
30 Percent of Population Receiving Social Assistance and Unemployment Rate in Ontario: The Great Depression & Three Major Recessions 25 20 15 10 5 0 April 1933 December 1983 March 1994 November 1011 % population on SA Unemployment rate A Difficult Puzzle 8
The Wrong Explanation? One problem is that since the late 1980 s, regressions (R2) show that there is a very strong correlation between the unemployment rate and social assistance recipiency as a percentage of population Another problem is that the correlation does not show before 1988 and cannot account for either the Great Depression or the 1980-82 recession A Difficult Puzzle 9
The Structure of Unemployment is Important Structure of unemployment = who became unemployed (age, gender, industries The recession of the early 1990s was structurally quite different from that of the early 1980s. Good quality jobs were lost in the 1990 s - quite different from what happened in the early 1980s. A Difficult Puzzle 10
The Structure of Unemployment is Important Two aspects: the average duration of unemployment (see the chart below). The average duration of unemployment was much longer in the early 1990s and the average duration of unemployment returned to pre-recession levels more quickly in the early 1980s. Second, in the early 1980s the unemployment rate peaked at a rate similar to that in the 1990s, but fell again quickly (see the second following chart). In the early 1990s it remained stubbornly high for a much longer period. The most recent recession resembles the early 1980s more than the early 1990s. By the end of 2011 the unemployment rate hadn t risen to nearly the same level it did in previous recessions. A Difficult Puzzle 11
ONTARIO Unemployment Rates and Percentage of Population on SA 1981 to 2010 14 12 P E R C E N T A G E 10 8 6 4 2 Unemployment Rate % of Population on SA A Difficult Puzzle 12
Duration of unemployment helps solve the puzzle: high in the Great Depression and in the 1990 s A Difficult Puzzle 13
Prolonged employment near 10% or more? Only in the Great Depression and early 1990 s A Difficult Puzzle 14
Other Explanations Five other changes one can point to are: 1. Increases to the minimum wage relative to social assistance rates - the single welfare rate was 70% of minimum wage in 1991 and about 36% now; A Difficult Puzzle 15
ONTARIO Annual SA Income as Percentage of Annual Income from Minimum Wage Employment Single Employable Person 1967 to 2011 80% 70% 60% 50% 40% 30% 20% 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 SA as % of Minimum Wage (37.5 hour week) A Difficult Puzzle 16
Other Explanations 2. The spectacular structural changes taking place within the caseloads - the upsurge in singles relative to continued reductions in family and sole support parent recipients would still appear to be the largest single key to solving the puzzle over the last 31 years and the three major recessions during that time. A Difficult Puzzle 17
160,000 ONTARIO: Divergence between Singles and Single Parents on OW 2000-01 to 2010-11 140,000 120,000 Crossover point 100,000 80,000 60,000 40,000 20,000 - Steady increase in number of singles until 2008-09 and dramatic increase after. - Singles increasing as a proportion of the caseload, from 40% in 1998-99 to 59% in 2010-11. - Number of single parents decreases, with slight upturn starting in 2008-09. - Single parents as a proportion of the caseload decreasing steadily from high point of 45% in 1998-99 to 30% in 2010-11. 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Singles Single Parents A Difficult Puzzle 18
Other Explanations 3. Social assistance Rates lowest in real terms in 1980 s and 2011 -Social assistance rates don't fully solve the puzzle as rates rose sharply ahead of inflation in the 1970's but did moderate somewhat in the early 1980's. Social Assistance rates were lowest in real terms in the early 1980 s and in recent years Rates were highest in the early 1990 s. A Difficult Puzzle 19
Social Assistance Rates A Difficult Puzzle 20
Other Explanations 4. Stigma: Program stigma was highest in the 1980 s and in the post Harris era and during recent times especially with questioning of cost of entitlement programs. A Difficult Puzzle 21
Other Explanations 5. Eligibility Changes: e.g. cancellation of STEP to applicants in 1990 s; Harris changes of 1995-2000 e.g. assets; rate restructuring in 2008; Changes in eligibility requirements may partially give us answers but there is not enough here to explain why the 1990's run-up almost equaled levels we only saw in the mid 1930's. Eligibility was easier in the early 1990's but only slightly easier than the early 1980's. Eligibility is much tougher now but it's also tougher to get EI. A Difficult Puzzle 22