Income transfer programs are doing little to encourage social mobility and are in some cases trapping low-income Canadians behind low-income and welfare walls, according to a Macdonald-Laurier Institute report by former chief statistician of Canada Munir Sheikh.
In their attempts to address income inequality, governments should design policies that don’t inadvertently keep people from reaching their full economic potential. “Despite decades of lip service to the idea of eliminating welfare and low-income traps, they are still very much with us,” writes Sheikh. “Our social policies must, therefore, be reformed with an eye to eliminating this self-imposed but unconscionable and unnecessary barrier to social mobility.”
The problem, says Sheikh, is that many wealth transfer programs provide a disincentive for low-income people to move up the ladder. For example, Ontario offers specialized benefits to those who are receiving social assistance but not to those working at low incomes.
Sheikh argues tax-transfer programs are doing a poor job of fostering social mobility. Rather than helping low-income Canadians move out of poverty, these programs are providing incentives for people to rely on government benefits.
That doesn’t mean income redistribution programs can never help in increasing social mobility, he says. But they must be carefully designed to avoid trapping people who wish to work.
“Beyond simple income redistribution, done appropriately, policy should be directed at improving the ability of low-income people to acquire useful skills and to be available for work,” writes Sheikh.