Many barriers between assistance and a job

The authors of a new study are calling on provincial governments to raise the income threshold that those on social assistance can earn through employment before the help they receive is clawed back. The Montreal Economic Institute (MEI) sees the move as a way to help deal with the shortage of worke

Last updated on May 03, 23

Posted on Mar 16, 23

5 min read

The authors of a new study are calling on provincial governments to raise the income threshold that those on social assistance can earn through employment before the help they receive is clawed back.

The Montreal Economic Institute (MEI) sees the move as a way to help deal with the shortage of workers.

According to the study, around eight per cent of Canada’s population benefit from income support programs, with 70 per cent residing in Ontario and Quebec. The study specifically looked at what it calls “unattached employable singles.” There are around 350,000 such individuals who make up 28 per cent of social assistance recipients in Canada.

Jason Dean, an associate researcher at MEI and an assistant professor of economics at King’s University College at Western University, co-authored the study. According to Dean, many people receiving social assistance, such as income support under the Ontario Works program, want to work, but the clawbacks make it hard for them to do so.

“If you’re on welfare and you decide to work full-time at the minimum wage, in Ontario you only get to keep about half of it, because you’ll lose the rest through the loss of benefits. So if you want someone to work full-time for the year, the clawbacks are really high,” said Dean, who is also an instructor at Wilfrid Laurier University.

In Ontario, for the first three months that someone is on assistance, they can earn up to $200 through employment before they lose $1 for every dollar that they earn. That figure lowers to 50 per cent starting in the fourth month.

“Someone’s not really going to want to decide to work if they’re giving up almost half of it in the form of loss of benefits. A lot of them basically, it just seems economically senseless to want to work. There’s something that needs to be done. This has been an issue for quite a while – it’s a well-known issue,” Dean explained.

The study examined what it calls the participation tax rate, or what they would be giving up in benefits, plus the amount that comes off earnings, including taxes, employment insurance and Canada Pension Plan payments.

According to that calculation, an unattached employable single person working part-time in Ontario would lose 40.2 per cent of their earnings, while someone working full-time would lose 50.7 per cent.

While he is calling for a higher income threshold and a lower clawback rate, Dean says it is difficult to determine the optimal level.

“I would say at least they should have been indexed to inflation. Definitely, if they were doubled, that would be good. And then definitely, the clawback should maybe be something more like 25 per cent. There’s still an overall problem with the whole system that needs to be fixed.”

Roger Gilbert, an employment and income services manager for the Region of Waterloo’s community services department, said he has heard from many people he works with that social assistance rates are not high enough. He notes, the rules are in place to encourage people to seek employment.

“[They] are really intended to encourage people to seek employment and not to have it become a question of, ‘is it worth it to look for employment?’” said Gilbert.

However, according to Aleksandra Petrovic, executive director of the Social Development Centre Waterloo Region, clawbacks have the opposite effect.

“People are not motivated or empowered to leave social assistance in this way,” she said.

“They are being kept within the cycles of poverty because they have no hope or confidence to leave social assistance due to other benefits, their health, their mental health, housing support and all other pieces that are part of the support for people in social assistance. They actually stay trapped and they simply cannot imagine what it would look like in the labour market.”

Gilbert explained that even though direct supports are clawed back when someone becomes ineligible, other supports, such as health benefits, can continue.

“We obviously do want people to get back into the workforce and be able to earn enough money. It’s acknowledging that if you become ineligible because of your earnings, there’s still an opportunity to obviously continue to provide some extended [support] for a period of time,”  he explained.

The Canada Workers Benefit is another program for low-income earners. Under the program, taxpayers can receive a refundable tax credit in their tax return, up to $1,428 for single individuals earning less than $23,495. This gradually reduces until someone earns $33,015 annually, at which point the benefit is removed entirely. Families can receive up to twice the amount of individuals if their income is less than $26,805. The benefit is eliminated once a family’s net income reaches $43,212.

Although Dean said there is an economic theory behind the idea, there are flaws with the program.

“If you have this wage subsidy at the lower income, so incomes under a certain amount, you provide a subsidy, and then that’s supposed to entice them to want to work more. There’s two big problems with it. They don’t get that benefit until the end of the year and it’s bundled up in a tax return, which probably not many of them don’t even know what it is they’re getting the money for. And the reward is too far disconnected from when the decision is to work,” he said.

Petrovic said the development centre advocates for a basic income for everyone.

“First and foremost, we would need to support people who are currently living on social assistance or minimum wage. They do not have resources for a decent life….We are doing a disservice to the whole society by not supporting people to be stable, healthy, and to feel safe, which they don’t feel today,” she said.

Ontario previously tested a basic liveable income pilot in several municipalities across the province under the Kathleen Wynne’s Liberal government. The program provided $16,989 per year for a single person and $24,027 per year for a couple, minus $0.50 for every dollar earned through employment. This was intended to be a three-year program, however, current Premier Doug Ford cancelled it in 2019 before any data were analyzed.

The cancellation was “ill-advised,” Petrovic said.

According to Dean, while there may still be some social assistance receivers who would not want to work even if they had a high salary, something needs to be done.

“Certainly, the way it is now, you got to do something about it. Because we need people, we need workers, we need to help alleviate the issues of labour shortages,” he said.

Petrovic calls questions about whether someone would try to take advantage of the social assistance system “not appropriate.”

“Those are persisting, outdated, criminalizing punitive, colonizing myths about or prejudice about people that the mainstream considers ‘lesser than,’” she said.

There are other things that need to be looked at in the discussion of “rigging the system,” she added.

“Let’s talk about financialization of housing. Let’s talk about real estate. Let’s talk about the investment industry, hedge funds, tax evasion.”

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