Canada's Income Inequality: What Is It, And How Bad?

In the past year the Occupy movement and its rallying cry of “we are the 99 per cent” brought into the limelight the growing gap between the richest and poorest in the United States and the world. In December, columnist Charles M. Blow wrote in the New York Times that income inequality could be “the new global warming.”

Over the last 30 years, the distance between the richest and poorest Canadians has widened considerably. Using different income definitions will slightly change who belongs to Canada’s “one per cent” and “99 per cent,” but the basic story stays the same across a wide breadth of statistics: the richest Canadians make disproportionately more than the poorest, and, more importantly, in the last three decades income for the richest Canadians has increased far faster than it has for the poorest.

Cornell University economist Robert H. Frank says inequality isn’t about “insecurity about not having what others have.”

“What you need to spend to achieve basic goals depends, in a concrete way, on what others spend,” he says. “If you go for a job interview, you want to look good – but that means looking better than the other people who want the same job you do. If they spend more on suits, you’re less likely to get the callback.”

Frank points to education as the clearest example of inequality’s concrete consequences. Elementary and secondary schools with the best quality of education are often concentrated in high-income neighbourhoods. As the income gap widens and rich neighbourhoods become unaffordable for middle- and low-income families, good schools become less accessible.

HOW TO MEASURE ‘INCOME’

There are many different ways to measure how much money people make. The primary source for studying Canadian incomes is Statistics Canada’s Survey of Labour and Income Dynamics, which shows how earnings (employment income), market income (employment income plus private pensions, dividends, rental income and home equity), and after-tax income (market income and government supports minus income taxes) are distributed among individuals and economic families.

As of 2009, the average Canadian family had an after-tax income of $60,000, an increase of 16 per cent from the Canadian average of $52,000 in 1980. By contrast, the average income in the highest-earning 10 per cent of families saw a much larger increase of 34 per cent, and the bottom 10 per cent saw an increase of only 11 per cent. In other words, incomes have increased across the board, but the top 10 per cent have pulled ahead of the pack.

The gap is more exaggerated if we look at only employment earnings for working-age Canadians. The average income that families in the bottom 20 per cent make from employment has decreased by 60 per cent since 1980, whereas the average earnings in the top 10 per cent has grown by 45 per cent.

COMPARING CANADA WITH THE WORLD

Economists often use a number called the Gini coefficient to summarize how much income inequality a country has. A simple way of understanding the Gini coefficient is to look at its maximum and minimum values: a Gini of 0 is perfect equality, meaning everyone in the population takes home an equal share of the national income; a Gini of 1 is perfect inequality, in which only one person in the population takes home 100 per cent of the national income.

In a report released last year by the Organization for Economic Co-operation and Development, Canada’s Gini was estimated to be 0.32 – a middling value compared to 0.37 in the United States, 0.36 in the United Kingdom, 0.29 in France and 0.25 in Denmark. More telling is that in the past decade, Canada’s Gini has risen faster than all but five of the OECD’s 34 countries, climbing at almost double the rate of the United States.

To fully understand the income situation in a country, we also have to look at how easy it is for earners to move from one income bracket to another. The most comprehensive study of economic mobility in Canada was done in 2006 by Miles Corak, a researcher at the University of Ottawa, who used administrative data dating back to the 1960s to compare the earnings of a group of Canadian men to the earnings of their fathers. He found that the income bracket the men were born into had relatively little effect on how much they earned, compared to other Western countries.

For instance, a man born to a father who earns in the bottom 10 per cent has a 38 per cent chance of earning above the Canadian average, and a 16 per cent chance of staying at the bottom. By contrast, if you were born in the bottom 10 per cent in the much less mobile U.S., your likelihood of making it into the top half of the earnings distribution is only 30 per cent, and you have a 22 per cent chance of staying at the bottom.

So while the income gap is growing in Canada, it is still comparatively easy to climb the ladder. In fact, Canada’s mobility is on par with Denmark and Norway, which are among the most economically mobile countries in the OECD.

WHY INEQUALITY MATTERS

Using data from 23 countries, British economist Richard Wilkinson has linked inequality to 10 social indicators like life expectancy, teenage births, obesity, homicides, imprisonment and infant mortality rates. Wilkinson says that as the income gap widens, problems related to social status increase – in particular, the “things that are more common at the bottom of the social ladder,” like health problems and crime.

“In a way, the whole picture is very simple,” he says. “All we’re saying is that these problems that people know are related to social status get worse when social status differentiation increases."

Research has shown that increasing inequality leads to income enclaves. In a 2007 study, University of Toronto researcher David Hulchanski found that he could draw distinct borders around neighbourhoods in Toronto that had low, middle and high income. The fraction of Toronto made up of low-income neighbourhoods grew from 19 per cent in 1970 to more than half of Toronto’s total area in 2005, while middle-income neighbourhoods shrank from 66 per cent to 29 per cent.

Armine Yalnizyan, Senior Economist at the Canadian Centre for Policy Alternatives and a primary researcher on the CCPA’s “Growing Gap” project, stresses the costs of neighbourhood income disparity.

“Housing takes the biggest bite out of our incomes. People without a lot of money end up living in cheaper places, and cheaper places are geographically specific – they don’t have good transit, good schools, good public spaces, or good retail,” she says. “That has consequences for how our kids get raised.”

Original Article
Source: huffington post
Author: Jeff Fraser