Gap between rich and rest growing

TimesColonist.com – business
July 27, 2011.   By Paul Willcocks, Times Colonist

We’ve become a lot more unequal society in Canada, widening the gap between the rich and the rest. The top earners have increased their share of after-tax income in the last three decades, with the gap widening since 2000.

Middle and lower-income families saw their shares shrink.

The highest income quintile – the top 20 per cent of Canadians – shared 39 per cent of all income in 2009. The bottom 20 per cent split seven per cent of the total income.

This all didn’t happen as the result of some unavoidable force of nature (or economics). Governments, for example, made changes that delivered a greater share of the overall income to the rich. Which meant a smaller share for everyone else.

And despite the shift’s significance, there was not much public debate.

The Conference Board of Canada has just offered a useful look at the issue (see conferenceboard.ca), and raised important questions.

A few hard-core ideologues see the issue simply. But it’s complex.

If you work too hard to reduce income inequality, the theory goes, you remove the rewards that encourage people to build businesses or climb the corporate ladder. The economy is weaker as a result.

If income inequality becomes too great, a society suffers other problems. There are economic ones – when success is only rewarded for a relative handful of winners, the incentive for most people to strive is reduced.

There are also moral issues. The idea of some people enjoying huge incomes while children live a few streets away in desperate poverty should be troubling.

And the Conference Board notes another risk. “To participate fully in society, individuals need a level of resources that is not too far below the norm in that community,” it noted.

When people’s incomes fall too far – when the gap becomes too great – they are excluded. Which means they have much less stake in accepting the laws and rules imposed by the society that has left them out.

Especially when the rebuff is so pointed. The Conference Board report cites a Canadian Centre for Policy Alternatives study that tracked the incomes of the richest one per cent of Canadians, using tax return data. That group – 246,000 people whose average income was $405,000 – claimed almost one-third of all growth in incomes during the boom years from 1998 to 2007.

Market forces have played a role. Globalization meant manufacturing moved offshore to countries with lower labour costs; that reduced demand for workers and resulted in lower wages in countries like Canada. Highly skilled people, by contrast, are in greater demand.

But government policies have widened the income gap. Traditionally, governments have redistributed income to reduce the distance between the rich and the poor. Taxes are progressive, so the rich pay more. Transfer payments – disability assistance, unemployment insurance, pensions – boost the incomes of those at the bottom of the heap. Minimum wage laws and other regulations protect those with the least economic bargaining power.

The Conference Board found that between 1976 and 1994, the tax and transfer system increasingly reduced income inequality.

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