Social Policy in Ontario

Every one of the ailments we imagine ourselves to be suffering is a reality in the U.S.

Posted on December 16, 2012 in Equality Debates

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NationalPost.com – FullComment
Dec 14, 2012.   Andrew Coyne

It was perhaps the most shocking headline ever to appear in the Toronto Star. “Income gap isn’t growing,” it ran, citing a “TD bank report.” Sure enough, the report found that income inequality in Canada has remained more or less flat since the mid 1990s. As if that were not alarming enough, it found median household incomes in this country grew steadily over the same period, to the point where they now exceed those of the United States for the first time in nearly 30 years.

The paper was clearly flummoxed. The story managed to extract a confession from the economist who did the study that he too had been “surprised” by the results (an “absolute stunner”). How to explain it? “Part of the problem,” the story mused — the “problem” being the failure of the data to show rising inequality — “is the way income inequality is measured.” That is, the study looked at inequality of income. But what about inequality of wealth? That could be increasing, couldn’t it? By the time the story appeared online the paper had recovered its composure. “Canadian income gap may be more real than data suggests,” the headline now read

It shouldn’t really be surprising to find that none of it is actually true

In fact the study didn’t find any trend towards increased concentration of wealth, either. But never mind. The Starcan be forgiven for its astonishment. Because if there has been one article of faith in recent years, not only in the Starbut throughout the media, it has been that Canada is beset by “growing inequality,” to say nothing of “stagnating incomes.” Throw in the “vanishing middle class” and you have a catechism of media verities, repeated endlessly, just as if they were real.

And yet it shouldn’t really be surprising to find that none of it is actually true. It didn’t take a study by the TD Bank’s chief economist to disprove it. The evidence was sitting there the whole time on Statistics Canada’s website. All anyone had to do was look.

That’s not to say that income inequality was not growing in the past. Between 1989 and 1998, the Gini coefficient for Canada — a measure of inequality with 0 representing perfect equality and 1 being perfect inequality — increased from .38 to .42. It just hasn’t budged since then. (PossibleStar headline: Income gap fails to narrow.)

Another way to look at inequality is to compare the fortunes of people in different income groups, usually quintiles (fifths), over time. Here again the picture is of stability, not stratification. As the TD economists found, incomes in the bottom quintile have grown by 20% since 1998, to 18% for those in the upper quintile. Again, while there was some widening of the gap in earlier decades — from 45% in 1976, the share of income going to the top fifth had increased to 50% by the mid 1990s — it has since held steady.

The picture is even brighter if you consider inequality in yet a third way: as the difference, not between rich and poor, but between the poor and the middle. The proportion of people living below Statistics Canada’s Low Income Cut-Off, a relativistic measure based on the proportion of its income a poor family would have to spend on necessities to maintain itself in the same style as the average family, has fallen from 15% in 1996 to 9% in 2010 — the lowest it has been since at least 1976. A more strictly relative measure, the number of those living below one-half the median income, shows no trend over the same period.

Why was income inequality growing before, and is not now? The explanation is very simple. In the early 1980s and early 1990s, Canada went through two nasty recessions — the first deeper, the second longer. Whenever there is a recession, and for some time after, more people are out of work for at least part of the year, and as such earning very little income. That drags down incomes for those at the bottom — hence increasing both poverty and inequality — but also for the median.

In the past two decades, however, Canada has experienced more or less uninterrupted growth. Hence falling unemployment, hence declining poverty, rising incomes and flattening inequality. Why has none of this registered in the public mind? Why have we heard nothing of the record low numbers living on low income? Why is it common knowledge things are getting more unequal, when in fact they are not?

One reason is that we have changed our definition of inequality. Instead of looking at the gap between rich and poor, or the poor and the middle, attention has shifted to the gap between the very rich and everyone else: the top 1%. Yet even here the “growing gap” is no longer growing. The share of all income going to the top 1%, according to figures provided to the TD by Michael Veall, the reigning Canadian expert on the subject, was 13.6% as of 2010, down from a peak of nearly 16% — again, about where it was in 1998. The big surge was in the decades before that.

So again: how have we convinced ourselves it is increasing? One is forced to conclude it is the influence of the American media. Every one of the ailments we imagine ourselves to be suffering is a reality in the United States: where our incomes are growing, theirs are stagnating; where poverty here is at record lows, there it is at record highs; where inequality in Canada has not grown in recent years, in the United States it has surged.

Again, the explanation, at least in part, is not hard to find. While we have been largely spared the ravages of recession in the last decade, the Americans have endured two, the last especially severe. The big surprise in that TD study, it would seem, is that Canada is not the United States.

< http://fullcomment.nationalpost.com/2012/12/14/andrew-coyne-canadian-income-inequality/ >

Tags: economy, ideology, standard of living

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