Social Policy in Ontario

Is income inequality just business as usual?

Posted on December 30, 2010 in Equality Debates

Source: Globe & Mail — Authors: Armine Yalnizyan

TheGlobeandMail.com – news/national/time to lead – theme: Ending Poverty
Published Monday, Dec. 20, 2010.   Armine Yalnizyan (transcript of public dialogue recorded Dec. 20, 2020)

We asked, you voted: what are the next eight discussions Canada needs to have?

The Globe held a live discussion Monday, Dec. 20 on one of your top choices: ending poverty.

Earlier this month, the Canadian Centre for Policy Alternatives released a report showing that inequality is growing in Canada. This generation of rich Canadians now takes a bigger cut of the action than any previous generation. What’s going on, how is this different than usual and what can we do about it?

Armine Yalnizyan, a senior economist with the Canadian Centre for Policy Alternatives, will take your questions. Ms. Yalnizyan joined the CCPA in 2008 to advance the work of the Growing Gap project. She has tracked trends in labour markets, income distribution, government budgets and access to services for over 20 years.

She also contributes to The Globe and Mail’s Economy Lab.

The chat has now concluded, but you can review the transcript below.

Natalie Stechyson: Welcome to today’s live chat on solving poverty – the fifth topic in an eight-part series on the next discussions you think Canada needs to have. I’m Natalie Stechyson – one of The Globe’s online editors. I’ll be hosting today’s chat with Armine Yalnizyan. We’ll be getting under way momentarily. In the meantime, please start submitting your questions.

Armine Yalnizyan: Hi Natalie. Glad to kick off the week with such an important conversation.

Natalie Stechyson: Thanks for joining us, Armine. I’ll post the first question in a few minutes.

Natalie Stechyson: Let’s get started. How much can poverty rates in Canada be accounted for by income inequality?

Armine Yalnizyan: Well Natalie, international statistics show that poverty rates are lowest where income inequality is lowest too. That can be because of culture — the wage spectrum is compressed, as in Japan, where it is unseemly to get too far ahead of others in pay — or through active redistribution programs, where taxes and the services they buy redistribute incomes and opportunities to try to level the playing field a bit more.

Natalie Stechyson: Is income inequality any different now than, say, 20 years ago?

Armine Yalnizyan: There has been a sea of change in inequality in Canada over the course of the past 20 to 30 years. For most of the 20th century inequality in Canada – and in virtually all developed nations, actually – had been declining. By the 1980s that long term trend reversed. First because of recessions (where the bottom end of the spectrum lost ground) then because of rowth (when the top part of the income spectrum zoomed ahead). So for the past generation inequality has grown in Canada, in good times and bad.

Comment From Paul de Groot: Hallo. It seems that income inequality is an ominous trend in Canada, and certainly damages the myth that Canadians cherish about themselves. Namely, that we live in a fair society. My questions is whether or not this will become an entrenched phenomena in Canada. The impact on the succeeding generations is certainly concerning to me. Is it possible, in your view, for succeeding generations to reverse this trend. The demographic component also factors in here I believe.

Armine Yalnizyan: That’s the central question Paul, as growing inequality is, at some point unsustainable. There are two reasons for hope. One is, oddly, the result of an aging population and the consequent shrinking pool of workers, which may push up wages for workers producing basic goods and services, not just those at the top of the skill spectrum. The other is a culture shift, where a growing number of boomers understand what is at play and start working with others to come up with ways to ensure there will be a resilient middle class for the next generation.

Comment from Carol-Anne Hudson: Dear Armine, One solution often offered to the problem of this growing wealth gap is a mandatory living wage. However, many businesses reject this solution because of the “employment effects of rising wages”. Please explain what this means and the debate surrounding it as well as (to your mind) the usefullness of such a policy in the fight against poverty. Thank-you. Carol-Anne Hudson (PhD Candidate Political Science McMaster University)

Armine Yalnizyan: Hi Carol. When the cost of something goes up, we tend to consume less of it. So, since living wages are higher than minimum wages, employers are likely to hire fewer workers. A living wage campaign is part of the effort to raise the visibility of a sorry development in Canada. The saying that “the best social policy is a job” is in many ways true; but a new reality has developed over the past decade or so – that you can’t necessarily escape poverty by working. Working full-time full-year at a minimum wage job, as many adults do, condems you to poverty.

Comment From John: What are some of the “by-products” of income inequality? For example, what does research tell us about income inequality and health status or crime?

Armine Yalnizyan: John, your question is timely. Professor Richard Wilkinson just finished a tour of Canada, discussing his research findings from the past 30 years or so. A social epidemiologist, he has gathered international data showing the very tight correlation between life expectancy and income inequality, between literacy and income inequality, between rates of incarceration and income inequality, etc. etc. Over and over again he shows a range of issues that have a strong social gradient which reveal that almost everybody is better off in a society with greater income equality, including the rich. You can see his presentation in Vancouver at this link. http://i.sfu.ca/TmyYCh or read his best-selling book (with co-author Kate Pickett) The spirit level: why equality is better for everyone.

Comment From RonMacKinnon: Would a “guaranteed income suppliment” be a solution to this crisis?

Armine Yalnizyan: Ron it could indeed be a solution, and has been the subject of discussion in Canada, with various iterations, since the 1970s. The Mincome experiment in Manitoba in the mid 1970s, the MacDonald Commission i n the mid 1980s, and the House Report from Newfoundland and Labrador in the early 1990s all had proposals for providing a basic income. Only Manitoba tried it, as a pilot project, for a few years. The problem with the guaranteed income idea is at what rate you set it, and at what rate you tax it back. It could remove the stigma of income support programs, but it could just as easily be a costly experiment that, essentially, guarantees poverty. Also, as Dr. Wilkinson has suggested, at some point on the GDP per capita curve, income inequality is no longer about material deprivation, but rather one of psycho-social responses. We are, after all, pack animals.

Comment From Gerry Sanders: Seems to me we can keep going down the road of winner take all corporatism like the US or develop a middle class by going the route of social democracies. Why not have prospering Norway as our economic model rather than the declining US?

Armine Yalnizyan: Gerry, you have put your finger on the nub of the problem, which is not economic in nature, but cultural in nature. For better or worse, our culture is more likely to mimic the Americans than the Norwegians. But Canadians have always trod a slightly different path too. We have perhaps the most diverse population on the planet, and Canada has for some time been regarded as the United Nations in action. We have had leadership from virtually all of our provinces in ways to do things more effectively and inclusively, and it is highly likely that we can continue that pattern of marching to the beat of a different drummer, even as the Americans pursue their own course of action. We should remember, too, that some of the most vocal opponents of inequality come from the U.S. See Senator Bernie Sanders’ speech here http://www.youtube.com/watch?v=H5OtB298fHY

Comment From Scott: It seems to me that, generally speaking, we have become less educated about the need for collective action and benefits. Do you agree that we need a massive public education campaign, beginning with discussion of public goods, the role of taxes (and progressive taxation) etc? I am starting to this that we’re having these complex discussions (poverty reduction, equity, etc) and fewer and fewer people are equipped with the fundamentals to even partake in the discussion. Would be interested to hear your thoughts.

Armine Yalnizyan: Scott, you are right, and this very conversation is part of that public education process. The Globe’s “discussions we need to have” series, and on-line media in general, has the capacity to open up all sorts of important discussions. But it isn’t til there is some sense of groundswell to move in a certain direction that the need for collective action and benefits takes place, as governments at every level and of every political stripe are compelled to move in the same direction. After the Second World War, the collective wisdom was to expand government provisions (and taxation, to support those services). After the mid 1990s the collective wisdom was to cut taxes (and reduce the services that came with them). It will be interesting to see where the majority opinion flows next. It is clear that inequality is a huge underlying issue that could colour the public mood and push action in one direction or another.

Comment From Mark A: Is there any way that this trend could be reversed without a massive public policy shift? It seems to me that the demand for the bottom end of the labour market has been steadily declining (offshoring, big box retail, online retail) and will only continue to decline. As the world gets increasingly efficient at selling things without paying bottom of the ladder labour, how can you ever fix this without government intervention?

Armine Yalnizyan: Mark, your question has two parts. One is how we pay each other in the production of goods and services for which there is essentially no global competition. The other is how Canadians are paid in a labour market that is essentially global in nature. We can redress some of the vagaries of the market through public policies, but the root cause of growing inequality is how different peoples’ work is valued. IN a slow growth environment, which seems to be the foreseeable future for Canada, it will become harder and harder for those at the top of corporate structures to take the types of increases they have been commanding in the marketplace and expect unionized workers to be happy about losing their pension, benefits and wage increases, and expect low-end workers to essentially stay put or lose more ground. Two things can happen – those at the top start moderating their increases; or those in the middle and the bottom start seeing solid increases, particularly as the wave of retirements starts accelerating. The problem with rising incomes, generally, is that usually goes along with rising prices; and we’re about to host the largest cohort of retirees we’ve ever had in history, a group that lives on fixed and low incomes, to whom rising prices are toxic. So how will the highest priced workers get away witih demanding more in that context I wonder?

Comment From batgirl: On the flip side, is there any evidence that increasing in income equality is correlated with increasing growth in GDP?

Armine Yalnizyan: Good Question, Batgirl! The answer is NOPE. At least, it’s not a linear correlation. Historically, increasing economic growth first deliver rising inequality, then lowering inequality (Simon Kuznets’ famous work back in the 1950s). That’s still true of developing nations – economic growth is first badly distributed, then leads to demands for greater equality. Then we’ve come to this stage of advanced capitalism in some developed nations (US, UK and Canada for example) where growth has been accompanied by stunning increases in inequality; and other advanced industrialized nations where it hasn’t (the typical suspects – Norway, Finland, Denmark, Sweden, etc. etc.) So no one-size-fits-all explanations for the relationship between GDP growth and inequality. Raises the question: why wouldn’t you pick greater equality?

Comment From Hassan Ali: my question is given the difficulty associated with measuring income inequality in GDP for example, what policies can help to measure income inequality?

Armine Yalnizyan: Hassan, while there are no “industry standards” on how to measure income inequality, there are many ways of doing so (ratios of the top 10 to bottom 10%; or the top to bottom 20%; or the Gini Coefficient) , and a number which are used internationally. Some people think it’s important to look at poverty. Others think it’s important to look at the share of income and wealth held by those at the top. They all contribute to an understanding of how the gains from economic growth are distributed/concentrated, which tells us something about our collective expectations and our future prospects.

Comment From John Campey: Armine, what yould you see as the key “message” or specific policy initiative that could engage and motivate people (beyond the inner circle of the ‘converted’) to take this on in a significant way?

Armine Yalnizyan: Hi John. I guess the issue that engages the most people, rich and poor, is how you see the future unfolding for the next generation, whether they are your children or not. Put another way – this generation of Canadian boomers have enjoyed the very best life any nation has ever provided any group of citizens. We’ve lived like queens and kings of yesteryear and more of us had opportunities to fulfil our own personal potential than any previous generation. Can we assure the same thing for the next generation? Can we excuse ourselves if we can’t?

Comment From Allison: Does income inequality have any additional impacts on children, over and above the effects of living in poverty? If so, how can those be mitigated?

Armine Yalnizyan: Richard Wilkinson’s presentation last week was very evocative in connecting the dots between income inequality and how we are, essentially, primates – a species that is biologically dependent on one another and picks up behavioural queues from one another, for better or worse. He points out how you are raised in the early years sets off a life-cycle of behavioural patterns and physiological (possibly epigenetic) triggers. For example, if you are raised in a highly unequal society you might expect greater recklessness on the part of those at the bottom of the income spectrum, as more unequal societies are also shown in his data to offer less social mobility. Reckless behaviour has an impact on the individual being reckless, but also on those around them. It may make sense to take risks if there is, essentially, no cost to taking those risks and perhaps lots of gains, but it does make the world a more stressful place. How can such an environment be offset? Reducing inequality, partly by making the lived experience of children more equal – access to the same high quality education, health, recreation, time with parents (or someone who can provide real care), etc. Pretty simple stuff, really.

Natalie Stechyson: We’re running out of time. I have a final question. We’ve discussed the problem – I’m interested in hearing what you think the solutions may be. How do we begin to solve income inequality?

Armine Yalnizyan: We begin to solve any problem when we agree there is a problem to solve. There are so many ways to redress income inequality, and its related inequalities, that it’s not an issue of what policy/solution is best. It’s simply an issue of when we get to a critical mass that says yes it’s important to fix this problem. We can raise our kids more equitably – but it will take more taxes. We can have less of a winner take all society – but it will require some people at the top to trim their expectations. We can beat this in small ways, but we also need leaders to express the way forward. In the US they have Warren Buffett, Bill Gates and politicians leading the way. We’re waiting for more people like Ed Clarke, the CEO of TD Bank, to weigh in on how to make Canada fairer (his suggestion is higher taxes on the rich). It’s just a question of time.

Natalie Stechyson: Thank you for joining us today on globeandmail.com. That’s all the time we have. Thank you to our guest, Armine Yalnizyan. And thanks to everyone for contributing their comments and questions. Please join us tomorrow for the next discussion in our series.

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Tags: economy, globalization, ideology, standard of living, tax

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