Job inequality leads to income inequality

Posted on December 10, 2011 in Policy Context

Source: — Authors: – business/economy/Editorial
December 8, 2011.   Editorial

Behind the headlines blazoning the widening of income inequality measured by the Organization for Economic Cooperation and Development there’s an important story — but it’s not the one the media reported.

Accounts of the OECD study Divided We Stand: Why Inequality Keeps Rising focused on the share of total income received by the top decile of the population compared with bottom decile — the so-called Gini coefficient — the implication being that those at the top don’t deserve it and that tax policies should be revised so that “the rich” pay their fair share. Never mind that the top 20 per cent already carry more than half the tax burden but earn less than half of total income.

This emphasis on the politics of envy should not be the basis for public policy. For a start, the gap in market incomes is reduced somewhat when cash transfers to lower income cohorts are factored in. And, although these transfers offset less of the income disparity than they used to, social spending on things like health and education reduces income inequality by as much as 20 per cent. The OECD singled out Canada as one of the world’s big social spenders.

It’s regrettable that the OECD study may have contributed to the Robin Hood fantasy that by taking from the rich and giving to the poor we’d have a better society — like Slovenia, for instance, with inequality more than a fifth below the OECD average. Not to belabour the point but Canada has the highest net immigration rate per capita in the world, including the estimated 35,000 to 40,000 Slovenes who have made this country their home. Clearly, Canada remains an attractive destination for immigrants, about 250,000 a year (with many more trying to get in), notwithstanding the OECD’s verdict on Canada’s growing inequality.

The value of the OECD study is in its diagnosis of the dilemma and its prescription for a cure. The cause of income inequality is not the wizards of Wall Street, the Conservatives or the Illuminati. It is technology and changes in the labour market. Advances in technology inevitably result in job dislocation. Bowling alleys no longer have pinsetters, newspapers no copy boys and elevators no operators. Lamplighters, icemen, milkmen, switchboard operators and typesetters — all gone. Unskilled and low-skilled jobs that require little education have largely disappeared, or have moved offshore where labour costs are cheaper. Income inequality is a product of job inequality.

Accommodation and food service workers earn, on average, $20,436 a year. Workers in the mining industry earn $108,000. A solar power panel installer makes about $49,000 a year. A worker in conventional utilities takes home roughly $65,000.

The solution, then, to income inequality is highly paid employment. Yet those who complain about the unfairness of income inequality are the same groups and individuals who oppose every project that promises to deliver high-paying jobs, and the fringe benefits that accompany them.

The Paris-based OECD pays lip service to income redistribution through tax policies but a comparison of Canada’s fiscal situation to that of any European nation speaks volumes. The real story is not about transfers, social spending and taxing the rich. It’s about jobs, skills and education.

These should be the main thrusts of public policy. Push forward measures that encourage investment in major projects, in manufacturing, mining, oil and gas, and electricity generation. Invest in education to produce the professionals, managers, entrepreneurs and skilled workers needed to increase productivity, which will be increasingly important to raising living standards as the workforce shrinks and the population ages. Ensure that Canada has the most ambitious, tech-savvy, knowledgeable and experienced workers, equipped with skills that cannot be easily outsourced, and income inequality will fade into insignificance.

The OECD study need not serve as a rallying cry for the dissatisfied and disgruntled; it should be seen instead as a statistical restatement of the adage that the best cure for poverty is a job.

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