Recessions hit poor the hardest

Posted on July 18, 2008 in Debates, Governance Debates, Social Security Debates – Opinion – Recessions hit poor the hardest
July 18, 2008. Carol Goar

Canada has been through seven recessions since 1950. It looks as if we’re heading for an eighth.

Past contractions have varied greatly in length and severity. Some have been highly localized, others have been all encompassing. Some have destroyed governments, others have scarcely registered on the political scale.

Despite this variation, they’ve all had one thing in common: The poor have fared worse than the rich.

That is not to say upper-income Canadians have been spared. Some investors have taken a bath. Some homeowners have watched their equity melt. Some managers have had to change careers.

But, for the most part, people with low-paying jobs have suffered most. Their paycheque is their lifeline. When that is cut, they have nothing to fall back on.

“Income polarization always gets worse during recessions,” says Armine Yalnizyan, senior economist for the Inequality Project at the Canadian Centre for Policy Alternatives.

Only once – in the aftermath of the Great Depression – did more egalitarian forces take hold. In the mid-20th century, Canada experienced a remarkable expansion of the middle class and an across-the-board increase in living standards.

But most historians attribute that to World War II, not the economic collapse that preceded it.

The war, for all its destruction, provided work for more than 1 million military recruits. It pressed Canadian factories into service to produce munitions and supplies. And it induced Ottawa to offer training, land settlements and jobs building public infrastructure to returning troops.

Since then, every recession has widened the gap between rich and poor.

It has been 17 years since the country experienced its last one. Much has changed in that time. Welfare rates have been slashed. Employment Insurance benefits have been cut, leaving millions of workers without a safety net if they lose their job. The supply of affordable housing has dwindled. Part of the cost of social assistance has been downloaded on cash-strapped municipalities.

These developments heighten the damage potential of the coming slump. If workers with a precarious perch on the job ladder fall off, there won’t be much of a cushion. If welfare rolls swell, cities will have to chop everything from public health to social housing.

“You can be sure, in the next recession, that income disparities would widen,” Yalnizyan says.

In fact, she predicts, the polarization would be stronger than in past contractions. For the first time in the post-war era, Canada would be dealing with both a stagnant economy and a shortage of skilled labour.

That would drive up salaries at the upper end of the employment spectrum and destroy livelihoods at the bottom.

History provides several lessons for policy-makers facing hard times:

Countries with well-developed social programs weather adversity better than those that rely on market forces.

What people need and want most in a recession is work. That is why Franklin D. Roosevelt launched his New Deal, a massive public infrastructure program, at the depth of the Great Depression and governments have focused on job creation in subsequent recessions.

Sticking doggedly to a balanced-budget credo as the economic casualties mount will create deficits far more serious than a reversible financial shortfall.

Timidity is the wrong response to widespread hardship.

The prospect of Prime Minister Stephen Harper heeding any of these messages is minimal, given his belief that reducing government spending and cutting taxes cure most economic ills.

But there is a chance that Ontario Premier Dalton McGuinty, whose government is now finalizing its poverty reduction strategy, will drop his rigid no-deficit, no-tax-increase dictum and lay out a long-term plan to build affordable housing, shore up the province’s crumbling infrastructure, lower the barriers to education and invest in community development.

All the signs suggest that Canada’s manufacturing heartland is facing a wrenching structural adjustment coupled with a strong cyclical downturn. Those with skills and savings will survive. Those in need will fall further behind.

This is not the time to retreat in the battle against poverty.

This entry was posted on Friday, July 18th, 2008 at 10:49 am and is filed under Debates, Governance Debates, Social Security Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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