Rising income inequality undermines Canadian success

Posted on July 25, 2011 in Equality Debates

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VancouverSun.com – business
July 18, 2011.    By Jay Bryan, Postmedia News Columnist

We all know the cynical catchphrase: “The rich get richer and the poor get poorer.” Sometimes we’re thankful that life isn’t that way in a country like Canada. Except that to an increasing degree, it actually is.

Inequality in Canada, which was shrinking for decades, has shot back up since the 1990s, reaching a state where it’s no longer just a concern for labour unions and left-wing politicians.

Wednesday, one of the country’s leading think-tanks on business issues, the Conference Board of Canada, issued a report warning that too much inequality could actually sap economic growth, wasting some people’s skills and undermining social cohesion.

The backdrop to this is a phenomenon that has taken hold in many countries, most notably the U.S., where the rich-get-richer trend is the strongest you’ll find among wealthy countries.

Canada is around the middle of the pack, with more income inequality than such countries as Denmark, Sweden, Austria, Netherlands, Finland or Australia, but less than Ireland, Britain, Italy or the U.S.

But even in Canada, the change has been striking. If you chop the population into five equal chunks, the top 20 per cent of income earners increased its share of total Canadian incomes so markedly over the past two decades that every other group lost ground.

And most of the growth in inequality was driven by the very richest within this top 20 per cent. Researcher Armine Yalnizyan with the Canadian Centre for Policy Alternatives has shown that the top one per cent took home fully one-third of all income gains earned in Canada from 1997 to 2007.

These lucky ones are the people you see lionized in business publications — the top corporate leaders whose pay has skyrocketed into the millions and tens of millions, rising many times faster than the wages of those who work at lower levels.

At the other end of the scale, the situation hasn’t become so bad that the real incomes of poorer Canadians are actually dropping, but their gains have been tiny. You can imagine what it does to work incentives when you spend years breaking your back as an office cleaner or assembly-line worker, only to find that you can’t hope to get ahead.

While some economists believe that rising inequality is just a result of a high-tech economy in which the most skilled people get more and more of life’s rewards, there’s also evidence that deliberate choices by political leaders have pushed this trend along.

In the U.S., researchers have found that falling levels of unionization and lagging minimum wages contributed significantly to keeping lower-wage workers down. In Canada, there’s evidence that retirees have become more vulnerable to lagging incomes in the past 15 years or so.

That’s sad, since it partly reverses one of the great public policy successes of recent Canadian history. The introduction of the Canada and Quebec Pension Plans virtually wiped out poverty among those over 65, with old-age poverty — defined as the number earning less than half Canada’s median income — plunging from 33 per cent of seniors in 1977 to just 3.9 per cent in 1995.

But with investment income taking a beating during the stock market crashes and ultralow interest rates that characterized much of this period, government pensions didn’t rise enough to lean against this trend, notes Conference Board analyst Brenda Lafleur. Reflecting this, senior poverty climbed back up to 11.5 per cent in 2009.

But the big contributor to income inequality was at the top. It will be hard to rein in the corporate greedfest, but we might want to look to the countries that have figured out how to create high standards of living without such corrosively huge inequality.

If Denmark, Sweden and Austria can be rich societies that remain much more fair, surely Canadians aren’t so dumb that we can’t learn from their successes.

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