Social Policy in Ontario

Why the gap between rich and poor in Canada keeps growing

Posted on December 6, 2011 in Debates

Source: Toronto Star — Authors: Dana Flavelle

TheStar.com – business
Published On Mon Dec 05 2011.   Dana Flavelle, Business Reporter

Globalization and technology are intensifying the growing income gap between the rich and poor in Canada, economists say.

And government policies aren’t doing enough to bridge the difference.

The result is a chasm between the haves and have-nots that is only getting larger, they said in response to an international wage gap report Monday.

“Across the entire advanced world, we’re seeing widening income disparity,” Craig Alexander, chief economist with TD Bank Financial Group said in an interview. “I think a couple of things are contributing to that, the impact of globalization and the impact of the information technology revolution.”

Information technology has eliminated some middle-skill jobs, such as filing and administration, while globalization has seen high-paid manufacturing jobs outsourced to lower-paid countries, Alexander said.

Globalization has given top talent the ability to command higher compensation, said Roger Martin, Dean of the Rotman School of Management at the University of Toronto.

Using Hollywood as an example, Martin noted directors like Titanic’s James Cameron now make movies that are seen all over the world, not just in the U.S. That makes Cameron more valuable and able to command a higher share of the profits.

At the same time, globalization has weakened the lowest earners’ bargaining power as their jobs are outsourced to cheaper countries, other economists said.

The creeping inequality is a main driver of the Occupy protest movement, with its mantra of ‘we are the 99 per cent.’

The movement, which claims to speak for those who have been left behind economically, quickly spread from Wall Street to across North America, including Toronto, and much of the globe.

“One of the underlying reasons for the growing inequality in the last 25 or 30 years, particularly in North America, has been the decline in the influence of unions on the wage system,” said Hugh Mackenzie, principal of Hugh Mackenzie & Associates.

Cuts to government programs, such as unemployment insurance, combined with increases in post-secondary education costs are making it hard for the lowest income Canadians to compete in the knowledge economy, the economists said.

The gap has likely widened since the recession in 2008 as more companies moved high-paid manufacturing jobs offshore to countries with lower wage rates, the economists also noted.

The gap between rich and poor in Canada has widened as income inequality across industrialized nations hit a record 30-year high, according to a report released Monday by the Organization for Economic Co-operation and Development.

The top 10 per cent of Canadians earned 10 times as much as the bottom 10 per cent in 2008, the OECD said. That’s up from a ratio of 8 to 1 in the early 1990s.

The highest group of Canadians made on average $103,500 that year, while the lowest group made $10,260, according to the report, called Divided We Stand: Why Inequality Keeps Rising.

The report blamed a growing wage gap along with cuts to government spending on income support programs. Taxes and benefits used to offset 70 per cent of the rise in the income gap in Canada. Now, they offset just 40 per cent, the report said.

Canada’s wage gap is worse than the OECD average of 9 to 1 but still above that of the U.S., where the ratio is 14 to 1, the report said.

The problem has been exacerbated by cuts to government programs, the OECD said. The OECD suggested it’s time the pendulum swung back.

Calling on governments to do more to close the gap, the OECD said the report dispels the theory that tax cuts will have a trickle down effect by promoting economic growth that benefits everyone

“The social contract is starting to unravel in many countries,” said OECD Secretary-General Angel Gurría. “This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.”

The income gap has risen even in traditionally egalitarian countries, such as Germany, Denmark and Sweden, from 5 to 1 in the 1980s to 6 to 1 today, the OECD found.

The wage gap is 10 to 1 in Italy, Japan, South Korea and the United Kingdom, and higher still, at 14 to 1 in Israel, Turkey and the United States.

“There is nothing inevitable about high and growing inequalities,” said Gurría. “Our report clearly indicates that ‘upskilling’ of the workforce is by far the most powerful instrument to counter rising income inequality. The investment in people must begin in early childhood and be followed through into formal education and work.”

In Chile and Mexico, the incomes of the richest are still more than 25 times those of the poorest, the highest in the OECD, but have finally started dropping.

Income inequality is much higher in some major emerging economies outside the OECD area. At 50 to 1, Brazil’s income gap remains much higher than in many other countries, although it has been falling significantly over the past decade.

< http://www.thestar.com/business/article/1097055–why-the-gap-between-rich-and-poor-in-canada-keeps-growing >

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

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