Good for the NDP leadership candidates for talking about income inequality in Canada.
At their first leadership debate last weekend, and on their websites, some of the candidates have made proposals about reducing it. The ideas are broad brush, of course, although Brian Topp has a detailed list of big tax increases proposed for the wealthiest people and corporations. But at least the candidates are willing to underscore what has been a frequently ignored challenge.
During the last campaign, the NDP preferred to talk mostly about the “middle class,” which is fine in and of itself but risks ignoring the least affluent. After all, that group ought to be front and centre for a social democratic party, although getting a grip on inequality is harder than the candidates’ early proposals suggest.
Inequality has been growing in Canada for many years; correcting for it will not be easy or fast. The factors making Canada a less equal society are deep and complex. Some are beyond the reach of government.
Canada is not alone in becoming more unequal. A comprehensive report by the Organization for Economic Co-operation and Development has just explained how inequalities have been widening in almost all of its member countries, even the Scandinavian ones.
In the two decades before the 2008 recession, household incomes had increased after inflation in member countries by an average of 1.7 per cent a year, according to the OECD. But, in most countries, household incomes of the richest 10 per cent grew faster than those of the poorest 10 per cent.
In Canada, as elsewhere, taxes and social benefits directed at the least well off helped mitigate inequality. They still do, but not as effectively as before, and less effectively than in most OECD countries.
Inequality has been increasing in Canada, especially since the mid-1990s. Before then, the ratio between the wealthiest and poorest Canadians was 8 to 1. It’s now 10 to 1. Top marginal tax rates have fallen here, as they have in many OECD countries. Benefits that used to be targeted at the poorest have either been reduced or spread across many income bands.
Other factors have played a role. More part-time work has meant lower earned income compared with full-time work. Within the work force, even among those with full-time jobs, wage inequality has spread. The higher-paying jobs are paying more; others are not.
We’ll see more disparities as companies shed defined-benefit pension plans for defined-contribution plans. They’re insisting on the change for their own bottom lines today, but their employees are likely to suffer later.
Education and skills are critical to securing good-paying jobs, as has been documented time and again. Those with the best education land the most remunerative jobs. Education catapults people up the earnings scale, where they tend to marry people with similar levels of education and income.
The fancy but horrible phrase for this coupling is “assortative mating.” The plain English phrase is “like marries like.” There’s not much that governments can or should do about this phenomenon; they can only decide to tax back some of the collective income.
The problem with this is the negative effect it might have on savings and incentives, since people (and companies) tend to respond to changes in their incentives. It might sound easy on paper to tax more and spread the money, but, in the real world, people don’t necessarily carry on as before in the face of higher taxes. Capital, in particular, is mobile and, although tax rates are only one factor in decisions, they are a factor.
The OECD notes that globalization, sometimes attacked as the bogeyman for inequality, has played a more nuanced role. More international market activity has increased overall employment by breaking down protection and expanding economic activity that, in turn, has produced greater demand for labour.
But some aspects of globalization, such as imports from low-income countries, can displace local workers and create wage disparities. Technology has also driven up the demand for skilled workers and widened the income gap between them and those without the skills.
We’ve talked a lot in Canada about inequalities among regions, gender and ethnicities, and made progress on these fronts. Income inequality, however, has slipped beneath the radar.