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Is income inequality a big problem in Canada? Or have we imported this debate from the United States, where inequality really is a big problem? (Chris Young For The Globe and Mail)
Is income inequality a big problem in Canada? Or have we imported this debate from the United States, where inequality really is a big problem? (Chris Young For The Globe and Mail)

Income inequality in Canada: What’s the problem? Add to ...

William Robson: Adjusting for household size makes sense for exactly the reason Jim mentions – two may not be able to live exactly as cheaply as one, but more people under one roof does save money. As any parent who has had a strapped kid move back in knows, stagnating incomes are likelier to put more, not fewer, people under each roof. Average household size has been shrinking since at least the beginning of the 1960s, which includes an earlier period of very rapid income growth. It seems that one of the benefits of rising living standards is that people are able to live more independently.

Anne Golden: Bill is arguing that all income groups saw their income grow from 1996 to 2010. This is correct. However, the top group grew way more than the bottom or middle groups. To me, the important point from a societal point of view is that the top group is growing much faster than the rest. So that the shares of the income pie are shrinking for four out of five income groups.

MORE TAXES

Konrad Yakabuski: Kevin Lynch’s research shows that, while pre-tax income inequality in Europe is generally higher than in Canada, many European countries have lower after-tax inequality. So, is there more do be done in Canada via the tax system, without resorting to a counterproductive “tax the rich” strategy?

Anne Golden: Yes, there is room to modify the tax system without it becoming counter-productive.

Jim Stanford: It hasn’t been established that “taxing the rich” is counter-productive. Many European countries have much higher personal taxes than Canada, and yet have done better than Canada in motivating business investment, innovation, productivity growth and exports.

Miles Corak: The tax system actually played a major role in undoing the rise in market inequalities up to the mid 1990s. This suggests more could be done now. There are many ways in which the system can be made more equitable and more efficient, and these steps should the first ones taken while at the same time recognizing that tax policy cannot be the only way of addressing the very profound labour market changes that are the ultimate drivers of disparities in incomes.

William Robson: We should look at taxes and spending together: How we spend the money matters as much as how we raise it. Hiking income taxes at the top end can certainly lower top incomes, but tends to raise disappointing amounts of revenue. We can do more for people with low incomes by taxing more robust bases – as the GST does – and using the revenue for income supports and working-income supplements.

Kevin Lynch: In looking at the toolkit available to respond to income inequality, there are both tax and spending options available depending on the nature of the specific problem. We should also always ask ourselves whether the best approach is to increase redistribution or to increase opportunity through the provision of public goods like education.

WAGE POLARIZATION

Konrad Yakabuski: Economist Tyler Cowen’s new book, Average is Over, posits that the United States is becoming a “hyper-meritocracy” where only the most technology-savvy workers thrive, leaving everyone else in low-wage jobs. If this is at all applicable to Canada, isn’t it unrealistic to think we can make much of dent in income inequality if bigger economic forces are work?

Jim Stanford: The situation that Cowen describes is hardly a meritocracy. Lucky individuals do not take a place among that small, well-off group because they somehow deserve it. And there will be many millions of tech-savvy workers who are as poor and insecure as any of the rest of us – by virtue of their skills being subject to automation or offshoring. I do suspect that absent deliberate efforts to support mass prosperity, a situation much like what Cowen envisions will emerge. But the causation at work is not merit, it’s power. The top 1-2 percent will do extremely well thanks to their financial wealth and control over businesses. Another 10-15 percent will do fairly well thanks to (at least temporarily) unique skills or characteristics, proximity to those with wealth, or other fortunate factors. The rest of society will scrape by, and what we know as the middle class will largely disappear. There’s nothing inevitable or “economic” about this trend. It all reflects deliberate policy and political choices that have been made: about how we collectively choose to regulate our business , trade, and employment relations. Different choices in each of these domains can also be made.

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