"Statistics Canada reported recently that the earned income of the 'average' Canadian - the so-called median income - was the same in 2004 as in 1982," Peter J. Nicholson wrote Saturday in his Globe essay The curious absence of class struggle
"After we subtract inflation to keep the purchasing power of a dollar roughly constant, it turns out that median income, before taxes, did not rise at all over those 22 years.
"Yet during that same time, the Canadian economy grew, in real per-capita terms, by more than half.
"But only the very well-paid - those above the 90th percentile of the income distribution - saw any significant increase in earned income.
"The higher up the earnings ladder, the greater the growth.
"What has been going on?" asks Dr. Nicholson.
A good question. And we're sure you have many others.
That's why we are pleased that Dr. Nicholson was online earlier today to take your questions on his essay and on the issues it raises.
Your questions and Dr. Nicholson's answers appear at the bottom of this page.
Dr. Nicholson is inaugural president and chief executive officer of the Council of Canadian Academies, a group dedicated to science advice in the public interest.
He has almost four decades of experience in academic, business and public sector roles.
These have included senior executive positions in the banking, telecom and fishing industries, and a variety of federal government positions including Finance (1994-95) and the Prime Minister's Office, where he was chief of policy (2004-05).
Dr. Nicholson also served as special advisor to the secretary-general of the OECD (2002-03).
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Jim Sheppard, Executive Editor, globeandmail.com: Welcome, Dr. Nicholson, and thanks for joining us today to take questions from the readers of globeandmail.com.
I'd like to start by asking why you think there isn't a bigger outcry among ordinary Canadians about the growing income disparity that you describe in your essay?
That also seems to be different than what would have happened in the post-war era, at least up to the 1970s. In those days, as I recall them, you would certainly have heard loud complaints about this kind of trend.
Dr. Peter J. Nicholson: Jim, many factors appear to be contributing to the muted response to growing income inequality in Canada and the U.S.
Here would be my take:
First, the inequality today is focused at the very top and these are not the people that most of us compare ourselves with. So it's out of sight, out of mind.
Second, most people aren't actually falling behind. Rather, their income is just not growing nearly as quickly as productivity or the economy at large. But these statistical facts are quite abstract and not part of mainstream consciousness.
Third, a lot of high-profile goods and services have gotten a lot better - like TVs, cellphones, or PCs, and/or a lot cheaper, like air travel, or anything made in China. This creates both the sense and the reality of being better off in consumption terms.
Fourth, Canada has enjoyed extremely strong job growth and a general sense of improving opportunity, particularly in the last three or four years.
Fifth, there is probably a certain fatalism in the face of global competition and that seems to have affected the behaviour of unions in the manufacturing sector.
Finally, there has been much less discussion of this issue in Canadian academic and think-tank circles than there has been in the U.S. This has tended to keep the issue off the political radar screen in Canada.
Meanwhile, the overall climate of opinion today is very different than it was in the early 1970s when the political culture still reflected echoes of the Depression and the construction of the modern welfare state.
J., Vancouver: You note that those people above the 90th percentile have seen a lot of income growth.
What percentage of the total wealth in North America is held by those above the 90th percentile? What percentage of the total wealth is held by those above the 99th percentile?
Dr. Nicholson: Wealth is much more concentrated than income. In Canada in 2005, the top 10 per cent of families held 58 per cent of total household wealth - up from 52 per cent 20 years earlier.
All other deciles saw their share of wealth decline during that period. The bottom 50 per cent of families held only 3.2 per cent of total wealth in 2005.
Statistics Canada reports that the concentration of wealth in the top 1 per cent of families is about 2.4 times as large as their concentration of income.
I don't have U.S. figures at hand, but they would be similar though likely even more concentrated.
Nir Haramati: Has any global research been done on the topic of your article? [What's the situation in other countries?]/p>
Dr. Nicholson: Nir, there is an increasing volume of research - see the series of papers by Emmanuel Saez (University of California, Berkeley) and his various co-authors.
The results so far are that the situation in the U.S., Canada and the U.K. is quite similar (more extreme in the U.S.). But the situation in France is quite different with incomes at the top not having increased their share much since the 1970s. Professor Saez is extending his research to many other countries.
Meanwhile, anecdotal evidence suggests that the phenomenon of rapidly increasing executive compensation is already spreading throughout Western Europe.
Scott Thomas: Dr. Nicholson, I note that you highlight the increase of the super rich and the stagnation of the middle class.
Any thoughts on the growing poverty in this age of unprecedented national wealth?
Dr. Nicholson: Scott, oddly perhaps, the situation at the bottom of the income pyramid actually seems to have improved a bit.
For example, the income shares of the bottom 5 per cent and 10 per cent have actually increased since 1982, particularly for families.
The real stagnation is evident between the 20th and 90th percentiles for individuals and between the 20th and 60th for families (see Perspectives, September 2007, Statistics Canada, Table 2 on Page 7).
These are earned income figures before taxes and transfers. The latter have the effect of improving the relative position of poorer Canadians.
While poverty is still, and may always be, a significant problem, it is increasingly concentrated in certain groups - e.g. single mothers, certain new immigrants, aboriginal people. Great strides have been made in reducing poverty among Canada's elderly.
R.R.: Recently, I read an article on a report by a bank - I think the Bank of Nova Scotia - which said that income-tax bracket creep is to blame for keeping real income low. Is there any truth to this?
Dr. Nicholson: R.R., bracket creep occurs when inflation pushes your nominal income into higher tax brackets even though you have much less increase in real purchasing power.
One of the benefits of low inflation for the past 10 years or so has been considerably less incidence of bracket creep.
It is still something that the tax authorities - and ordinary tax-paying citizens - need to watch out for.
But I don't think it is having as much impact on after-tax real income as once was the case.
Recall as well that the facts and figures in my article all dealt with income before tax.
Donald Campbell, Meaford, Ont.: In my view, the reason that incomes have not increased proportionately is that women entered the workforce in greater numbers in the 1970s, and began to compete with men for most jobs.
This, in effect, doubled the supply of available labour and continues to suppress wages.
Dr. Nicholson: Donald, there may well be a gender effect on income distribution - the entry of more women in the labour force has certainly helped to support family incomes - but I am not familiar with studies that have established a depressing effect on wages as a result of more women in the workplace.
This has not been cited as a significant factor in the extensive academic literature on income inequality in the U.S., as far as I am aware.
We do see plenty of evidence of pressure on wages in a number of traditional male-dominated occupational categories, particularly in the manufacturing sector. But these would not be due to "competition" from new female entrants.
You could refer for further information to a 2001 paper by Marie Drolet of Statistics Canada entitled "The Persistent Gap: New Evidence on the Canadian Gender Wage Gap" and to a recent report from TD Economics "Markets are a Woman's Best Friend" (Sept. 25, 2007).
Woody Gray, Milton, Ont.: Mr. Nicholson, thank you for your article and for addressing an important issue.
My question has two parts that relate to how inflation is measured.
From what I remember of my high school economics course (and this was quite a while ago), inflation is calculated by comparing the cost of a standard basket of goods for the two years being examined.
The first part of my question addresses how that standard basket of goods is defined for each year.
Does the 2004 basket contain the same goods as the 1982 basket, or is it modified to reflect the standard of the day? For example, I don't believe it was the norm for the median family in 1982 to have a home computer. However, if a family doesn't have one today, it's not realy keeping up with the standard of society, not to mention that the children's education is disadvantaged.
The second part of my question addresses the quality issue.
Is there an attempt made to ensure that the goods in each year's basket are of comparable quality? For example, a few years ago (I believe it was 2004, in fact), I lost a corkscrew that I had owned since I first moved out on my own. I ended up buying 2 corkscrews (both of them made in China) that broke on the first or second use before I finally ended up springing for a much more expensive European-made one that I still use today.
I don't usually buy the cheapest product I can find. I'm a value shopper. I try to find good quality at a reasonable price.
However, it seems that I have to keep climbing higher and higher on the price-quality curve to get goods of comparable quality to what I was buying 20 years ago.
Even Levis don't seem to last as long as they used to - and I'm surely not getting more active as I age.
So if these factors are not considered in the calculation of inflation, has the median family really just stagnated over the last 22 years, or has it actually fallen behind?
Dr. Nicholson: That's a great question, Woody.
The basket of goods used to calculate price inflation (and thus real purchasing power) is changed on a fairly regular basis to reflect shifts in consumer buying patterns.
The question of measuring quality changes has been intensely studied and is still probably the greatest weakness of CPI calculation.
The Boskin Commission in the U.S. recently concluded that inflation in that country had been overstated by as much as 1.5 percentage points per year for failing to take account of significant quality improvements, particularly related to information and communications technology goods.
This would say that real income growth (using the old CPI methodology) had been underestimated.
The quality deterioration that you have experienced may be due to the fact that businesses are trying to bring everything within the reach of the great mass market and a lot of corners have to be cut in the process.
Vic Hottie, Kettleby, Ont. In the 1970s, Canada established a Royal Commission to investigate corporate concentration in this nation's economy, highlighting a need to level the economic playing field.
Now, Canada allows its primary resource industries to be taken over by foreign interests.
Where has concern for the incomes and living standards of Canadians gone?
It seems democracy has been replaced by multinational corporate crony capitalism, and politicians have given up on true domestic interests.
Our politicians focus solely on economic growth and our dollar's relationship to other currencies. But that does not translate into any real or measurable concern for the lives and livelihoods of average domestic citizens in this era of global trade.
Democracy works well enough when everyone is roughly equal and when constituents have tangible participatory input to their government systems.
Now, our society is overloaded with demands that have nothing to do with democracy. Private vested interests roll the dice for unplanned hurly-burly growth, and taxpayers are on the hook for their associated costs (infrastructure, grants, subsidies, etc), while average investors face potential losses (e.g., sub-prime mortgages hidden in financial instruments).
Growth for growth's sake, stagnating wages, disappearing benefits and under-employment are not the foundations for a thriving democracy.
As your essay notes, salaries of average workers have stagnated for the past two decades, while compensation for CEOs at the top 50 American companies have increased from 40 times the average worker's pay in the 1970s, to more than 350 times by 2003 - same in Canada.
How do we address this democratic deficit, now that it has become so embedded in our economic system and politicians? Or, is it simply too late?
Dr. Nicholson: Vic, I don't believe I can give a really satisfactory answer to your questions.
About the only way I know to ensure a lively and responsive democracy is to engage Canadians on the important issues. In a very modest way, that is what I was trying to do in my essay.
But as they say: You can lead a horse to water but you can't make him drink.
Ric Hard of Toronto posted this question on your original essay:
"Is this a problem and if so what is the solution?
"I think part of the problem is that government services are not seen as efficient. Do you think that an auto worker is happy supporting government programs when he compares government worker efficiency with private industry worker efficiency?
"Does one simply tax the 1 per cent and give money to the lowest income earners? Wouldn't that just result in jobs for administrators with very little of the money flowing through to the people in need?"
Dr. Nicholson: Ric, I am not sure if it is a problem. That is a political judgment to be made by Canadians at large.
My objective was simply to put forward some facts and figures to get people thinking.
The question of tax policy and the efficiency (or otherwise) of government services is also an intrinsically political question - but it probably deserves another essay!
Chris E. of Vancouver posted this question/comment on your original essay. Care to comment?
"The rich don't get richer through work. They get richer when everything in the economy grows.
"What threatens the ultra-rich is a slow-down of growth. To keep the pyramid scheme growing, the government admits about 250,000 immigrants per year, which simultaneously widens the wealth gap by putting downward pressure on the wages of average, working Canadians."
Dr. Nicholson: Chris, the economy grew very strongly in the three decades after the end of WWII, but the share of income going to the ultra rich actually continued to decline, both in Canada and the U.S.
The beginning of the upturn in the share of the ultra rich actually coincided with a period of very sluggish productivity growth in North America.
These central facts suggest that economic growth alone is not the cause of increasing income concentration at the top.
Canada has always been a nation of immigrants and as our population ages and the domestic birthrate hovers a bit below replacement level, we will probably need continuing significant levels of immigration to maintain the labour force in the future.
The important issue regarding immigration is not so much the numbers as the disturbing trend in recent years in which new immigrants have been doing less well than their predecessors despite higher average levels of education.
This is a bit of a mystery and a real problem.
David Herle: Hi, Peter. It was a fascinating piece.
My question is, as somebody who was instrumental in developing Canadian economic policy in the 1990s, what measures were taken that have advanced a more-equitable income distribution, and which measures taken have turned out to exacerbate the trends you discuss in the article?
Dr. Nicholson: David, the bottom line on income is what ends up after taxes and transfers in the pockets of Canadians.
The big advances in that regard have been largely due to the "fiscal dividend" that resulted from finally getting the deficit under control and the economy growing strongly again.
(No government can take all that much credit for the rate of economic growth - policy comes into play mostly through what government does with the growth dividend.)
In Canada's case, we were able to reduce personal and corporate taxes significantly - a process that is still going on. Also, the benefits of personal tax cuts have flowed particularly to those with the lowest incomes.
The control of inflation has also been a big help, reducing uncertainty in a host of economic decisions and protecting those on fixed incomes, particularly the elderly.
We have also made tremendous progress in putting the Canada and Quebec pension plans on a very long term sustainable footing. These plans are generally considered to be about the soundest in the world.
I could not point to any policies that have actually exacerbated the trends described in the essay.
The facts and figures cited relate to incomes from market activity and, in our system, these are not directly affected by policies, except in the indirect sense that government economic policy overall can affect the macro performance of the economy.
To the extent that income concentration at the top, and the stagnation of middle class incomes, are bound up with the globalization of the economy, one might argue that policies that support an openness to trade, investment, etc., could have some effect.
Academic studies in the U.S. and by the IMF suggest that the trade impact on income distribution, while not zero, has been significantly less than the effect of the increasing "skill premium" resulting from domestic technological advance.
But there are a lot of "ifs" and "buts" in this analysis.
Nevertheless, I believe that Canada has benefited (and will benefit) overall from continued trade liberalization. As a relatively small economy, Canada is particularly dependent on the efficiencies that come from access to world markets. One might add that trade liberalization is also the best way to improve the economic prospects of poorer countries.
Jim Sheppard: Thanks again, Dr. Nicholson.
You wrote a fascinating essay and I'm sure our readers appreciated your insight and analysis in answer to their questions. Any last thoughts?
Dr. Nicholson: Jim, thanks to you and the readers for a very stimulating set of questions. I really enjoyed the exchange.
There is nothing I need to add about the substance of the article.
But on a broader theme, I believe that the health of our democracy does depend on having more dialogues like this on significant subjects and less on the ephemeral sensationalism that dominates public media today.
But that is a subject, too, perhaps, for a future essay.