We’re hearing a lot about “income inequality” these days. It became a news item when comparative international statistics released in 2013 showed that the U.S. has the largest inequality among the advanced nations. However, the same data also showed that Canada has much less income inequality than the U.S. Simply put, the difference in living standards between the top 10% and the bottom 10% in Canada is not as great as it is in the U.S. Furthermore, the bottom 10% in Canada has a higher standard of living than the bottom 10% in the U.S. and in all other large, advanced nations! (Forbes, 2013)
So…should “income inequality” be a headline issue in Canada?
In a March 9, 2015 National Post column, Stephen Gordon, a professor of economics at Laval University, pointed out that income inequality is multi-faceted. To talk about it, you need to understand all of its parts and how Canada performs in each. Part 1 is poverty and the incidence of people with low income. This has historically been the focus of discussions about income inequality, with the concern being to ensure everyone has at least a minimal standard of living. Gordon reports that the incidence of people living below poverty in Canada has “fallen sharply in the last couple of decades.” Part 2 is what Gordon calls “first-order inequality”. This is a widening in the gap between average and median incomes and is measured by the Gini index of inequality. Canada’s Gini index went in the wrong direction and increased between the mid-70s and mid-90s, then reversed direction and declined from the mid-90’s to 2000. Since then, it has levelled off, while the U.S. index has continued to increase. Part 3 is about the concentration of income in the top 1%. “The share of Canadian income going to the top…has been falling in recent years, even as it continues to increase in the United States.”
Clearly, however you define income inequality, Canada’s reality is very different from the U.S.’s. Despite this, should we be concerned about the negative effects of the inequality that we do have?
Income inequality is claimed to have two negative impacts: lower economic growth, and a reduction in social mobility caused by the perception that people don’t have a fair chance of increasing their economic position. Canadian studies show these impacts haven’t occurred here.
• Bev Dahlby of the University of Calgary’s School of Public Policy found that “In developing, low income countries, inequality does hurt growth…but the situation is reversed in OECD countries such as Canada. There is no statistical evidence that inequality affects rates of economic growth (in wealthier countries)”. (National Post, 2013)
• Miles Corak of the University of Ottawa found that “countries with higher income inequality have lower social mobility”, but Canada does very well in terms of perceived social mobility. (National Post, 2015)
So…should Canadians be concerned about “income inequality”? Obviously not as much as our neighbours to the South! At this point in time, “income inequality” appears to be an American headline issue that has migrated north through the news media.
