Wonk with Mike Episode 24: Canada’s Increasing Inequality, with Lars Osberg

The 2020 Network

“The inequality story looks pretty different at the very top, in the middle, and at the bottom of Canada’s income distribution.”

Lars Osberg, professor of economics at Dalhousie University, joins host Mike Moffatt to discuss his most recent book The Age of Increasing Inequality: The Astonishing Rise of Canada’s 1%.

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If you give First Nations students the tools they need, they will succeed

The youngest and fastest growing segment of the Canadian population is underperforming academically to a dramatic degree. Nearly 40 per cent of indigenous Canadians do not graduate from high school, and the figure is nearly 60 per cent for First Nations people on reserves, rates that far exceed the Canadian average. What these statistics show is that the majority of First Nations students are not reaching their full potential and the question is why not?
The answer can be found in many areas, from extraordinarily high poverty levels to the underfunding of both healthcare and primary and secondary school education by the federal government. It was in this latter context that some of us enacted the Model School pilot project in September 2009.
Based on the very successful Turnaround Schools program developed by the Ontario government over a decade ago, the Model School project, known as Wiiji Kakendaasodaa: (Let’s All Learn Together) was a partnership between the Martin Aboriginal Education Initiative (MAEI), the Ontario Institute for Studies in Education (OISE) at  the University of Toronto, the leadership of Kettle and Stony Point First Nation and Walpole Island First Nation, students, teachers and parents at the two host schools: Hillside School and Walpole Island Elementary School.
The project taught teachers new teaching methods, raised expectations for students and introduced a mandatory 90 minutes of daily reading and writing instruction. The results, announced in Toronto a few weeks ago were nothing short of outstanding.
Before the program began, 13 per cent of First Nations students at the two participating schools reached the provincial standard on Grade 3 reading tests, and 33 per cent met the provincial standard in writing. In Grade 6, 17% of students met the provincial reading standard and 39% of Grade 6 students met the provincial writing standard.
After implementing new teaching methods in the Model School Project, almost 70 per cent of Grade 3 students achieved the reading provincial standard and more than 90 per cent hit Ontario’s writing provincial standard, which surpassed the provincial average. In Grade 6, 72% of students met both the reading and writing provincial standard.
Also of particular note was the fact that the percentage of students identified as having special needs greatly decreased. During Wiiji Kakendaasodaa, the percentage of students identified for special education services decreased from 45% to 19% in Senior Kindergarten to Grade 3; the percentage decreased from 24% to 4% in Grades 4 to 6.
These results provide irrefutable evidence that First Nations students can and will succeed if given the opportunity. For this reason the project should be replicated in every First Nations community where it is needed across this country.
Teaching literacy is a moral obligation. It is also essential to harnessing the economic potential of Canada for Indigenous children, who represent the youngest and fastest growing segment of our population.
What should be done? The Government of Canada should act. Proper funding will make the difference. The proof is here.
To see the full report: http://www.maei-ieam.ca/pdf/Model-School-Feb%2022.pdf

Blog: Building Ottawa (and Canada) through healthy babies and healthy children

In the draft budget for 2015 tabled by the City of Ottawa, one seemingly small but critical program is at risk: Healthy Babies Healthy Children. Launched by the province of Ontario and run by the Ottawa Board of Health, it is program on the proverbial chopping block that is worthy of national attention.
The early years – from birth to age six – are critical in a child’s development. Healthy Babies Healthy Children helps to support pre-natal and post-natal care for all citizens in the city. Three avenues of programs and services provide this support.
First, to help parents learn about pregnancy, preterm labour, breastfeeding, and caring for an infant, free online and in person prental classes are offered in English and French in various locations across the City throughout the year.  In addition, public health officials facilitate ‘pregnancy circles’ that are offered in English, French, and Chinese, for expectant parents who may need extra support.
Second, after a baby is born in Ottawa, a public health nurse calls to check in on the health of the newborn. Asking fundamental questions, these simple phone calls connect parents to the outside world at a time of vulnerability and uncertainty. It lets families know that they are not alone and that there is someone out there that they can call if need be.
Third, drop-in centres are open on a rotating basis every day of the week all across the city. Facilitated by public health nurses, nutritionists and lactation consultants, the centres provide a safe and warm environment for parents with young infants to visit. Here, babies are weighed, ‘tummy-times’ are had, and communities are built. Moms having problems with breastfeeding can learn new tricks to make it easier for them, parents worried about the development of their babies can have questions answered, nurses are given face-to-face opportunities to explain the benefits of vaccines (all the more important given the recent measles outbreak), and everyone gets to share their stories about the joys and challenges they are facing with young infants at home.
Individual benefits for babies from such programs are clear. While nothing really prepares you for bringing a baby home, prental classes nevertheless give parents good information to increase infant well-being. Regular weekly weigh-ins that is charted provides early warning signs if something is wrong. Or, weekly weigh-ins may calm nervous young parents keeping them out of doctors’ offices. Even as early as three months, contact with other babies furthers cognitive and emotional development. Such individual benefits for the babies should be enough to convince any government to keep these programs running.
Benefits, however, are not restricted to the individual babies. Collective benefits for families and the community writ large are invaluable.
Post-partum depression, for example, is a major illness that can affect moms, dads, and parents who adopt [1]. Caring for an infant is often extremely isolating, amplifying the symptoms of post-partum depression. Having a safe space to visit and regularly meet with other people can help parents see if they are experiencing the symptoms of post-partum depression and seek the help that they need.
Ottawa, like many cities across Canada, is also filled with families that have just moved who don’t have access to an extended network of aunts, uncles, and grandparents that they can rely on. The drop-in centres held under the Healthy Babies Healthy Children program help build communities. From clothing exchanges to informal parental baby-sitting networks, these centres provide a hub for new residents helping them to integrate into the place that they are now calling home.
That, in a nutshell, is the Healthy Babies Healthy Children program and some of the key benefits that it offers. What, then, is the problem?
In her report submitted to the City, Medical Officer of Health, Dr. Isra Levy draws attention to the fact that Ottawa Public Health faces ‘significant long-term funding shortfalls’ caused by inflation and insufficient support from the Government of Ontario due to caps on provincially funded programs [2]. A funding gap has thus appeared.
To fill the gap, Ottawa Public Health is planning to restrict access to the three avenues of service for clients with ‘identified risk factors’. In other words, a program that was once open and available for all families in the city will now be limited to only those who meet defined criteria.
If the City does this, a universal program will be transformed into what policy wonks call a means-tested service. A poor strategy for two reasons.
First, restricting the program to ‘at-risk’ clients will increase the administrative costs of the programs. Staff members will now need to spend time determining whether or not a person should actually access the service, rather than simply working with everyone who comes through the proverbial door.
Second, universal programs help build solidarity and foster shared understanding. Such programs also have a greater number of people concerned that are ready and willing to fight for them should they be threatened with cuts or cancellation. When services are means tested, such advocates disappear and, overtime, the benefits are at a bigger risk of withering or vanishing altogether.
Contrast this proposal with a long-standing practice in Finland. There, for more than 75 years, expectant mothers are given a box by the state. With clothes, sheets and toys it gives all Finnish children, regardless of their background, the same start in life.  And, according to researchers like Mika Gissler, professor at the National Institute for Health and Welfare in Helsinki, the boxes have played a major role in improving family health overall in the country [3].
So what should happen? To start, the Province of Ontario should index the funds to ensure the costs of the programs it launched are sufficiently covered. Ironically, Ontario is subjecting municipalities across the province to the same critique often lobbed at the federal government: the province started a ‘boutique program’ while leaving the other level of government holding the financial bag. The City of Ottawa could be a bellwether for other municipalities across the province, and the entire initiative may be on route to its demise.
Even more importantly, particularly given Canada’s egregious and stubborn rates of child poverty, provinces and territories from coast to coast should offer similar programs and improve on the Ontario model [4].  An integrated yet diversified network of such programs dedicated to young children should be established and made available and accessible for all families regardless of where they live in the country. Healthy babies and healthy children should be a benefit enjoyed by all who live in Canada.

Jennifer Wallner is an Assistant Professor at the University of Ottawa’s School of Political Studies. She can be contacted at jennifer.wallner[at]uottawa.ca

Blog: One-size childcare policy fits no-one

There are a little more than 4 million children in Canada aged 0 to 12 years.[1] They need care and education. I don’t think anyone really disputes this–youth 13 and older obviously also have needs for care and education but they’re not the focus of this post. In most cases, decisions about that care and education are made by parents or legal guardians who will have the bests interests of their children at heart. I don’t think anyone disputes this either. Those children and the families making decisions for them are really, really diverse. So why do we keep trying to produce national public policies on child-care that are one-size solutions?
Sometimes one-size fits all means everyone gets the same kind of choices for childcare.
Supply-side solutions look for ways to increase the number of spaces for children in quality childcare programs. For example, Quebec’s provincial childcare system provides all families with a regulated space in a childcare centre or in licensed homecare and regulates the out-of-pocket costs to parents. In a long-overdue move the province has started to tie that fee to household income. The 2005 federal-provincial agreement on childcare was similarly intended to increase the supply of regulated spaces in the rest of the country. All provinces in the country provide some financial support (from some combination of federal transfers and their own tax revenues) for the early learning and care services in their jurisdiction. In 2006-07, there was also a short-lived federal effort to look for recommendations to encourage employers to create more childcare spaces for their employees. That last effort ended quietly.
It’s not totally clear we have a supply-side problem when it comes to learning and care for kids. Our indicators on the supply of childcare in Canada are a bit problematic in that they exclude other options used by families like after-school recreational programs and homecare with too few clients to require a license.[2] What we do know is that there were 585,274 licensed spaces (in centres or licensed homecare) across Canada (outside Quebec), which makes it sound like as many as 85% of kids are going without childcare from infancy to middle school. In reality, we have to adjust that ratio to account for other factors like access to parental leave, private care arrangements and programs that may be high quality and developmental but fall outside provincial regulation. Furthermore, depending on the age of the child, between 40 and 60%[3] of families say they don’t use any daycare services (note the switch here to “daycare”) at all. How do they manage?  Well, probably through some combination of private arrangements, adjusting their work hours and relying on things like full-day kindergarten (where they can) and after-school recreational programs. When parents are asked what matters most to them when they choose their childcare, parents report that location, trust in the provider and affordability are, in descending order, their 3 primary criteria with location by far the most frequently-cited factor.[4] So, getting the supply-side right has to mean attention to a really wide range of types of care, the market price of that care and even the minutiae of where that care is physically located. That’s a tall order if you want to rely on just one policy instrument, no matter what that one instrument is.
Sometimes, one-size fits all means giving everyone the same financial support, regardless of need or ability to pay. This is when really strange things can happen.
Demand-side solutions look for ways to reduce the need for childcare or to subsidize the market price of that care. For example, all provinces outside of Quebec offer income-tested subsidies for licensed childcare services. Quebec did away with subsidies when it introduced its universal daycare plan which has led to an interesting puzzle: Among households who say they use childcare, Quebec households are more likely to say they pay $10 a day or less, but modest income households (making under $40,000/year) are significantly more likely to say they pay $0 out-of-pocket for that care if they live outside Quebec than inside Quebec.[5]  In short, swapping subsidies for flat fees seems to mean that costs for childcare are lower on average across all households but are actually higher for lower income households.
Federally, there are two key instruments intended to help families with the costs of childcare. The Child Care Expenses Deduction (CCED) lets parents deduct eligible out of pocket childcare costs, within certain limits. It was recently increased to $8,000 for each child under age 7 starting in the 2015 tax year. When the 2005 federal-provincial supply-side agreement on childcare was cancelled, the money was used to create a new flat cash transfer of $100 per month for each child under 6 years–the Universal Child Care Benefit (UCCB). Financing the UCCB also meant diverting money out of the income-tested Canada Child Tax Benefit system.[6] The UCCB was recently expanded so each child under 6 creates a flat entitlement to $160 per month and each child aged 6 to 18 years generates flat entitlement to $60.
The CCED and the UCCB are both responsive to parental income in some weird ways. The CCED has to be claimed by a working (or student) parent with the lower income and the UCCB is taxable in the hands of the lower income parent (regardless of their labour force activity).  Let’s take a simple case, where two parents in a household have equal incomes, or at least incomes in the same federal tax bracket. Figure 1 (below) shows the maximum federal benefit they could receive out of the CCED and UCCB for one child under 7 years of age in the 2015 tax year.
The net effect is that direct federal demand-side support generally rises with household income. The UCCB purposefully pays the same amount, before taxes, no matter a household’s actual expenditure on learning and care.  The CCED lets families claim some tax relief only after they’ve spent the money on eligible forms of daycare–an approach that works far better if a family can afford the cashflow pressures in the interim and has enough tax liability get some real benefit out of a deduction.
Policy proposals that promise the same amount of money to all families, whether they are supply-side or demand-side solutions, are politically attractive. They make for nice pithy bumper-sticker commitments that are easy to communicate. But they come with real problems because neither is able to adjust to the needs and means of Canada’s diverse families. In either case, some strange things seem to happen.
Maybe the primary problem in the current childcare policy debate is that it has pitted families who use daycare against families who don’t. Families who use daycare are reduced to supporting a one-sized supply-side approach.  Families who don’t are reduced to supporting equally one-sized demand-side option instead.  In neither case does the debate acknowledge or respond to a more realistic range of preferences, needs and ability to pay.
What if instead, our starting point was that:

  1. Childcare is what all families provide for their kids.
  2. All of those kids need learning and care.
  3. Many, but not all families meet their kids’ needs for learning and care through daycare.
  4. Different families will have different demands for early learning and care in their community.
  5. Different families will have different abilities to pay and out of pocket costs.

There are lots of different levers that could be used on the family policy front and it’s time they started to be used in more nuanced, integrated ways.  This route doesn’t lead to simple policy solutions of $X per day or $X per month. Maybe we’ll just have to start making some bigger bumper-stickers.

Jennifer Robson is an Assistant Professor at Carleton’s School of Political Management. Contact her at jennifer.robson[at]carleton.ca

From the End of History to the End of Progress

A few years ago, we began noticing something very different about the way the public looked at the economy[1]. The public seemed to believe that we were encountering an end of progress. The idea of a “better life” or what is known to the south as the American Dream seemed to be slipping away. Among citizens of both Canada and the United States, there was a growing recognition that the middle class bargain of shared prosperity, which had propelled upper North America to pinnacle status in the world economy in the last half of the twentieth century, was unravelling.
In this brief consideration of the political implications of the problems of the middle class, we will examine both perceptions and behaviour (and values). Our work reflects the grand insights of major recent scholarly work by Daron Acemoğlu, Thomas Piketty, Richard Wilkinson, Miles Corak, and others. We believe that this percolating crisis of the middle class is the greatest challenge of our time and we have argued this narrative to very senior audiences in Canada and the United States – whoever will listen and act.
Despite near public consensus on the severity of the issue, and impressive empirical and expert support, many in the media and elsewhere deny the problem. And yes, there is still relative prosperity in the Canadian economy – we certainly aren’t Spain, let alone Greece. The trajectory, however, is clearly to stagnation and decline, except for those at the top of the system.[2]
The public are not deluded, nor hysterical. The clarity of public concerns around the issue of middle class decline is remarkable. Moreover, when we unpack this across generational cohorts we can see that the unravelling is much more evident as we move from seniors to young Canada. So while still eminently fixable, the trend lines lead to a very gloomy prognosis which is currently infecting public outlook and threatening to become a self-fulfilling prophecy.
Fears are highest when turned to the future, particularly concerns about retirement, and the fate of future generations. Whereas the middle class used to mean one could attain a house and a few luxuries and a better life than one’s parents it is now all about security, which has become the elusive lacuna as it applies to the ability to get by and to retire with security. The grey outlook on the present turns almost black as the public ponder the fate of future generations.
Consider the troubling syllogism laid out below:
There is a virtual consensus that a growing and optimistic middle class is a precondition for societal health and economic prosperity. This consensus position reflects the historical record of when nations succeed.[3] Yet if this consensus is correct, we note with alarm that almost nobody thinks that these conditions are in place in Canada. To the contrary, the consensus view is that the middle class is shrinking and pessimistic.

What has changed?

There are important barometers of confidence and we have tested these the same way in repeated measures for twenty years or so; the trajectories are clear and revealing. Never in our tracking has Canada had such a gloomy outlook on the economic future. Never in our tracking has the sense of progress from the past been so meager. The right wing commentariat may seize upon partial stories/research to suggest: i) this is a non-issue – only of concern to “wonks”; and ii) things are swimmingly well and even if public show fears, they are being foolish. We say the public are right.
The point isn’t that Canada is in a state of privation and economic distress – it clearly isn’t. The point is that the factors that produced progress and success don’t seem to be working in the same way anymore. And the problem is accelerating as we move down the generational ladder.
The current generation sees itself falling backward and sees an even steeper decline in future. The typical optimism of youth is very muted as they encounter an economy that doesn’t seem to offer the same promise of shared progress available to their parents and grandparents.
So it appears that we have at least temporarily reached the end of the progress, the defining achievement of liberal democracy.

Vertical mobility eroding

The chart above shows a sharp rise in the rate of downward intergenerational mobility as we move from seniors to younger Canada (a nearly threefold increase). Arguably, the prime driver of this is rising inequality which is increasing quickly across all advanced western economies.[4] Notably, as Miles Corak notes,[5] the incidence of upward vertical mobility across generations is dropping most sharply in those places which are becoming more unequal at an even faster pace.
The economic ladder is missing rungs in the middle and people are less motivated to try climbing with those conditions in place. Merit is less relevant as the system is now “stickier” at the top and bottom of the social ladder. This failure of the incentive system is hobbling innovation and effort and creating a more tepid growth pattern where the relatively more slowly growing pie is appropriated by an ever slenderer cohort at the top.[6] We are literally killing the goose that lays the golden eggs underpinning healthy middle class economies.
If one thinks this problem is self-correcting or going away, ponder the chart below which is a couple of days old. Very few Canadians think their financial situation is improving but the sense of progress seems to get smaller as we move from ten to five to one year comparisons. What does it say about an economy which defines shared progress as an economic and moral imperative that less than one in five thinks their lot improved last year?
For those who think it has always been like this or that Canada is either immune or charting a differing path, it is not so. In broad brush strokes, four Anglo-Saxon economies have followed the same curve, which seems to be leading to a reproduction of the original gilded age of robber barons which predated the great depression.

Conclusions and going forward

Will the issue of middle class progress be an issue in the coming election? There are good arguments that once the emotion and chauvinism surrounding terror and ‘cultural’ issues fade, this issue will reassume its pinnacle position.[7] What will Canadians think in the fall when the inevitable early enthusiasm for another Middle East adventure doomed to yield disappointment yet again fades? They will look at a relatively moribund Canadian economy lurching along at sub-two-point growth with nothing available for any members of the depleted middle class. They will ponder the prudence of a long term bet on the short term prospect for carbon super power status. They will look enviously at an American economy moving at twice the clip of ours under the explicit framing of what Obama calls ‘middle class economics”. They will look to their prospective leaders and ask who has the most plausible blueprint to restart middle class progress?

Frank Graves is founder and President of EKOS Research, and is one of the country’s leading applied social researchers, directing some of the largest and most challenging social research assignments conducted in Canada.

Public policies for equality and social mobility in Canada

Author: Miles Corak, Professor of Economics, University of Ottawa
Release Date: February 22, 2013
Pages: 32
Author Miles Corak, Professor of Economics from the University of Ottawa, details the public policy drivers behind social mobility in Canada, and its links to equality of opportunity for Canadian citizens.
The paper offers a series of innovative policy solutions that the federal government could take to ensure high degrees of mobility, and lower degrees of inequality.
Download PDF

Productivity and pay – why Canadians are (somewhat) better off

Comparing ourselves with the United States is a national pastime in Canada. Sometimes the comparison makes us look good (health care, public education).
Sometimes it makes us look bad (consumer prices, productivity). Sometimes it reveals an altogether more nuanced story. Sadly, we often miss the nuance.
A month ago, the New York Times published a piece, titled Our Economic Pickle, on the conundrum represented by increasing productivity and declining real wages. Workers are producing more, yet taking home less of the overall pie: wages now represent only 43.5 per cent of GDP, down from over 50 per cent of GDP in the 1970s. Corporate profits are at an all-time high while wages and median household income have both fallen.
Within that 43.5 per cent, it is the top earners who are doing best — a familiar story from the broader income inequality debate. In 1979 the top one per cent took home 7.3 per cent of total wages. By 2010 this had risen to 12.9 per cent. This makes sense to those who have been following trends in income polarization: the ultra-rich are increasingly self-made and they earn wages, in large amounts, rather than rely on inheritances. The fact that their share of the pie has gone up by 50 per cent is no surprise.
At the opposite end of the spectrum, things are looking grim for U.S. workers: labour productivity has increased by 80 per cent since 1973 but median hourly compensation has gone up by only 10 per cent. Real GDP has increased by 18 per cent but median household income has fallen by 12 per cent since 2000. ‘Shared prosperity’, as the basis for societal cohesion, appears to have fallen by the wayside.
Is the same true in Canada? Somewhat. One of the biggest problems in this country is labour productivity: this rose by only about 50 per cent between 1980 and 2012 — about 30 per cent less than in the U.S. Average (mean) real hourly wages certainly did not keep up. They grew by 4 per cent between 1981 and 1998, before advancing at a more rapid rate between 1998 to 2011 for a cumulative 14 per cent increase. While by no means perfect, this is significantly better for workers, when lower labour productivity increases are factored in, than in the U.S.
This Canadian ‘advantage’ is reflected in the aggregate figures. In the U.S., the share of wages, salaries and supplementary labor income to GDP has fallen over time — from a high of nearly 54 per cent in the late 1960s to less than 44 per cent now. In Canada it has remained stable, close to 50 per cent of GDP (51 per cent in 1961 and up to 52 per cent in 2011). And in Canada we have minimum wage rates that substantially exceed those in the U.S.
In this week’s State of the Union address, President Barack Obama proposed raising the federal minimum wage in the U.S. from $7.25/hour to $9/hour. Few feel confident that he will be able to achieve this. Meanwhile, hourly minimum wages in Canada — which are set by provinces — vary from $9.50 in Saskatchewan to $11 in Nunavut (Ontario currently stands at $10.25, Quebec at $9.90 and Alberta at $9.75). Goods certainly cost more here — as was confirmed by a recent Senate report on the Canada/U.S. price gap — but at least those at the bottom of the wage scale take more home per hour.
One reason for this may be the relative rates of unionization in the two countries. Unions now represent around 11 per cent of American workers (though less than 7 per cent in the private sector) as opposed to 28 per cent in the 1960s. In Canada the unionization rate is still above 30 per cent, close to the U.S. mid-1950s peak of 35 per cent.
What does this tell us? That our problems are not as severe as those in the U.S.? Yes, at some level that is certainly true. But societies should judge themselves by what they themselves can bear and not by comparison with others. As is the case in the health care debate, if we stop thinking about the U.S., things do not look that great in Canada.
Collapse is by no means imminent, but we do need to do some soul-searching on how we want to move forward and what value we place on the factors that distinguish us from the U.S.

Inequality – defining the defining issue of our time

Growing inequality is, according to President Barack Obama, “the defining issue of our time.” In the week following his re-election, the president has vowed not to abandon his resolve to raise taxes on those earning over $250,000.
This fascinates me. What is it that has propelled the issue of inequality to these dizzying heights? Which straw broke which camel’s back? And why do other, arguably more critical, issues such as climate change and our energy future seemingly fail to ignite the imagination of the public and the president?
Much has been written about the causes and effects of inequality in the U.S. I am going to focus my attention on Canada, where a good deal of ink also has been spilt, often without clear reference to the underlying facts and forces.
Globally, income inequality has never been higher. Certain countries are managing to keep it in check (Brazil, for example), but most middle- and high-income countries are more unequal now than they have been since at least the 1920s. This is certainly true of Canada, which sits near the middle of the OECD inequality rankings. But what do we learn if we dig a little deeper into the various measures of inequality?
The most common of these is the Gini coefficient, which measures the variance between actual income distribution and a theoretical, perfectly equal distribution. Thus, a Gini of zero tells us that there is no deviation and that everyone is perfectly equal. A Gini of 1 means that one individual has all the income, everyone else has nothing: winner takes all, writ large. Three categories of Gini are typically employed: the market income Gini, the total income Gini and the Gini after taxes and transfers (the ‘outcome Gini’ as I like to think of it: this overlays first-cut distributions with societal choices about taxation and supports).
To simplify, let’s take look at the market income and outcome Ginis for the past three decades. Between 1981 and 2010 the market Gini in Canada went up 19 per cent from .434 to .518. Over the same period the outcome Gini went up only 13.5 per cent from .348 to .395. So, overall inequality in Canada has risen — quite a bit, in fact — but taxes and transfers have, over time, offset an increasing portion of this rise (though not enough to smooth the outcome Gini completely).
Now, let’s look at when the big jumps in overall inequality took place. Judging by the recent prominence of the topic, one would imagine that the last few years had been particularly inequitable, but this is not borne out by the data. Pretty much all the increase in the Gini coefficients took place in the 1980s and 1990s. For each measure, the increase between 2000 and 2010 was less than 1 per cent.
This is unexpected. Most of us certainly feel that the world is becoming more unequal (which, in the end, is what matters). So what’s going on?
First, some groups have been doing much worse than others. Median family income rose by about 38 per cent between 2000 and 2010, but if you look at single-earner male couple families, there was no rise — in fact, there was a 1 per cent drop.
So burdens are not equally shared. There are those who have ample cause to complain, though I don’t know if they’re actually the ones doing the complaining.
The ones truly burdened by income inequality typically hail from the very bottom of the income spectrum, and this is where the limitations of the Gini coefficient come into play. Ginis are best at measuring changes in the middle, where most people are clustered. They are less good at capturing change at the very top and the very bottom of the distribution — the tails. In Canada this is where a good deal of the action takes place. Although we sit in the middle of the overall OECD inequality ranking, we are third in the OECD (after the U.S. and the U.K.) in terms of share of pre-tax income going to the top 1 per cent.
Second, there is a markedly higher sense of overall economic insecurity today than in the recent past. Unemployment in Canada peaked at 8.5 per cent in late 2009, having fallen to below 6 per cent a few years earlier (it is now 7.4 per cent). Youth unemployment, though, is significantly higher at 14.7 per cent. So younger people are hurting, especially as they contemplate making their way onto the property ladder. The cost of new housing has gone up by 55 per cent since 2000 — significantly outstripping the increase in median wages which, as you will recall, has been only 37 per cent.
Third, we Canadians tend to see ourselves reflected in the experience of the U.S. — and things are a lot worse there. Especially during the election campaign we were inundated with tales of real woe from many of the formerly blue-collar regions of the United States.
By contrast, readers might be surprised to discover that the real hourly wages of Canadians in full time employment actually grew by 14 per cent between 1981 and 2011. Even more surprising is that fully 10 per cent of that 14 per cent growth took place between 1998 and 2011. Another interesting marker here is that all of the jobs lost in the recession in Canada have, according to the Bank of Canada, now been replaced. Ninety percent of the new jobs are in industries paying above average wages.
Again, though, not everyone had the same experience. Between 1981 to 2011 average (real) hourly wages increased by 17 per cent for men aged 45-54 but only 1 per cent for men aged 25-34 (youth gets nailed again). Another surprising fact is that, having risen sharply in the 1980s and the 1990s, the wage gap between those with bachelor’s degrees and those with high school diplomas or trade certificates has actually fallen since 2000. It is likely that this modest degree of wage convergence is attributable to Canada’s energy and resources boom: demand for skilled trades is at an all-time high, just as our tech sector — which employs more highly educated people — has contracted. Nonetheless, the “education gap” in income between those with post-secondary and those without remains significant: in 2011 it was about 37 per cent for men but a shocking 55 per cent for women.
Reflecting on these data points brings me to conclude that it may not be in the top-line numbers that the real story of inequality lies, at least in Canada. We have to dig a little deeper. I see three root causes of our concern with inequality in Canada (three seems to be the magic number).
First, there is a general lack of confidence in our economic future, as a country and as individuals. In March 2012, polling by Ekos found that 57 per cent of Canadians felt that they would be worse off in 25 years than they are today. This is a staggeringly large number of people in a country that has been an outlier (on the positive side) in terms of economic mobility — the decoupling of one’s own prospects from those of one’s parents.
Related to this is a lack of vision for the future at a political level. Even our supposed destiny as an energy superpower seems hard to grasp and if we fail in that regard it is not clear what the back-up plan is. Without an alternative vision, it is reasonable to expect that trends around income consolidation at the top of the spectrum will continue, to the detriment of the majority.
Second, the politics of division are coming home to roost. The grass is always greener on the other side and the Occupy movement has provided a voice to many unhappy people. The visibility and excess of the top 0.1 per cent — the group that has been almost solely responsible for shifts in Canada’s overall inequality rate since 2000 — play a part. (The share of income going to the top 0.1 per cent increased from 2 per cent in 1980 to 5.3 per cent immediately pre-recession in 2007: the share going to the top 1 per cent is up from about 7 per cent to 10 per cent over a similar period.) So does the bursting of the credit bubble that previously masked some of the inequality. Another big factor in Canada is regional inequality, but there is no space to go into details about that here.
Third, I perceive a fear that the institutions that underpin our country and the global system are either threatened, rotten or inadequate to face down the challenges of the future. The global financial system comes first to mind, but with so many recent scandals in the worlds of politics and business it’s no wonder people are nervous. In Canada this disquiet extends to our education and health systems, both of which have been key to our high levels of economic mobility and both of which face myriad challenges.
How, then, should we address these three root causes? It seems to me that the common thread between them is their relationship to equality of opportunity. People feel that this is slipping from their grasp. The good news — as esteemed economist and recent Canada 2020 guest Larry Summers suggested recently — is that this may be a policy area around which progressives and conservatives can come together. Bolstering this may end up being the single most important thing that we can do for our economies in the near future.
The promotion — using a wide array of policy tools — of equality of opportunity should help not only to encourage entrepreneurism and boost productivity (which we badly need) but also to remedy the dangerous social fragmentation that goes hand-in-hand with a perception of deepening inequality. If you are in any doubt about the nature of such fragmentation, I strongly advise reading the book The Spirit Level, which correlates almost every societal ill with inequality, and the lack of hope and aspiration that such a condition engenders.
So, let’s embrace inequality as the defining issue of our time and confront it head-on by promoting greater opportunities for all. Then, my hope is that the climate agenda – which I perceive as far more intractable – will steal the spotlight and forcefully demand serious policy action.

Venus and Mars Align – Income Inequality Agendas in France and America

When the President of the most anti-government country on earth and the President of the country that invented dirigisme are converging upon a political narrative, if not a shared policy agenda, something is going on that Canadians better pay close attention to.
Francois Hollande, the newly elected socialist president of France, is defining the early days of his presidency on the issue of income inequality.  Barack Obama, who faces a jaded American electorate in a few months, has decided to make income inequality the central issue of his re-election campaign.  This amounts to the political equivalent of the alignment of Venus and Mars.
Canada lies, both culturally and politically, in the mid- point of these two planets.  And yet oddly enough politicians in this country are saying almost nothing about income inequality.
Hollande has exhibited the most extreme rhetoric and pointed policies on the subject, echoing the language of the Occupy Movement.  He has called “the world of finance” his main enemy. The government Hollande leads plans to introduce a variety of tax increases to level things out on what he has termed “the grasping and arrogant rich”.  These include wealth, financial transactions and inheritance tax rises.  An extra 3% dividend tax on business has been mooted.  Planned increases in value added tax by Nicolas Sarkozy, Hollande’s predecessor—which would have hit hardest on low and average earners—are being cancelled, even though the French government desperately needs the revenue (not having balanced its budget in thirty eight years and with a debt GDP ratio of 86%).  A new 75% top rate tax on incomes over 1 million euros is expected.  Salaries at majority state owned companies, of which there are dozens, will be capped at 20 times the lowest paid worker’s wage, meaning some chief executives could take as much as a 70% pay cut.
All in the name of reducing income inequality.  And all quite popular in the land of liberty, equality, fraternity.
But how can an income inequality agenda be popular in America, the land of the free and the home of the brave, a country that likes to present itself as the world’s beacon of unbridled free market capitalism.  President Obama certainly thinks it can be.  He sees income inequality as the “defining issue of our time”.  While Obama’s points are subtler and less overtly “soak the rich” than Hollande’s, the message is pretty clear.
In his State of the Union Address in January the subject of income inequality featured prominently.  The president said– “No challenge is more urgent. No debate is more important… We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.”  Building on this theme in April, the president said–“What drags down our entire economy is when (sic) there is an ultra-wide chasm between the ultra-wealthy and everyone else.”
So for Obama, income inequality is bad for the economy, which fits well with America’s basic narrative.  And for Hollande and the French socialists, income inequality is an affront to the core French values of egalite and fraternite.  Different strokes for different folks.
President Obama has been shorter on solutions to the defining issue of our time than has Hollande, but he has put a couple things on the table.  Notable among these are extending tax breaks for America’s struggling “middle class”, by which he means everyone but the top 2% of earners, who drive the income inequality gap so wide in America.  And he has expanded tax credits for low income people and put more money into education.
While income inequality has emerged over the past few months as a dominant issue in France and America, the silence among Canada’s politicians on this subject is truly deafening.  This is especially puzzling given that measures of income inequality are much worse in Canada than in France.  And income inequality in this country is rising faster than it is south of the border.
This week the Premiers gather for their annual confab to discuss the major issues they think confront Canada.  Energy, a perennial favourite, is at the top of their agenda.  The Premiers would be well advised to spend a little more of their energies on the defining issue of our time.