income inequality

income inequality

Income inequality is the most basic form of economic inequality. Statistically, income inequality has increased gradually in Canada and most other developed countries since the 1970's.

StatsCan: Between 1980 and 2005, “Earnings ... rose for those at the top of the earnings distribution, stagnated for those in the middle and declined for those at the bottom.”

Reasons for rising income inequality in Canada

Some of the reasons for the rise in measured inequality are more technical than real. For example a larger percentage of students are staying in school longer. These student may experience very low income while studying, but it is only temporary - their income is "compressed" into fewer working years, which looks like greater inequality. Many "real" reasons for rising inequality have global roots.

  • statistical: there are more single parent families, who are frequently low income.
  • statistical: more time spent in education (with lower income in that period)
  • economic: globalization => increases global wage competition for low skill jobs.
  • economic: globalization => larger corporations, bigger hierarchies with more unequal payscales.
  • economic: technology change produces winners and losers, and a premium on education.
  • demographic: we are just over the peak of a global baby bom the last 50 years, which depresses wages globally.


It could be worse.

The fact that the rise in inequality in Canada has been relatively mild (and largely overcome by govt transfers) masks that it could be a lot worse as the steamroller of globalization reworks the global economy.

Increased Inequality is a function of economic growth.

Inequality is the difference between the highest incomes and the lowest. As the economy grows, the highest incomes only get higher while the bottom stays at zero. Since there will always be some people with no income, inequality is bound to grow as a mathematical fact.

Living standards are still improving.

Whatever the numbers say, people have more and better stuff today than they did 10, 20 and 40 years ago. So called "poor" people have smartphones, computers, widescreen tv's, more cars, and more holidays than previous generations.

Rich Country Poor Country

Slow or negative income growth of "average" people in G-8 countries is a mirror of rapid income growth among the middle class in developing countries. The cake is being shared more equally, and not at the expense of the rich of course.

Better Corporate Governance is the solution

If corporate governance improves, as it is likely to do if governments don't go more rotten than they already are, market forces will help reduce the income gap. In the long run we need to defeat elitism in the labor market. People aren't earning 10x the salary because they are 10x as talented or 10x as productive. The way a corporation's income is distributed internally is mostly a question of politics bounded by economics. Internal transparency would go a long way to helping this. Who gets what should not be a secret.

Canada needs a Basic Income program.

A Basic Income program would put a floor under income inequality, with an unconditional grant of several thousands a year to each citizen or household. Poverty activists have long campaigned for this as the ultimate solution for inequality and argue that Canada is now rich enough to sustain such a program.