The Census on Inequality (Updated Again)

Marc recently trumpeted this blog for being ahead of the public debate on several economic issues. However, we have perhaps been slightly behind the curve in commenting on yesterday’s release of income statistics from the 2006 Census.

It indicated that, from 1980 through 2005, the median income among full-time Canadian workers remained flat. The median income of the top fifth rose by 16%, as that of the bottom fifth fell by 21%.

In one sense, the release contained relatively little new information. Countless studies have already documented worsening inequality due to rising incomes among the rich, falling incomes among the poor, and stagnant incomes in the middle. A while ago, I heard Lars Osberg observe that the only reason to continue conducting a census is to provide the sample frame for the more frequent studies that unveil new information. On this basis, Osberg published his take on Canadian inequality over the last quarter century a few days before Statistics Canada released the 2006 Census figures.

Nevertheless, yesterday’s release was significant because it authoritatively confirmed what previous studies found and attracted much-needed media attention to the issue of inequality. Although the press has given Statistics Canada’s facts substantial coverage, its interpretation of these facts has sometimes missed the mark.

Today’s National Post coverage consists of Terence Corcoran’s rebuttal of Statistics Canada on the front page and the Fraser Institute’s rebuttal of Statistics Canada in the business pages. The Corcoran/Fraser Institute line is that, although individual incomes have stagnated, family incomes have increased. However, family incomes are higher only because, on average, more family members are working. While increased employment may be desirable, it hardly excuses stagnant pay rates for workers.

In any case, family incomes have increased proportionally faster at the top end than in the middle or at the bottom. No matter how Corcoran and the Fraser Institute slice it, inequality is getting worse.

They correctly argue that Canada’s public system of taxes and transfers has mitigated the inequality of employment income emphasized by Statistics Canada. It is odd hearing this argument from people who advocate cutting taxes and shrinking transfer programs. Do Corcoran and the Fraser Institute now support government redistribution to combat inequality?

The Globe and Mail’s front-page headline included, “Society has made great strides in the past generation – just not in wealth creation.” Inside, an op-ed by Don Drummond contended, “Weak overall incomes are a predictable result of Canada’s lacklustre productivity record in recent decades.”

Although higher productivity would undoubtedly be desirable, productivity is not the problem. The Census indicates that median incomes have increased by only 0.1% since 1980. I am pretty sure that median productivity has increased by more than that since 1980. Canada has created a huge amount of wealth over the past quarter-century. The problem is the grossly unequal distribution of this wealth.

UPDATE (May 3): Today’s Toronto Star editorial hits the mark.

UPDATE (May 5): The Jurist has posted some apt mockery of the National Post position.

UPDATE (May 6): I have the following letter to the editor in today’s National Post.

UPDATED (May 9): In today’s column, William Watson quotes the following letter and argues that the Post should have taken a different tack on the Census.


Workers’ pay remains stagnant

Tuesday, May 6, 2008
Page: A13
Section: Letters

Re: The Non-existent ‘Compassion Gap,’ editorial, May 3. The 2006 Census indicates that the median employment income of full-time Canadian workers has not improved since 1980. The National Post tries to pooh-pooh this striking fact by instead focusing on family income, which has increased only because more family members are doing paid work. While expanded employment is welcome, it does not excuse stagnant pay rates for workers.The median Canadian family has more income (and less leisure time) due to increased employment. The fact remains that Canadian workers have been deprived of the proceeds from a quarter-century of rising labour productivity.

Further, the Post emphasizes that the poorest families’ median employment income has risen by 15% since 1980. This meagre gain of 0.6% per year should not silence the legitimate concern voiced by other Canadian newspapers.

Erin Weir, economist, United Steelworkers, Toronto
 

 

 

One comment

  • Here is a link to another column William Watson wrote i on May 13th n the Montreal Gazette on on the new StatCan data:

    http://www.canada.com/montrealgazette/news/sports/story.html?id=914a89e8-9390-422f-99ff-f613ef6ebe6f

    And here is an op-ed piece I wrote in reply, which appeared appeared on May 16th:
    http://www.canada.com/montrealgazette/news/story.html?id=3d47fed3-ce36-470a-8641-ab6fc8379045

    Poor, middle-income earners did not share in wealth boom

    Canada has become a far richer country in 30 years, yet many have fallen behind

    RICK GOLDMAN
    The Gazette

    Friday, May 16, 2008

    As William Watson correctly points out in commenting on two recent Statistics Canada reports, statistics can be selectively used to make the case that things are getting better or worse for the poor in Canada (“The
    rich get richer but so do the poor,” Opinion, May 13). Indeed, whether he realized it or not, Watson’s article included two examples of such selective use of statistics.

    In terms of the percentage of Canadians living under our unofficial “poverty line” (StatsCan’s “low-income cut-off”) Watson states that the picture has been quite rosy since 1996. And he’s right: the percentage of us
    living in relative low income dropped from 15.7 in 1996 to 10.5 in 2006. As Watson puts it, if you believe that neo-conservatives have been running economic policy in Canada during that period, well, they just might know
    what they are doing!

    But 1996 was the end of a recession and poverty was at a peak. Taking a slightly longer view, StatsCan figures reveal that we are actually doing worse today than we were in 1989, when the low-income rate was 10.2 per cent. So, far from making dramatic progress, we are going nowhere fast.

    But are the rich getting richer and the poor getting poorer? No, Watson, tells us. While the rich are getting richer, the incomes of the poor are also rising (though not quite as quickly). He is right here as well – as
    long as we compare the incomes of the richest 20 per cent of families with those of the poorest 20 per cent and again use 1996 as the starting point (as Watson and the recent StatsCan report do). However, a May 2007 StatsCan study tells us that, if we narrow the comparison to the richest 10 per cent of families versus the poorest 10 per cent, and use 1989 as the
    starting point, the rich still got richer, but the poor actually lost about eight per cent of their after-tax income since then, even accounting for all government transfers.

    So, what, if anything, can we state with certainty? Why it’s elementary, my dear Watson (sorry, couldn’t resist). In the past three decades, Canada
    has become a far richer country. Real GDP per capita grew by 51 per cent between 1981 and 2006. Yet we have been spinning our wheels, or even losing
    ground, with regard to poverty and inequality. Nor has the average non-poor “working stiff” benefited from Canada’s long-term gains in prosperity. As one of the recent StatsCan studies reports, the median earnings of Canadians employed all year on a full-time basis increased by just $53 – from $41,348 in 1980 to $41,401 in 2005 (in 2005 dollars).

    As Watson points out, conservatives argue that this wage stagnation doesn’t matter, because many families have compensated by having two wage earners. But what kind of a social contract do we have when middle-class families can benefit from decades of economic prosperity only by sending both spouses out to work, instead of just one?

    In fact, reducing poverty and inequality are not rocket science. One of the greatest success stories is that of Canadian seniors. In 1986, their low-income rate was 13.5 per cent. By 2006 it had dropped to 5.4 per cent –
    in other words, about half the low-income rate for all Canadians. What happened? Canada simply resolved to adopt a pension scheme that provided all seniors with a certain minimum standard of living. Some countries have taken the same approach and extended it to all their citizens. For example, Finland and Sweden have overall low-income rates similar to Canada’s low-income rate for seniors.
    “Aha!” conservatives will shout, “but all that taxing and re-distribution will make us an economic basket case.” In fact, the “high-equality” Nordic countries have held up well in terms of income per capita, labour productivity and total employment rates, compared with “smaller-government” countries like the U.S. and Britain, while maintaining much higher levels of equality and much lower poverty rates. At present, Canada finds itself somewhere in between these two economic models, though considerably closer to the Anglo-American one.

    High-equality countries have also been much more effective at promoting other aspects of their citizens’ well-being, notably health outcomes. In his book, the Impact of Inequality: How to Make Sick Societies Healthier, Richard Wilkinson of the University of Nottingham points out that Greeks have a longer life expectancy that Americans – from the richest but most
    unequal developed country in the world – even though Greece has half the per-capita income of the U.S. Life expectancy is higher in Bangladesh than in Harlem. The infant mortality rate in the U.S. is more than twice that of Finland. Other studies show that “high-equality” countries score better than “small government” countries on social indicators like trust in fellow citizens and in government institutions, leisure time, incidence of drug use and homicides.

    The incredible amount of new wealth that Canada has generated in the past three decades has, unfortunately, largely bypassed the poor as well as average wage-earners. Canada has, thus far, squandered a wonderful opportunity to use that increased wealth to reduce poverty and inequality and improve the well-being, not just of the poor, but of all Canadians.

    But, as the old saying goes: “better late than never.”

    Montreal lawyer Rick Goldman holds degrees in economics and law from
    McGill University, and lectures on poverty and inequality in the McGill
    School of Social Work.

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