Guarding against income inequality in Canada

By on December 19, 2016

Does Canada need to worry about the same festering malaise that has disrupted the United States?

Donald Trump’s presidential campaign, as inarticulate and venal as it was, tapped into important and deeply-rooted American realities, realities that may also contain lessons for Canada.

Does Canada need to worry about the same festering malaise that has become so dramatically evident in the U.S.? Powerful international data on income inequality offer significant insights.
Branko Milanovic, a leading economist, has produced some of the best research on world income inequality, drawing on detailed data from his years at the World Bank.
Milanovic has produced a remarkable graph that  includes income distribution data from almost all of the world’s 200 countries. It asks a simple question: how much have individuals’ incomes grown between 1988 and 2008?
To answer, Milanovic divided each country’s population into smaller groups, determined each group’s income measured in standardized 1988 U.S. dollars, then sorted them in increasing order of income. The world’s population, then, is ranked from poorest to richest, regardless of nationality. The graph then shows how much each group’s incomes grew from 1988 to 2008.
The global average income growth for all the groups was about 25 per cent – not bad at about two per cent real growth per year. But these improvements were very far from evenly distributed.
Among the bottom fifth of the world population, incomes grew at rates between 20 and 40 per cent – lifting hundreds of millions out of poverty.
Incomes around the midpoint of the world’s income spectrum grew twice as fast over this two-decade period, at 80 per cent. This growth signals dramatic improvements in living standards for many in what we used to call the less-developed world, and it reflects the emergence of a much larger middle class in many countries. This is all very good news.
But there is a dramatic drop in the income growth rates for individuals in the upper ranges – except at the very top. For individuals whose incomes placed them in the top 75 to 85 per cent, their incomes hardly grew at all, and those whose incomes are in the top 85th to 95th percentiles of the world’s population saw their incomes grow by only 10 to 15 per cent over a 20-year period – almost stagnant.
Only for the top five per cent of income recipients was growth above 20 per cent, and it was most dramatic among the top one per cent of the world’s population – at a staggering 60 per cent or more.
So who are these big winners and losers?
Milanovic’s analysis places the newly-emerging Chinese middle class at the peak of this curve, with an income growth rate around 80 per cent. At the trough of the income growth curve you’ll find the U.S. lower-middle class – many of Trump’s core supporters – with essentially zero growth in incomes.
The Chinese middle class has blossomed economically while working-class America has stagnated.
Where does Canada fit on the curve?
Canada is very well off in global terms – even those in our lowest income groups have an average income well above most of the world’s population. Unpublished data provided to me by Milanovic show that Canada’s median incomes would put us at about the 93rd percentile of the world’s income distribution.
It may seem Canadians should have no complaints. But there is pause for concern. Our pattern of income growth and inequality largely mirrors what’s happening globally – dramatic income growth at the top, with only modest gains lower down the income spectrum.
The bottom three-fifths of families saw their incomes grow by nine to 15 per cent over the 20-year period. The second highest fifth did a little better with their income growing by 19 per cent – while the top fifth saw their incomes expand by 35 per cent, two to three times as much as those in the bottom 60 per cent.
There is some comfort. Canada’s income inequality is considerably less than that of the U.S. We have stronger social safety nets, greater longevity and significantly more equitable education.
But in this global context, we can’t afford to be complacent.
Without more vigorous actions to counteract increasing inequality among Canadians, we risk growing the same kinds of resentment and malaise here.  -TROYMEDIA

Michael Wolfson is an expert advisor with EvidenceNetwork.ca and holds a Canada Research Chair in population health modelling/populomics at the University of Ottawa. He is a former assistant chief statistician at Statistics Canada and has a PhD in economics from Cambridge.

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