The first two articles in this series made the following points:
1) Between 1990 and 2000 market and disposable income inequality in Canada rose significantly, poverty rates rose or remained stable for persons under age 65, the real incomes of the poorest 10% fell, and the only significant gains in real incomes were experienced by the richest ten per cent. However, between 2000 and 2014 market and disposable income inequality declined slightly, poverty rates for the non-elderly, particularly children, declined significantly and substantial real increases in disposable income were experienced throughout the income distribution with the poorest ten percent recording the largest percentage gain.
2) This reversal challenges the belief among many politicians and much of the public at large that high levels of poverty and rising inequality are inevitable.
3) A large part of the explanation for the positive trends in these indicators after the millennium were real increases of 25% or more in minimum hourly wages in eight of the ten provinces, significant increases in income-tested child benefits and modest enrichment of welfare and Employment Insurance benefits. The previous decade had witnessed only small increases in real minimum wages and cuts to real welfare and EI benefits.
4) Both Conservative and Liberal federal governments and provincial governments of all political stripes participated in these policy reversals, although the Harper minority Conservative government did so reluctantly in its 2009 budget under threat of defeat in the House of Commons by the combined Opposition parties.
5) Thus real disposable income gains throughout the income distribution and further progress against inequality and poverty among non-elderly Canadians and their children does not require the election of new parties or even radical new policies. Instead, it requires building on the policies which, since the year 2000 have already reduced child poverty in Canada to an all-time low, provided significant real income gains to those at the bottom and in the middle as well as those at the top of the income distribution and stopped and slightly reversed rising market and disposable income inequality.
But most non-elderly Canadians, even those in the bottom half of the income distribution, are not minimum wage workers. Nor do they depend on government benefits for most of their income. They will escape poverty and add to their real disposable incomes by finding entry-level low paying jobs, hanging on to them and gradually earning more as they gain work experience. It is important to avoid structuring income support programs for this group in such a way that they provide a disincentive to take such jobs. Between 1986 and 1992 real welfare benefits in Ontario increased much more than median and minimum wages. As well-paying jobs became harder to find in the aftermath of the 1990-1991 recession, the share of Ontario’s non-elderly population depending on welfare rose from 5.8% in March 1986 to 14.5% in March 1994. The backlash was swift and substantial. Nominal welfare benefits in Ontario were cut by 20% in late 1995 and frozen at these reduced levels for several years, further reducing their purchasing power in inflation-adjusted dollars.
Fortunately, since that time policy makers have found ways to improve the real incomes of households at the bottom of the income without creating such disincentives to taking low-paid jobs. The first major new tool was an expansion of benefits to families with children through income-tested refundable tax credits under the National Child Benefit (NCB) and associated provincial and territorial programs beginning in 1997. Unlike welfare benefits which are reduced in most provinces almost immediately when the recipient begins earning income, refundable tax credits retain their maximum value until families have reasonably adequate incomes from other sources. They then are gradually reduced over a wide range of income and provide no benefits only to families with children at the top of the income distribution. They thus provide no disincentive to take entry-level jobs. These benefits have been progressively enriched in real terms since 1997 in what Ken Battle of the Caledon Institute has aptly described as a policy of “relentless incrementalism.”
In 2007, a decade after the introduction of the National Child Benefit, the Harper government introduced a small program called the Working Income Tax Benefit (WITB) which actually provides a positive incentive to take low paid entry level employment. In 2015 when annual earnings exceeded a base level of $3000, single persons were eligible to receive 25 cents for every dollar they earned between $3000 and $7060 producing a maximum benefit of $1015. This benefit remained at that level up to earnings of $11,525. It was then reduced by 15% for every dollar earned between $11,525 and $18,292 where the benefit was reduced to zero. For families the maximum benefit was $1844 for earnings between $10,376 and $15,915. At earnings of $28,209 the benefit fell to zero.
Contrast the niggardliness of this program with the Canada Child Benefit- the Trudeau government’s successor program to the NCB introduced this July. It pays maximum benefits of $6400 for each child under age 6 and $5400 for each child aged 6-17. These tax-free benefits do not begin to phase out until net family income exceeds $30,000. A family with two children aged 6-17 would receive a maximum of $10,800 in benefits which would not be reduced to zero until its net income reached $171,579.
As of 2014 the low income rate for children under age 18 was 8.5% and for all adults aged 18-64 it was 10.0%. But for single adults living alone in this age group it was 31.2%. Clearly the latter group should be the focus of the next major initiatives in incomes policy. I would suggest a threefold strategy to address the situation of employable non-elderly singles.
1) The provinces and territories should increase their real welfare benefits so that incomes available to non-employed single employable persons from all sources at least reach a level of $1000 per month.
2) To prevent this increase from creating disincentives to take entry-level jobs, provinces and territories should continue to increase real adult minimum hourly wages until they reach half average hourly wages and then index them at that level. For example, as of 2014 the average hourly wage in Ontario was $24.82 while the adult minimum hourly wage averaged $10.75 (43.3% of the average hourly wage). This policy should also reduce market income inequality.
3) To address the needs of working single adults who cannot obtain full-time employment, the federal government should substantially increase the scope and generosity of the WITB, particularly for single persons. I would propose that the maximum benefit be raised from $1015 to $3000, that it not begin to phase out until net incomes exceed $20,000 and that it not be completely phased out until net incomes reach $35,000. The maximum family benefit should also increase from its current level of $1844 to $3000 and should not begin to phase out until net family incomes exceed $28,000. This would mean that it would be reduced to zero at a net family income of $43,000. The program should then be indexed to inflation.
These steps combined with the recent enrichment of the federal child tax benefit should significantly improve the disposable incomes of the bottom half of the income distribution while improving incentives to take up low paid work. If necessary they should be financed by increasing taxes on those in the top fifth of the income distribution which will also improve disposable income inequality.

My article, “It’s time to tackle inequality and poverty in Canada”, pointed out that between 2000 and 2014 market and disposable income inequality declined slightly in Canada, poverty rates for the non-elderly fell significantly and all parts of the income distribution experienced substantial real gains in disposable income with the poorest tenth posting the largest percentage gain. All these results reversed the trends in these indicators between 1990 and 2000.
This article will attempt to briefly explain what caused this reversal. A final article will draw out the policy implications for future efforts to reduce income inequality and poverty.
I begin by identifying some key factors which contributed to the rising levels of inequality and poverty among the non-elderly in the 1990’s. Those under age 65 at the bottom of the income distribution depend on Social Assistance (SA) and Employment Insurance (EI) to maintain their incomes when they are unable to find paid work or if their paid work is interrupted by unemployment.
Between 1990 and 2000 the population aged 25-64 increased by 13.9%. But total inflation-adjusted benefits received by them from SA and EI fell by 14.2%. A third major program important for this group- the real hourly minimum wages set by provincial and territorial governments increased more than inflation in most provinces. But the share of males 25-64 with any earnings fell from 89.9% to 87.6% and male real median earned incomes fell for the 35-44, the 45-54 and the 55-64 age groups. Given these conditions it is little wonder that income inequality and poverty among the non-elderly rose during this period and that disposable household incomes in the bottom half of the income distribution either fell or grew much less than for those at the top.
Contrast this with what happened between 2000 and 2014. Real benefits from SA and EI both rose. And steady incremental increases in real income-tested child benefits and the introduction of a refundable Working Income Tax Benefit (WITB) resulted in a 36.3% increase in total transfers to a 25-64 population which increased by only 16.3%. After 2004 real minimum hourly wages also increased by at least 16.2% in every province other than British Columbia with gains equalling or exceeding 25.5% in eight of the ten provinces. The share of males 25-64 with employment income held steady at 87.6% and male real median earnings increased in the 35-44, 45-54 and 55-64 age groups. Real median female earnings increased by at least 18% in all three of these age groups and the share of women aged 25-64 with earnings rose from 75.4% to 78.8%.
In short, whereas in the 1990’s governments of all political stripes had cut important benefits to the poor and the bottom half of the income distribution, after 2000 they substantially increased them. Moreover, they delivered a larger share of those benefits in the form of income-tested refundable tax credits. Unlike increased welfare payments these present no disincentive to earn and, in the case of the WITB actually provide an incentive to take low-paying jobs. The incentive to take entry-level jobs was further buttressed by substantial real increases in minimum wages in almost every province. The result was lower income inequality, lower poverty rates, particularly for children and substantial real increases in disposable incomes in the bottom half of the income distribution.
The implications of this analysis for future policy initiatives to address income inequality and poverty and to improve real incomes for the bottom 50% of the population will be examined in detail in the final instalment in this series next week.

Many people believe that income and wealth inequality and poverty are serious and growing problems in Canada. But the perception that the situation has only gone from bad to worse over the past several years, instead of stirring a demand for action, has left many Canadian resigned to the belief that nothing can or will be done by governments to improve the situation, or at least prevent it from getting worse.
Advocates for the poor and the middle class and for reducing income and wealth inequality often inadvertently feed this sense of resignation. Because they fear that governments will act only if they believe a situation is both bad and constantly worsening, they fall into the trap of downplaying or denying any evidence of improvement. In doing so they fail to see the opposite danger- that politicians and much of the public at large will conclude that high poverty and rising inequality are inevitable; that no improvement is possible.
My purpose in this article and its successors is to challenge that sense of resignation. High levels of poverty, real income gains only for those at the top and steadily rising inequality are not inevitable. And combatting them does not require a revolution or radical new policies that Canadian governments would never adopt. Instead it requires building on policies that since the year 2000 have already significantly reduced poverty in Canada, provided significant real disposable income gains to those at the bottom and in the middle as well as to those at the top of the income distribution and stopped and even slightly reversed the increase in both market and disposable income inequality in Canada.
In this article I will summarize and document that improvement. I am not the first to notice the change that has occurred in poverty and inequality trends since 2000. Important recent evidence for them appears in a collection of essays: Income Inequality: The Canadian Story edited by David Green, France St-Hilaire and W. Craig Riddell published this February by the Institute for Research on Public Policy (IRPP). Most of their data goes only to the year 2011. More recent data releases from Statistics Canada have enabled me to carry the analysis forward to 2014.
So what does that evidence show? Bear with me for some brief statistical analysis.
From 1990 to 2000 income inequality in Canada for all sources of income other than from government (market income inequality) rose by 8.9%. Income inequality for all sources of income including government transfer payments such as Child benefits, Employment Insurance and Social Assistance and after deducting income taxes (disposable income inequality), rose slightly more, by 10.8%. From 2000 to 2014 market income inequality fell by 2.7% and disposable income inequality fell by 1.9%.
There is no official measure of poverty for Canada as a whole. The measure of low income with the longest history of data collection is the 1992 base post-income tax Low Income Cut-offs. Using this measure the low income rate for children under age 18 living changed little between 1990 and 2000, dipping from 14.0% to 13.9%. The rate for all persons 18-64 rose from 11.2% to 12.9%. Between 2000 and 2014 the rate for children fell sharply from 13.9% to an all-time low of 8.5%. The rate for persons aged 18-64 fell from 12.9% to 10.0%.
After deducting income taxes and adjusting for inflation household incomes fell by 9.3% for the poorest ten per cent of Canadians between 1990 and 2000 and increased by only 0.5% to 6.6% for those in the second to the eighth deciles. Between 2000 and 2014 real disposable incomes rose by 34.0% for the poorest ten per cent of Canadians and by 23.5% to 25.0% for those in the second to the eighth deciles. Between 1990 and 2000 the top ten per cent of households experienced an increase of 20.9% in their real disposable incomes. This dipped to an increase of 19.9% between 2000 and 2014.
To sum up, between 1990 and 2000 market and disposable income inequality rose significantly, poverty rates rose or remained stable for persons under age 65, the real incomes of the poorest ten per cent fell, and the only large gains in real incomes were experienced by the richest ten per cent of households.
However, between 2000 and 2014 market and disposable income inequality declined slightly, poverty rates declined significantly for the non-elderly and significant real increases in disposable incomes were experienced throughout the income distribution with the poorest experiencing the largest percentage gain.
The IRPP argues that a key factor in the stability in household income inequality after 2000 was the Alberta oil boom which raised the wages of low-skilled workers in that province even in occupations not directly related to the resource sector. They contrast this with Ontario where, they allege, that those at the bottom of the earnings distribution did not experience real wage increases since 2000, leading to a rise in inequality in that province.
If the Alberta oil boom was not just one reason, but the main explanation for the stability in adjusted market income inequality among Canadian households since 2000 there is little to learn from that improvement. Worse, with the sharp drop in world oil prices over the past two years, we are likely to soon see a reversal of the progress made from 2000 to 2014.
Fortunately, it appears that the progress made from 2000 to 2014, reflected more than a cyclical boom in world oil prices.
Why do I say that? The simple fact that, contrary to what the IRPP suggests, Ontario also experienced the same trend reversal I n market income inequality between 1990 and 2000 and 2000 and 2014 as did the country as a whole. Adjusted market income inequality rose by 15.3% in Ontario in the 1990’s and has declined by 1.8% since 2000. After declines or small gains between 1990 and 2000, disposable incomes for the poorest five deciles of the Ontario income distribution rose significantly from 2000 to 2014.
In the article to follow I will explain the factors which led to the reversal of the negative trends in inequality, poverty among the non-elderly and real incomes for the bottom half of the income distribution which had marked the 1990’s. My concluding article will suggest a strategy for building on the improvements that have occurred since the millennium.

In 1967 the Boston Red Sox made it to the World Series for the first time since 1946. Their ace pitcher was Jim Lonberg . He won two games for the Red Sox over the St. Louis Cardinals in the early part of the series and was brought back on only two days rest to try to win Game 7. This time the Cardinal batters got to him and the Red Sox had to wait 37 more years to win a World Series.
This year’s Lonberg is Corey Kluber of the Cleveland Indians. He is coming back on short rest tonight to try to win his third game of this World Series. Will his fate be that of Lonberg giving the Chicago Cubs their first World Series win since 1908? Stay tuned.