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.