A crash course on inequality in Canada

Photo Credit: Sharon McCutcheon on Unsplash

Photo Credit: Sharon McCutcheon on Unsplash

Economic inequality is not an issue that we talk about a lot in Canada. While the topic has become a bit more popular recently, particularly in the United States thanks to increased exposure from politicians like Bernie Sanders, it’s something people tend to ignore by and large, especially in Canada.

So what is economic inequality? According to the Institute of Labor Economics, economic inequality refers to the unequal distribution of income, wealth and opportunity between groups of people in a given society.

But why is it a problem? In any free, capitalist society such as Canada you are going to have some level of inequality between people, simply by nature of the freedom that we have. The issue is, however, is that we are seeing income and wealth inequality continue to rise in Canada and throughout the world and when it is to an extreme degree, it has negative effects on the strength and security of a society.

For example, the Canadian Institute for Health Information released a report in 2015 wherein they divided the population into five equal-sized groups based on their income. They found that the richer groups had better health care outcomes and were overall healthier than the poorer groups.

On the surface it may seem that these things are unrelated, how can you tie the amount of money someone makes to how healthy they are? It starts to make more sense though when you think of how interconnected social outcomes like income and wellbeing truly are.

For example, one area that the study looked at was mental health. It found that poorer people had worse overall mental health than wealthier Canadians. Why might this be? One explanation comes from a Broadbent Institute study, which found that 1 in 4 Canadians cite their personal financial issues as the thing that keeps them up at night. So, if you are perpetually anxious about how you will make your rent payment that month, if you have enough money for groceries and so on, it’s likely that this could have a long term impact on your mental health.

Obviously that is a simplistic example, but it offers a clear explanation of just how pervasive the issue of economic inequality can be. It has the ability to affect virtually all aspects of our lives, which is why it can have a major negative impact on any given society.

But if nobody is really talking about it, can it really be that big of a deal? The short answer is yes. In Canada, the reality is that economic inequality has been getting worse and worse year after year since the 1980’s.

Today, Canada ranks sixth highest in terms of the rate of economic inequality amongst OECD countries. What’s worse is that we rank fifth highest after you subtract taxes and other social program spending, like on health care. This means that our government does less to help the poor and more to help the wealthy than in other western countries.

According to a recent study from the Broadbent Institute, the top 20 per cent of Canadians own 70 per cent of all the wealth in the country, which includes the value of all their assets and their money. Meanwhile, the bottom 50 per cent of Canadians own just 6 per cent of the wealth, many of whom actually have negative wealth because they owe more money in credit card debt, student loan debt and so on, than they actually own. In Canada today, the richest 86 families own more than the bottom 11 million Canadians combined.

Income is radically unequal in Canada as well. The 100 highest paid CEO’s today makes over 200 times the salary of their average worker. They earn the average yearly wage in Canada, $50,759, in just one and a half days of work according to the Canadian Centre for Policy Alternatives.

While on the broad scale, economic inequality doesn’t discriminate, but when we get into the nitty gritty, it’s clear that income and wealth inequality is even worse for gendered and racialized people in Canada, which refers to those who experience discrimination based on their race or gender.

According to a story from iPolitics, racialized men and women earned $0.71 and $0.79 for every $1.00 earned by non-racialized Canadians, often due to hiring discrimination and discrimination against immigrants, whose academic credentials often are not recognized when they come to Canada, requiring them to take on low wage work.

So if economic inequality is such a pressing issue in Canada, how can we address it? Well, those who look at this issue tend to agree that the broad causes for growing inequality in Canada is due to market forces and institutional forces.

Market forces, globalization and technological advancement have done two things: interconnected the world through free trade and increased the demand for high skilled, highly educated workers. This has led companies to ship low skill work to the cheapest places possible, such as those with weak environmental and worker protections, so that they can save money. It has also made well paying jobs extremely competitive, requiring multiple degrees, several years of work experience and has opened up the job market to include virtually the entire world, making jobs more competitive.

These changes have triggered some institutional forces that have made the issue worse for those who fall in the middle, namely those people who aren’t educated enough for the high skilled work and are losing their low skilled jobs that used to be unionized and had decent wages. Those people in the middle have been driven into precarious work, largely in retail and the service sector, that is not unionized, pays minimum wage and has fewer job protections or benefits. These people are seeing their wealth get lower and lower, while the cost of living continues to rise, all because governments or our institutions, aren’t working to benefit them. Hence why they are at the whim of negative institutional forces.

To combat this, we need our government in Canada to recommit to supporting unionization (as union employees earn on average 30 per cent more than non-union workers and have greater benefits). They also need to adequately tax rich people and corporations and then redistribute that wealth through social assistance programs.

While all of that might sound a bit idealistic, we only have to look back a few decades to see just how this would play out. Following World War II, there was a period in Canada and the United States known as the Great Compression, when economic inequality was at the lowest point it had and has ever been (so far) in the history of either country.

What caused this massive reduction in inequality? Well, a few things. First, unionization was at the highest rate it had ever been and has ever been (again, so far), at 35 per cent of all workers. Second, the tax rate paid by the richest Canadians was at an all time high at well over 70 per cent. Additionally, the corporate tax rate was just over 50 per cent. Today, the top marginal tax rate is only 33 per cent, while corporations only pay 15 per cent. Lastly, in terms of social spending, nothing rivals the amount of money spent by the federal government during the post war period, from infrastructure projects, like national highways or the St. Lawrence Seaway, to worker protections, such as employment insurance, Old Age Security, the Canada Pension Plan and the Guaranteed Income Supplement among others, to the establishment of the Canadian public health care system that we all appreciate so much today.

In our modern context, maybe if we had government’s that supported unions and were willing to negotiate with them in good faith (I’m looking at you, Doug Ford), that would be a good start. In regards to taxation, while raising the marginal and corporate rates is important, we also should consider introducing a tax on wealth or the assets that wealthy people already own and increase taxes on capital gains or the money that people make from stocks and other investment sales.

And lastly, investing in infrastructure for poor communities, especially in rural areas and the north, as well as retrofitting our current infrastructure to be environmentally sustainable. We also should consider expanding the health care system to include things like dental care, vision care and prescription drugs for everyone, which would reduce the burden of health care costs on low income people.

Given all this information, it’s clear that we have a strong road map to reducing inequality in Canada today. The only thing we need is for people to fight for it and politicians with the political will to implement this vision. Only time will tell if it will ever become a reality.

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