First, lower your IQ by reading this abomination. Then scroll down to read the TRUTH (!)
Canada's inequality equation: Who's gaining, who's lagging and why
(Or "WHY MORE GROWTH MEANS LESS EQUALITY!")
While top income earners have actually lost ground under the Conservatives, Canada is still significantly less egalitarian than it was during the early 1980s.
The Citizen’s associate business editor James Bagnallexplains how we got here and why it’s so difficult for governments to change things.
It may be one of the strangest aspects of the federal election campaign to date: Liberal leader Justin Trudeau pledging to hike income taxes for anyone earning more than $200,000 annually.
The odd part is not that he is taking aim at people such as himself – the top one per cent of Canadians in terms of income. Rather, it’s that the policy would attempt to reverse what happened during the Liberals’ lengthy stretch in office from 1993 to 2006.
That’s when the “One Percenters” substantially improved their relative position, as their share of the country’s after-tax income surged from 6.3 per cent to 9.7 per cent – a far bigger jump than any other major income group.
The Liberals, under Jean Chretien and Paul Martin, did not set out to produce this result. They simply pushed ahead with an agenda that favoured economic growth, which was helped along by a dramatic economic recovery in the United States, Canada’s largest trading partner. The rise in corporate profits triggered a wave of executive bonuses and increases in stock-based compensation, especially during the 1990s tech boom. All groups enjoyed gains in real income, but the top earners gained the most.
Achieving a fair division of economic spoils is one of the most difficult things for a country to get right.
When there’s too much equality — if, for example, governments tax top earners too much — entrepreneurs don’t see enough incentive. When there’s too little equality — if the top earners vastly outstrip everyone else — resentment builds among middle- and lower-income citizens.
It’s a political vein being tapped to great effect south of the border by Democratic Party presidential hopeful Bernie Sanders. The Vermont Senator’s popularity has been climbing sharply along with his attacks on America’s One Percenters.
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While top earners in the U.S. take home nearly double what their counterparts in Canada do, it’s no accident the leaders of Canada’s main opposition parties are pushing a similar agenda of income fairness during this election campaign.
Liberal Leader Justin Trudeau and New Democratic Party Leader Tom Mulcair are promising more middle-class jobs by investing in urban infrastructure and clean technologies. Each has also announced measures to help families with childcare expenses – the Liberals through a tax benefit, the NDP with a national childcare program offering spaces at less than $15 per day.
The Liberals have also proposed cutting marginal tax rates for individuals on incomes between $44,700 and $89,400 – which will be paid for in part by hiking the marginal rate for anyone earning more than $200,000.
For their part, the Conservatives appear satisfied with the status quo they created. During their decade in office, they trimmed taxes on personal incomes and small businesses, and slashed the goods and services tax to five per cent from seven per cent. More recently, they have introduced or expanded programs – such as the registered education savings account and tax-free savings account – that offer the most benefits to those in higher tax brackets, including many in the middle class.
The odd thing is, the rise of the One Percenters stopped dead almost from the moment Conservative Leader Stephen Harper was sworn in as Prime Minister early in 2006. And by 2012, the after-tax share of the country’s income for the top earners fell from 9.7 per cent to 8.4 per cent. Again, this was not the intended result of Conservative policy. It’s not clear why their share slipped from 2006 to 2008, when corporate profits in Canada were still strong and the economy was growing. But the upper income earners were certainly hurt by the 2008-09 financial crisis and its aftermath. Corporate profits as a percentage of GDP have yet to recover to pre-crisis levels.
“Companies cut compensation with the slide in business,” says Michael Veall, an economics professor at McMaster University and expert on income distribution in Canada. “In the public sector, the rate of increase of top compensation fell as governments were pushed into deficit,” he added.
In the resource-rich provinces, income inequality lessened at a faster pace between 2006 and 2012 as the general slide in top incomes was more than matched by the rise of hourly wages among the blue-collar trades.
“Since less-educated and younger workers have benefited disproportionately from the resources boom, the increase in their wages has resulted in a decline in earnings inequality in Newfoundland & Labrador, Saskatchewan and Alberta,” Nicole Fortin and Thomas Lemieux note in Changes in Wage Inequality in Canada, a summary of research that will be published soon in the Canadian Journal of Economics.
With the collapse in global oil prices last fall, this rare pattern has likely already ended.
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For leaders of political parties and policy makers alike, the pattern of income growth for the past few decades has been a conundrum. The data suggests that the incomes converge most strongly during weak economies. And when growth returns, so does the inequality, even though incomes at all levels are rising in real terms.
Does this matter?
“Too much inequality undermines a healthy society,” says Andrew Jackson, a senior policy advisor at the Broadbent Institute, an Ottawa-based research group. “Canadians might not endorse (complete equality) but they certainly believe that all children should have a fair chance in life,” he says.
Jackson, a former chief economist of the Canadian Labour Congress, believes that in the absence of policies that redistribute wealth, Canada’s middle will continue to struggle while “those at the very top, especially the top 0.1 per cent, will likely continue to pull away from the rest of us.”
But it’s one thing to propose courses of action that seem fair – such as legislating higher marginal income tax rates for the rich or more punitive income surtaxes. It’s quite another to implement policies without creating unintended consequences. Entrepreneurs and the wealthy, but especially corporations, are quite capable of shifting location if governments over-reach in their attempt to make things fairer, or at least more equal.
And, if there is one inference we can draw from the pattern of income growth since the early 1980s it’s this: politicians who say they want growth are really also saying there will be more income inequality as well. For the past few decades it’s been the going price of economic success, and no one seems to have an answer for how simultaneously to deliver economic growth and greater income equality.
THE GREAT COMPRESSION
This wasn’t the case immediately following the Second World War, when there occurred what economists Claudia Goldin and Robert Margo called the Great Compression. Hourly wages grew so robustly they outpaced upper income growth. It was a time when working class Canadians, many of them unionized, could aspire to a middle-class lifestyle.
Top incomes did grow, but the One Percenters’ share of the total pie shrank by half from the 1940s to late 1970s.
The trend appeared to confirm the prevailing wisdom that as countries industrialize the extreme inequality of the early years gives way to a more equitable sharing of the rewards of the new economy, in part through a progressive tax system. The majority, the thinking went, would insist on a more equitable distribution of the spoils.
So it proved, at least until the early 1980s when suddenly, and somewhat mysteriously, the pattern reversed. The middle and working classes were no longer ascendant.
“Income inequality increased even though real incomes rose across all groups,” Andrew Heisz notes in Income Inequality: the Canadian Story – which will be published this fall by the Institute for Research on Public Policy, an independent research group based in Montreal. “Income increases for those at the low end generally were smaller than increases for those at the middle and especially at the top.”
Indeed, Canada’s top income earners have since recouped about half the share they lost during the Great Compression while in the U.S. the One Percenters have recouped nearly everything.
The question is: why did the trend reverse?
Mid-1990s cuts by the Liberals to social transfers such as employment insurance are part of the story. But most of the explanation for the rise in inequality lies elsewhere.
For instance, Western economies such as Canada’s have experienced a significant shift towards high-paying jobs requiring intensive education.
“A movement toward management and professional occupations and away from production, crafts and (similar) occupations has been ongoing since at least 1971, although that trend has slowed down in recent years,” note David Green and Benjamin Sand in Has the Canadian Labour Market Polarized, a summary of a research article to be published soon in the Canadian Journal of Economics.
Evidence of the rise of the professions can be seen in in the changing makeup of Canada’s gross domestic product – the value of all goods and services produced here. The relative contribution of firms that provide legal, architectural and engineering and computer systems design services more than doubled in real terms from the late 1990s to mid-2015 while GDP has a whole grew just 55 per cent.
While this doesn’t necessarily mean incomes will rise accordingly, it does enhance the bargaining power of those with the right skills in in-demand professions.
Meanwhile, many employers have outsourced work at the other end of the income spectrum to lower-wage countries, a trend that has weakened the country’s blue-collar unions.
Overall union membership in Canada has slipped from nearly 38 per cent of the workforce in the early 1980s to 30 per cent in 2012. Weaker unions are less capable of defending the interests of workers and this is especially true of men, who have seen unionization rates tumble from 42 per cent to less than 29 per cent.
Much of the unions’ decline reflects the loss of hundreds of thousands of manufacturing jobs to Mexico and the Pacific Rim. Along the way a big divide has opened in Canada between the public sector, where two-thirds of workers carry union cards, and the private sector, where fewer than 17 per cent do so.
But perhaps the best explanation for the rise of the One Percenters is the growing importance of investment income, bonuses and stock-based compensation. In good times, when corporate profits are rising, the non-salary portion of income tends to rise very quickly. This is especially true in the high-tech economy, which has produced disproportionately high rewards for founders and key employees, occasionally with astonishing speed.
And, under the current economic system, there may nothing that political parties – no matter their stripe – can do to change this.
RISE OF THE ONE PERCENTERS
In the last three decades the One Percenters have increased their share of the national income by 2.6 percentage points. This was thanks to a 68 per cent jump in average after-tax incomes to $300,700 – compared to income gains of less than 14 per cent for taxpayers in the bottom 90 per cent of income earners. Individual taxpayers in the top one per cent to 10 per cent group saw real incomes rise 33 per cent. Their share of the income pie was up 1.2 percentage points.
Clues about why the best paid are outdistancing the others can be found in how they performed during key economic events in Canada’s largest cities.
There is no better example than Ottawa during the telecom technology boom. In the late 1990s the nation’s capital was the epicentre of a global rush to create an Internet capable of handling huge amounts of digital traffic at great speed. JDS Uniphase built the fiber-optic components and Nortel Networks assembled them into works of engineering genius. Ambitious employees exercised generous stock options to finance startups.
The result: Ottawa’s workforce experienced a burst of wealth — and inequality. The top one per cent, representing fewer than 6,000 people, saw average after-tax incomes surge 70 per cent from 1998 to 2000 to nearly $400,000 (constant 2012 dollars). In 1998, the one per cent club controlled 6.6 per cent of the city’s after-tax income. Just two years later, they accounted for 10 per cent.
The average was skewed by a small group of insiders. For instance, 50 of the city’s top high-tech executives – including JDSU chief executive Josef Straus and former chief financial Zita Cobb — took home more than $1 billion during the two peak years of the boom.
Indeed, incomes for Ottawa’s One Percenters grew much faster from 1998 to 2000 than in any other city. In Montreal, Toronto and Vancouver, the top guns saw two-year increases in income ranging between 20 and 26 per cent. In Edmonton and Calgary the One Percenters began winning a disproportionate share of income in 2002, as the oil industry began its recovery.
Even after the telecom crash, Ottawa’s One Percenters in 2002 still claimed income and capital gains more than 50 per cent higher in real terms than during the years leading up to the 2000 peak. And, with only a few exceptions including the recession year of 2009, the top one per cent has seen its fortunes rise ever since.
With the exception of the tech bubble years, Ottawa has exhibited the lowest inequality of the country’s largest cities. In 2012, its One Percenters accounted for seven per cent of the city’s total after-tax income, compared to roughly 8.5 per cent for Montreal and Edmonton, 9.6 per cent for Vancouver, 11.4 per cent for Toronto and 13.3 per cent for Calgary.
Government, with its relatively flat pay scales and lack of stock-based compensation, sets the pace. This is abundantly clear in Gatineau, which, unlike Ottawa, did not experience a tech bubble. Gatineau’s one per cent club in 2012 accounted for a relatively paltry 5.3 per cent of the city’s income.
Like their counterparts in the other large cities, Gatineau’s top earners have seen their share of their city’s income decline somewhat under the Conservative government of Stephen Harper. For this, the explanation can be found in the aftermath of the 2008-09 financial crisis and an underperforming economy. But in all cities, the One Percenters claim significantly more of the collective income than they did during the 1980s.
**
If Canada’s economy does suffer a downturn, the gap between the top and middle income earners will likely close some more, and the politics of inequality may not matter. But if we are through the worst of the oil-led weakness and growth returns, inequality will be on the rise again and debates about the appropriate share of the One Percenters will return with force.
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OK, we just saw an entire page of the local libtarded spewspaper in Ottawa devoted to "the Inequality Equation" where they were whining that "as the economy grows, so does the wage-gap, with the top 1% getting even more!"
Yeah - "oh the tragedy, oh the humanity."
I can shoot it down easily enough, but I don't have a national spewspaper to pay me to disseminate the Truth! SO HERE GOES ANYWAY!
I see a guy who starts a company, employs say 100 people with low but decent salaries of say $30,000. each.
He takes in $300,000 for himself, which is only 10% of his $3 million company, while each of them gets 1% of it.
So he's getting 10 times their salaries! "HOLYSHIT!" That's Not Fair - is it?! liberals ask.
So he's now identified as that infamous "1%!" they all envy, hate, and want to rob and put out of business.
After a bit, he starts up a second, equally-successful company, so now he employs 200 people, and takes in $600,000 for him self.
"But wait!" The criminals moan - that's "Not Fair!" because now he's still taking in 10% of his companies, and his workers are still taking in 1% each, but, compared to them, he's now getting 20 times their salaries!
And, since he didn't hire sub-managers, (one to each take his $300,000 p/a salary per company) he's now a part of the 0.5%!!! Holy crap, the liberals start losing their minds!
Sure, the guy's efforts have doubled the economy and now twice as many people can feed their families, but the "gap" between the evil capitalist and his slave workers has doubled! They didn't get any raises, liberals moan!
Then he does it again (the greedy bastard)! He made yet another successful company and now employs 300 people! "But" they bitch, while the workers still 'only' get $30,000. p/s each, the evil rich capitalist now makes almost a million dollars a year! Holy shit - he's making 30 times what they make, and his worth went up 200%!
Theirs didn't go up at all! "So, quick! We must rob and exile him and distribute his bloated salary amongst the poor enslaved perpetually downtrodden working-man labor class at once!" they insist.
That way, they will each get a quick 10% raise at last! Of course, they will then just as quickly lose their jobs and have to go on welfare, because that rich capitalist traitor just sold his infrastructure and took the jobs overseas, but hey - that's what "the government" (everybody else who works and pays taxes) is for, amiright!?
MORONS!
;-)
Yeah - "oh the tragedy, oh the humanity."
I can shoot it down easily enough, but I don't have a national spewspaper to pay me to disseminate the Truth! SO HERE GOES ANYWAY!
I see a guy who starts a company, employs say 100 people with low but decent salaries of say $30,000. each.
He takes in $300,000 for himself, which is only 10% of his $3 million company, while each of them gets 1% of it.
So he's getting 10 times their salaries! "HOLYSHIT!" That's Not Fair - is it?! liberals ask.
So he's now identified as that infamous "1%!" they all envy, hate, and want to rob and put out of business.
After a bit, he starts up a second, equally-successful company, so now he employs 200 people, and takes in $600,000 for him self.
"But wait!" The criminals moan - that's "Not Fair!" because now he's still taking in 10% of his companies, and his workers are still taking in 1% each, but, compared to them, he's now getting 20 times their salaries!
And, since he didn't hire sub-managers, (one to each take his $300,000 p/a salary per company) he's now a part of the 0.5%!!! Holy crap, the liberals start losing their minds!
Sure, the guy's efforts have doubled the economy and now twice as many people can feed their families, but the "gap" between the evil capitalist and his slave workers has doubled! They didn't get any raises, liberals moan!
Then he does it again (the greedy bastard)! He made yet another successful company and now employs 300 people! "But" they bitch, while the workers still 'only' get $30,000. p/s each, the evil rich capitalist now makes almost a million dollars a year! Holy shit - he's making 30 times what they make, and his worth went up 200%!
Theirs didn't go up at all! "So, quick! We must rob and exile him and distribute his bloated salary amongst the poor enslaved perpetually downtrodden working-man labor class at once!" they insist.
That way, they will each get a quick 10% raise at last! Of course, they will then just as quickly lose their jobs and have to go on welfare, because that rich capitalist traitor just sold his infrastructure and took the jobs overseas, but hey - that's what "the government" (everybody else who works and pays taxes) is for, amiright!?
MORONS!
;-)
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