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Growing Income Inequality in Canada and Workplace Law

Canada has the 12th highest income inequality of the top 17 advanced capitalist economic nations in the world.  And this inequality is growing. This according to the Conference Board of Canada, a business friendly  think tank.   The Board awarded Canada a C grade for its equality of income.

Should your politicians care about income inequality?   If so, what can they do about it?

If income inequality is high and growing, that tells us that productivity gains in an economy are going to a smaller amount of people at the top of the income ladder.  The evidence supports that.  Check out this interesting piece by Armine Yalnizyan in the National Post from last week. She notes that since 1976, the median income of full-time employees in Canada has increased just $1500, despite the fact that workers today invest far more money in education and training than every before.

There is great wealth being created, but less of it is trickling down to working people.  Where is it going?  To those at the top:  ”between 1997 and 2007, a third of all income gains by Canadians went to the richest 1% of Canadian tax filers.”  In the 1960s, when our income inequality was much smaller, the richest 1% took only 8% of the gains.  In the 1960s, taxes were higher and far more workers were represented by unions, which ensure that a greater share of wealth generated by a company goes to the workers.  It is no coincidence that executive and CEO salaries are much lower at unionized workplaces, and workers’ wages and benefits much higher than at nonunion workplaces.  That used to be considered a good thing by the public and the majority of politicians, but nowadays it is popular to argue that the higher wages and benefits bargained by unions make things worse, not better.  But if the American experience tells us anything, it is that the fewer workers covered by collective agreements, the greater the share of wealth that will go to the owners and shareholders of a company. 

So there is no great mystery about where our wealth is going.  What used to trickle down to the mass of people in the middle of the income distribution now goes to a smaller group at the top of the distribution.

The policy question is whether this is “bad” or “good”.  And if it is bad, what can or should be done about it?

This debate gets played out every election, such as the one are having now in Ontario.  While there are variations and nuances, there is also a general trend in the debates that play out along political perspectives.   Politicians on the political left of the spectrum call for higher taxes on corporate profits and high-income earners, so that some of that wealth being captured by the relatively well  off  gets put back into the pool to pay for public services like education and health care.  They also argue for stronger employment laws and encourage more collective bargaining, with the expectation that this will enable workers to win a greater share of the income generated by their labour.   They believe that when more money gets into the hands of workers,  they will spend more on goods, and that spending will in turn fuel the economy.  A system that puts most of the money in a small number of hands is unsustainable and dangerous, since a a healthy economy and stable society depends upon people having income sufficient to lead a decent lifestyle.

So, the NDP is promising to freeze a planned tax break for corporations if elected, for example, and to raise the minimum wage and increase enforcement of the ESA.

Those on the political right of the spectrum usually argue the complete opposite sorts of policies.  They want lower taxes for everyone, and strongly oppose tax increases on the wealthy.  They talk about the need for “less government” and greater reliance on markets to decide everything, including wealth distribution.  Employment laws and collective bargaining are presented as evils to be limited or done away with.  They tend to argue that income inequality is actually not a problem at all:  it creates a good incentive for people to work harder.  This make sense to them because they hold to the belief that we live in a meritocracy in which hard work will result in a good job that pays well.  The flip side is that if you cannot get a good job, it is because you did not work hard enough or you made bad decisions.  This is also why they tend to be against decent unemployment insurance and welfare systems–it makes people lazy and dependent on the state.  They also believe that if you help the wealthy, that this will eventually trickle down to everyone else.

So the Ontario Conservative party is calling for, you guessed it, lower corporate taxes and promises news laws to make it more difficult for workers to join unions, while promising no improvements at all to employee protection legislation.

It’s the same every time.  The question for voters is which approach works best for whatever objective they think government should be trying to achieve.

Which approach do you most align with?

Will lowering taxes and weakening employment laws reduce or increase income inequality?

Is income inequality a good thing, because it increases the incentive to “work harder”?

Should our governments raise (or at least freeze) taxes and improve labour standards to try and stop rising income inequality?

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