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Canada’s Income Inequality Highest Ever Recorded–What’s Broken?

Canada’s income inequality has reached a record high, according to the newest OECD report on Canada released today. Here is a summary of the Report on Canada.

The OECD summarizes the cause of  the growing gap as follows:

The rise in inequality was largely due to widening disparities in labor earnings between high and low-paid workers, but also to less redistribution. Taxes and benefits reduce inequality less in Canada than in most OECD countries (see figure right-hand panel).

Some other interesting findings:

  • The wealthy in Canada are doing extraordinarily well thanks in large measure to huge tax cuts by our governments: “the richest 0.1% more than doubled, from 2% to 5.3%. At the same time, the top federal marginal income tax rates saw a marked decline: dropping from 43% in 1981 to 29% in 2010.”
  • A large part of the explanation of growing income inequality is explained by: (1) reduced hours worked by low-wage workers and (2) a rise in “self-employment“. In fact, according to the OECD, the move towards lower paid ‘self-employment’ explains 25% of the increase in income inequality!

These findings are very interesting, because they indicate that income inequality is largely (though not exclusively) influenced by deliberate policy and strategic choices made by governments and businesses.

Tax Policy

Firstly, Cutting taxes, especially in the higher income brackets will lead to the rich getting richer and the middle class being squeezed.  That is why the OECD recommends higher taxes on top earners, which is needed to pay for services that are crucial for a healthy economy and society, including education, health care, and family care:

The growing share of income going to top earners means that this group now has a greater capacity to pay taxes. In this context governments may re-examine the redistributive role of taxation to ensure that wealthier individuals contribute their fair share of the tax burden.  The provision of freely accessible and high-quality public services, such as education, health, and family care, is important.

Considering this, on what basis do you think that the Conservative government in Ottawa and the Liberal government in Ontario insist that continued tax cuts represent good public policy?

Managerial/HRM Policy

Secondly, the shift away from full-time employment to what HR folks like to call “flexible work arrangements” and “self” employment is harmful to society, even if it is beneficial to corporate bottom lines. I’ve made this point before. HRM literature often describes the shift to ‘flexible’ work as a positive development, as if it benefits workers and employers alike. Legal scholars usually describe this as a cost-cutting measure causing a shift towards precarious employment.

My question for the HRM profession, and for my HRM students, is whose side is HRM on?

HRM needs to be self-critical.  While the profession likes to argue that it is the mechanism that advocates for decent work and respect for workers within organizations, it is often the HRM departments that propose or at least implement the shift away from stable full-time employment towards part-time work or the re-branding of employment to “independent contractor” status that many employees have experienced over the past two decades.  The OECD pins the growth in income inequality in Canada in large measure on this development in employment practices.

So, is HRM part of the problem of growing income inequality in Canada?  Should HRM be lobbying hard for a move back towards regular full-time employment?  Why or why not?  And lastly, does HRM have any power to influence the trend towards ‘flexible’ work or not?

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3 Responses to Canada’s Income Inequality Highest Ever Recorded–What’s Broken?

  1. Edina Reply

    December 6, 2011 at 9:26 am

    Flexible work arrangments are a response to the changes in population and their needs. Not all flexible arrangments are bad for employees. I am an HR Manager and employees ask us for these. Some people need to work only part-time or share work. It is true that they get less money, as they work less hours, but I would not agree that it is a simple cost cutting mesure. Some employers continue to pay for their benefits and other programs: the employee benefits at the end of the day by having the flexibility to work and take care of other things (children, aging parents, etc.).
    To your question what side id HRM on? Always the business side. We are not unions, and while it is true that we advocate for employees’ rigths (and believe me, we do) at the end of the day, the decision has to make business sense and to be strategic. HRM is evolving in a business world and it represents more for the businesses and employees than just the payroll or recruitment.

  2. betty Reply

    December 7, 2011 at 11:03 am

    I work in HR in healthcare and for all the complaining that ONA does about lack of full time jobsfor nurses we have trouble filling fulltime vacancies with our part timers because they love part time work. They chose thire hours and canrefuseOt if they wish but if they do work they often get premium pay of time andhaof or cougle time. If youa re anurse at the top thats about 60 bucks an hour….so any nurse can make $100,000 if he or she choses to do so and many do. plus they get paid a premium payment in lieu of benefits so for employees with spousal benefits this is just more money in their pocket.
    I agree with Edwina that we are clear about working for the business side. Her last paragraph is bang on. I couldn’t have said it better.

  3. Steve Reply

    December 7, 2011 at 12:10 pm

    Flexible work unfortunately is one method to answer the flood of “cheap” labour that has emerged from lower cost countries. I am not a fan of this – its looks like a necessary evil to attempt to keep jobs in this country as the labour force domestically and internationally finds its natural level. This will take years as we decline and others increase in compensation. WE as consumers have made this decision to buy offshore and demand the highest rates of return on our equity investments – CEO’s answer the call to that end.

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