The future looks bleak for my students. Economists warn that it’s probable many of them will not do better than their parents, despite the fact that they have way more education on average. Odds are most of them will barely claw their way into the middle class, what’s left of the middle class that is in 20 years or so.
We know why. There is no great mystery here. The share of wealth that used to go to the large bulk of workers in the middle range of income earners is now being kept by a small percentage of people at the top of the income pyramid. Sure, some of my students might work their way into that elite group. Most won’t.
Canada’s fast growing inequality has been singled out in a number of recent reports. Here’s just a few examples:
Conference Board of Canada: Since the mid-1990s, Canada’s income inequality has risen faster than the U.S., and faster than most advanced economic states.
OECD: “In the last 10 years, the rich have been getting richer leaving both middle and poorer income classes behind. The rich in Canada are particularly rich compared to their counterparts in other countries.”
Here is a nice study by the Canadian Centre for Policy Alternatives describing the growing inequality. It points out the following facts:
- The Top 1% (above $400K per year) of income earners took home 1/3 of all income gains between 1997-2007. During the last similar period of high economic growth (1950s/60s), the top 1% took only 8% of the income gains.
Why is the middle class disappearing in the U.S. and Canada?
Changes in tax policy since the 1980s and 1990s is a large part of the story. In the U.S., Americans decided they don’t want to pay taxes. Politicians trip over one another to cut taxes. Canadians are buying into that same mentality. Cutting taxes for the wealthy in particular has been pushed by Republicans and modern Canadian Conservatives (neoliberals). They argue that cutting taxes is the magic potion that cures all social and economic ills. They mostly shrug about income inequality. Canadians vote for these tax policies, so it makes good political sense to just keep promising more and more tax cuts.
When Obama and some NDP leadership candidates recently suggested that perhaps we should be concerned about income inequality and we should raise taxes on the wealthy to return to a tax system more like we had prior to the 1990s, the Conservatives and Republicans lashed out, called them nutters, and argued this would destroy, absolutely destroy the economy!
Changes in labour and employment law policy are another major explanation for the fast growing income inequality. Governments in both the U.S. and Canada decided beginning in the 1980s (in the U.S.) and 1990s (in Canada) that employment laws and collective bargaining are bad. Employment standards were rolled back, frozen, or underfunded, and governments attacked collective bargaining. As a result, unionization in the U.S. private sector has mostly disappeared (about 6%), and in Canada’s private sector unionization percentage is now in the mid-teens.
We know that collective bargaining: decreases income inequality by raising workers’ wages and benefits, and by lowering executive compensation. In other words, collective bargaining takes income from the top and spreads it through the middle. Countries that have high unionization rates have lower income inequality and poverty. There is a direct link.
A recent study by a Harvard economist found that 1/5 to 1/3 of the explosion in income inequality in the U.S. between 1973 and 2007 is explained by the decline in private sector unionization from above 30 % of workers to about 7%. No wonder Obama argued that perhaps more collective bargaining would help increase spending power of Americans and thereby drive the economy.
No great mysteries here. Taxes redistribute income throughout society and pay for social services that help the poor. Employment laws and collective bargaining put more money into the hands of workers, who can then buy more goods and drive the economy.
All of which raises the big question for a workplace law blog: If income inequality is unhealthy for a society, and collective bargaining and taxes substantially reduce income inequality, why are our governments so keen on demonizing unions and taxes these days.
More importantly, why do we vote for politicians who propose to cut taxes and weaken unions?
Do you think lower taxes and the elimination of unions and strong employment laws will create a healthier and fairer society? Why, or why not?