a quarter century of economic inequality in canada: 1981 - 2006 lars osberg economics department...
TRANSCRIPT
A Quarter Century of Economic Inequality in Canada: 1981 - 2006
Lars OsbergEconomics DepartmentDalhousie University
Dec. 14, 2007
What has been happening to Economic Inequality in Canada in recent years?
1980: “economic inequality has remained roughly constant since the Second World War”
(Osberg, 1981:205)
Surprising – given massive changes in Canadian economy 1946-1979
Increased Inequality 1981-2006 middle 90%: ‘new normal’ = nil growth real income pulling away of top percentiles - @ increasing rate cutbacks – a nastier reality at bottom
1995 – watershed year in tax/transfer system
Are these trends sustainable?
Unambiguous Increase in Income Inequality 1980 – 2005 CANSIM v21151621
Gini Index of Inequality in Total Income All Canadian Family Units - 1980 to 2005
0.34
0.35
0.36
0.37
0.38
0.39
0.4
0.41
0.42
0.43
0.44
year
Gin
i In
de
x
Gini Index
Changes in real income largest in top percentiles
Percentage Change in Real Income 1982 to 2004
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
20%to
25%
25%to
30%
30%to
35%
35%to
40%
40%to
45%
45%to
50%
50%to
55%
55%to
60%
60%to
65%
65%to
70%
70%to
75%
75%to
80%
80%to
85%
85%to
90%
90%to
95%
95 to99%
top 1%
Individual % change
Family % change
Little change in real median income1980-2004
Real equivalent after-tax income by income percentile
Inequality – the price ‘we’ pay for growth? 1980 – 2000: a ‘new normal’ in Canada
Real (2000 $) Hourly Wage in Canada1914-2000
0
5
10
15
20
25
year
ho
url
y w
ag
e (
20
00
$)
Density of log hourly wages of employees aged 25-64, 1981-2004
Individual Hourly Wage inequality - only part of the picture
Individual Net Annual Income = Capital Income + Labour Earnings +
Net Transfer Income = (rate of return) * (Stock of wealth owned) + (hourly wage)*(hours worked weekly)*(weeks worked per year) + Government Transfer Income – Taxes Paid
Net Annual Family Income = Net Annual Income of Family Head + Net Annual Income of Spouse (if any) + Net Annual Income of any other family members
Change in inequality, or correlations, of any component will affect inequality
The rise & fall of labour’s share- now about 51% of GDP
Employee Compensation as Share of GDP1961 to 2006
y = -5E-06x2 + 0.0009x + 0.5074
R2 = 0.6417
0.44
0.46
0.48
0.5
0.52
0.54
0.56
0.58
196
1/0
3
196
2/0
6
196
3/0
9
196
4/1
2
196
6/0
3
196
7/0
6
196
8/0
9
196
9/1
2
197
1/0
3
197
2/0
6
197
3/0
9
197
4/1
2
197
6/0
3
197
7/0
6
197
8/0
9
197
9/1
2
198
1/0
3
198
2/0
6
198
3/0
9
198
4/1
2
198
6/0
3
198
7/0
6
198
8/0
9
198
9/1
2
199
1/0
3
199
2/0
6
199
3/0
9
199
4/1
2
199
6/0
3
199
7/0
6
199
8/0
9
199
9/1
2
200
1/0
3
200
2/0
6
200
3/0
9
200
4/1
2
200
6/0
3
year
% s
hare
4 crucial issues
“The other 49% of GDP” the rate of return to capital; inequality of wealth ownership;
Income share of top percentiles Why such large increases?
the least well-off now a much nastier reality for those at
the bottom
Real interest rate increase1954-80: 0.94% 1980-2000: 4.42%
Real Short Term Interest Rates in Canada90 Day Treasury Bill rate - current CPI inflation
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
De
c-8
0
De
c-8
1
De
c-8
2
De
c-8
3
De
c-8
4
De
c-8
5
De
c-8
6
De
c-8
7
De
c-8
8
De
c-8
9
De
c-9
0
De
c-9
1
De
c-9
2
De
c-9
3
De
c-9
4
De
c-9
5
De
c-9
6
De
c-9
7
De
c-9
8
De
c-9
9
De
c-0
0
De
c-0
1
De
c-0
2
De
c-0
3
De
c-0
4
De
c-0
5
De
c-0
6
Real Interest rates 1954-1980 Real Interest rates 1981-2007
Shares of Wealth – The Net Worth ofCanadian Family Units 1970 to 2005
Median Net Worth by Decile- why so little accumulation below top 10%?
Figure 9The Wealth of Canadian Families
1984, 1999, 2005
-200000
0
200000
400000
600000
800000
1000000
1200000
1400000
bottom10%
2 3 4 5 6 7 8 9 top 10%
decile
Me
dia
n N
et
Wo
rth
in
20
07
$ C
dn
Net worth 1984
Net Worth 1999
Net worth 2005
The BIG NEWS in Canada & USA – sharply rising income share at very top
Direct effect of transfers and taxes on Gini index of inequalityAll families, 1976 to 2004
Alberta Welfare Income Couple + 2 Kids - 2005 $ 30% real cut by provincial SA 1986-2005
Income Gains concentrated at the top of the hierarchy – is this sustainable?
Top 0.1% 1992-2004 Family Income = $2.493M Annual growth = 6.1% Annual $ increase = $152K
‘Pulling Away’ Large % gains at top on
large base imply increasingly conspicuous gulf
Middle 90% - nil gain? Nastier @ bottom
Benefits of Growth largely received by top percentiles
Is this socially sustainable?
54 years of quintile shares
TAA not TINA“There Are Alternatives”
Canada in mid-range of OECD