Addressing Inequality and Productivity
This is the fourth feature in a series highlighting CPJ’s recommendations for the 2013 federal budget in Promoting the Common Good. In part three, we looked at ways in which the federal government can address the challenges that come with Canada’s aging population and subsequent skills shortage. This week we focus on how Canada should address inequality in order to achieve equitable, sustainable progress.
These days, Canada’s economy is often cited as a shining example of how to weather these stormy, unstable times. But all is not well. Some bemoan the stagnancy of our productivity which fell 0.4% in the second quarter of this year. Others raise concerns over our unemployment rate, which, at 7.3%, is still well above pre-recession levels. Still others point to our GDP growth rate, which currently stands at a fraction of what it was throughout the 1990s. While these measures are important, they only tell us part of the story and disregard the well-being of a large portion of Canadians.
A Limited Outlook
The economic indicators mentioned above often mean very different things for different people. Increasing productivity results in increased revenues for some large corporations, but this brings with it a greater emphasis on efficiency, which places increasing demands on employees. Sometimes a decreased unemployment rate means that people have found fulfilling work and have a better quality of living. But when the unemployment rate falls as a result of people leaving the job market or settling for part-time or low-wage work, it means despair and a loss of hope. Even a traffic jam, which leads to greater gasoline sales, will increase GDP. But you would have a difficult time arguing that it enhances the quality of life of those idling in their cars.1
Progress is too often defined strictly in economic terms, such as job creation and productivity. At CPJ, we believe a better measure of progress is the well-being of all Canadians, not just the wealthy and powerful who tend to benefit most from economic growth. Progress must be more than merely economic and must consider human dignity. Since, no single statistic can fully explain the complexity of human well-being we should consider an aggregation of multiple measures. This means we need to focus on non-economic aspects of people’s lives.
Including Social Measures
In their book, The Spirit Level: Why More Equal Societies Almost Always Do Better, Richard G. Wilkinson and Kate Pickett argue that a myriad of social problems including health, education, political voice, the environment, and trust are negatively impacted by income inequality. For example, unequal societies have higher rates of stress, which has a negative impact on immune systems, cardiovascular health, and aging. With regards to education, one of the biggest indicators of success is family background. Low-income students do consistently worse in school. Therefore, a larger income gap means a larger education gap.
But income inequality also leads to poor economic outcomes. When a country has a larger disparity between rich and poor, the community is less cohesive and these types of societies create a difficult environment for businesses to work efficiently.2 More equality in societies, on the other hand, increases access to education and employment, which in turn provides the conditions for economic growth.
In Canada, income inequality is growing twice as fast as it is in the United States. Canada’s Gini coefficient (a measure of inequality, where 0 represents perfect equality and 1 represents perfect inequality) rose from 0.28 in 1989 to 0.32 in 2010. In the past 30 years, the top 20% of Canadians increased their share of earnings from 43% to over 50%. In that same time, the bottom 20% of Canadians saw their share of earnings decrease from 2.8% to about 1%.
If inequality leads to poorer social and economic outcomes, then addressing income inequality is an important way to improve well-being. It is by no means a comprehensive quick fix, but it is a good first step. Just this year, MP Scott Brison (Liberal) introduced motion M-315 which asks the Standing Committee on Finance (FINA) to undertake a study of income inequality in Canada. The motion received support from members of all parties. We believe that if the federal government wants to address both the social and economic well-being of Canadians, it should fully support the finance committee’s upcoming study on income inequality, and take action to reduce the inequality gap. Instead of measuring economic progress by only productivity or job creation, let’s consider broader measures of well-being.
Check back next week for details on our fifth and final recommendation!
- 1. Report by the Commission on the Measurement of Economic Performance and Social Progress. http://media.ft.com/cms/f3b4c24a-a141-11de-a88d-00144feabdc0.pdf
- 2. The Equality Trust. http://www.equalitytrust.org.uk/why/equality-not-growth
Brad Wassink is CPJ’s policy intern.
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