Inequality Just Keeps Getting Worse

The distribution of income is a function of power. It is also an outcome of power. The powerful use their power to maintain that power. One of the results is worsening income distribution. 

 Data Source: Statistics Canada Table 11–10–0192–01; calculations by author

Data Source: Statistics Canada Table 11–10–0192–01; calculations by author

It is a fitful process. However, in Canada, the distribution of income has steadily worsened. 

In 1976, the top 10% were paid 5.0 times the income of the bottom 70%. In 2017, the ratio was 7.2 times.

In fact, in 2017 the price-adjusted income of the bottom 70% of Canadians was lower than in the late-1970s. Meanwhile, the wealthiest 10% of Canadians were receiving over 50% more income. 

One of the things powerful people do with their power is ensure the system continues to favour them. Of course, within the most powerful cohort, there is no single, simple, consensus on how best to maintain the status quo and entrench their power. This is one reason federal electoral victory in Canada has oscillated between the Conservatives and the Liberals. Both parties protect the position of the most powerful but do so with a different mix of policies.

The distribution of income has worsened under both parties, although it has taken a different form. 

On average, income growth for all income groups is lower during Conservative governments than during Liberal governments. The bottom 70% actually suffered an average income decline of 0.2% per year under Conservative governments. The top 10% average income gains of 0.5% per year. 

With the Liberals in government, both the bottom 70% and the top 10% generally see income gains. However, the gap between the two groups grows more than under the Conservatives.

Under the Conservatives, the income of the top 10% grows 0.7 percentage points more per year than the bottom 70%. Under the Liberals, the richest decile gains 0.8 percentage points per year more than the bottom 70%. 

Indeed, in 2017, under the Liberal government, the ratio of the income of top 10% to the bottom 70% hit its highest level ever as the top 10% received its largest one-year increase—$9,200—in almost 20 years.

Our tax system somewhat reduces inequality. The after-tax income of the bottom 70% has increased 15% since the late-1970s, while the top 10% has gained 45%. Through the 1980s and early 1990s, after-tax inequality slowly increased. Then, under the Chrétien/Martin Liberals, after-tax inequality jumped substantially. With both the Liberals and Conservatives prioritizing tax cuts that favour the top-end of the income hierarchy, this trend of worsening after-tax inequality will continue if either party takes the election.

Income inequality is a problem for many reasons. First, and most obvious, it is unfair. The highest paid do not work harder or contribute more to society. This is not to say they do not work hard and do not contribute. Some do and some do not. The place where any income-earner is found on the income ladder is largely a product of luck.

Both luck of birth and luck of circumstance are incredibly consequential in how much we will be paid and how wealthy we will become. Warren Buffet, one of the three richest men in the world, has acknowledged that with his set of skills, if he had been born almost anywhere other than the United States in the first half of the 20th century, he would not be so obscenely wealthy.

More worrisome than the fairness of inequality is the distribution and use of power. The rich wield excess influence within our political institutions. Our voting system may be one-person, one-vote but our economy is one-dollar, one-vote. One thing that the rich buy with their riches is influence. And, returning to the point made at the top, one of the most important goals of that influence is to maintain the status quo and their relative power.

Improving both pre- and after-tax income distribution is not just about achieving more fair outcomes, it is also about minimizing the excessive power and influence of the richest members of our society.