A Quarter Century of Economic Inequality in Canada: 1981 - 2006

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A Quarter Century of Economic Inequality in
Canada 1981 - 2006

• Lars Osberg
• Economics Department
• Dalhousie University
• Dec. 14, 2007

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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, 1981205)
• 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 - _at_ increasing
  rate
• cutbacks a nastier reality at bottom
• 1995 watershed year in tax/transfer system
• Are these trends sustainable?

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Unambiguous Increase in Income Inequality 1980
2005 CANSIM v21151621
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Changes in real income largest in top percentiles
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Little change in real median income1980-2004
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Real equivalent after-tax income by income
percentile
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Inequality the price we pay for growth?
1980 2000 a new normal in Canada
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Density of log hourly wages of employees aged
25-64, 1981-2004
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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

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The rise fall of labours share- now about 51
of GDP
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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

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Real interest rate increase1954-80
0.94 1980-2000 4.42
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Shares of Wealth The Net Worth ofCanadian
Family Units 1970 to 2005
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Median Net Worth by Decile- why so little
accumulation below top 10?
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The BIG NEWS in Canada USA sharply rising
income share at very top
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Direct effect of transfers and taxes on Gini
index of inequalityAll families, 1976 to 2004
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Alberta Welfare Income Couple 2 Kids - 2005
30 real cut by provincial SA 1986-2005
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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 _at_ bottom
• Benefits of Growth largely received by top
  percentiles
• Is this socially sustainable?

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(No Transcript)
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54 years of quintile shares
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TAA not TINAThere Are Alternatives
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Canada in mid-range of OECD