Last week I wrote about how income disparity in Canada is on the upswing, now growing faster here than in the U.S. Growing in parallel with that gap – due to that gap, according to some compelling research (www.equalitytrust.org) – are rates of mental illness, drug abuse, incarceration, obesity, low education, declining health and social immobility.
This brewing stew of social ills is particularly pronounced in Vancouver, which had the highest share of its population with low incomes of any city in Canada in 2009, making it one of only three cities in Canada whose low income rates didn’t go down between 2000 and 2009.
But wait. Doesn’t a rising economic tide float all boats? Unfortunately not. Median incomes in Canada have grown by a mere 5.5% in 33 years – basically flat-lined. That’s according to recent Conference Board of Canada reports, which note that only the richest 20% of Canadians have increased their share of national income since 1993. Everyone else has lost ground. Explanations range from market forces and globalization to dwindling unionization rates, stagnating minimum wages and reduced personal and corporate income taxes.
Of those factors that we can control, many are based on the assumption that taxing the rich destroys job creation. Despite some truth in that assumption, it’s equally true that growing inequality, in the words of the conference board, “undermines social cohesion, leading to increased social tensions,” not to mention its direct relationship to the other tax-draining social ills mentioned above. Income inequality was singled out as one of the two most serious challenges facing the world at this year’s World Economic Forum in Davos.
There are only two ways to fix inequality: stop it at it source (the Japanese model) or redistribute income (as in Sweden). As an example of the former, giving unions seats on corporate boards is a common practice in some countries that keep senior compensation levels in check (attention BC Ferries). In Japan, company directors have been known to take pay cuts themselves to avoid laying off junior employees.
On the redistribution side, give credit to Premier Christy Clark for raising the minimum wage, another way to close the gap – in spite of its downsides.
Warren Buffett is the new crown prince of redistribution: he actually wants to pay his fair share of taxes by having the same income tax rates as his secretary (he pays lower rates now). Can anyone really say that will dampen his entrepreneurial zeal?
UBC professor Lorne Whitehead, a former dean, inventor and private entrepreneur (but not an economist, he points out), suggests that we should harness the private sector to stop our growing income disparity. He proposes a revenue-neutral program that raises progressive income tax rates just enough to fund a grant available to any business in Canada. The grant would cover the minimum wage of any new Canadian employee that business hired. The cash cost to a company of hiring a new worker at minimum wage would then be zero.
Businesses could add new jobs and only have to pay the difference between the minimum wage and the going rate for the job; employees would earn a basic minimum wage plus what they are worth to the business. Redistribution benefits would be based on an employer hiring someone, not on government rewards for not working or on pork-barrel projects.
For those whose focus is simply enabling anyone to make their own way into the ranks of the rich, ironically that works best when inequality is least. More equal societies have higher social mobility (www.equalitytrust.org). Reducing our troubling rise in income inequality isn’t about envy and entitlement. It’s about avoiding myriad costly social problems and making the majority of us better off, in every way – including economically. •
