Economic recovery plan must help those at the bottom first

TORONTO—Even before the pandemic, increased inequality in income and wealth between those at the top and those in the bottom 50 per cent had become a major challenge that had to be addressed. The pandemic threatens to make inequality an even bigger challenge. Rebuilding the post-pandemic economy, then, must include both building a more productive economy but also a fairer economy. As the Organization for Co-operation and Development points out in its recent report, Employment Outlook 2020, COVID-19 is accentuating inequality in Canada—47 per cent of those in the lowest earnings quartile have stopped working, compared to just 14 per cent of those in the top quartile. Moreover, only 15 per cent in the bottom quartile can work from the safety of their home compared to almost 50 per cent in the top earnings quartile. And as the report adds, between February and April employment among temporary workers with tenure of one year or less declined by 30 per cent and by May youth employment had dropped by 33 per cent. Looking at where the biggest gains in after-tax income from economic growth, along with the biggest gains in net wealth, have gone over the past 20-25 years, it will be no surprise to see that those at the top have been the big winners while those at the bottom have only marginally gained. But what are the actual numbers? While per capita GDP rose 64.3 per cent between 1982 and 2017, most of the gains went to those at the top. To get a clearer picture on inequality, I asked Statistics Canada, which responded by providing a vast array of data which gives a detailed picture of what has been happening in Canada since the early 1980s, a long enough period to identify changing patterns or trends. According to Statistics Canada, the after-tax income of those in the top 0.1 per cent grew by 97.8 per cent between 1982 and 2017, while the bottom 50 per cent saw their after-tax incomes rise by a much lower 21.8 per cent. Those in the 51-90th percentiles saw their after-tax income rise by just 15.3 per cent. In 1982, the top 0.1 per cent had average after-tax income 37 times the bottom 50 per cent; in 2017 it was 61 times the bottom 50 per cent. The closer you were to the top, the greater your after-tax income growth between 1982 and 2017. The top one per cent saw their after-tax incomes rise 60.8 per cent, the top five per cent by 42.1 per cent, and the top 10 per cent by 35.1 per cent. There’s some positive news. Over the past decade, the bottom 50 per cent have seen an improved rate of after-tax income gains, in part probably the result of changes in public policy, such as a more generous child benefit, increases in the guaranteed income supplement for seniors and increases in the minimum wage. Likewise, the position of women in the workforce has improved—in pay and pensions—in part because women more than men have been pursuing jobs in the public sector, which provides more generous pay and benefits. The bad news is that the position for male workers—from full-time jobs to pensions—has been declining. Just as the gap in after-tax income between those at the top and those much further down has widened, so has the distribution of wealth. In 1999, the top quintile of Canadian families owned 45.1 per cent of the country’s net wealth, and the next quintile owned 22.6 per cent. By 2012, the top quintile owned 46.7 per cent and the next highest quintile another 23.1 per cent. For those in the bottom three quintiles their shares of net worth declined: for the bottom quintile, from five per cent to 3.9 per cent, for the second lowest quintile, from 10.9 per cent to 9.7 per cent, and for the middle quintile, from 16.4 per cent to 16.3 per cent. The changing workplace is likely one factor in the growth in inequality. A Statistics Canada study on the changing characteristics of Canadian jobs from 1981 to 2018 found that the jobs held by Canadian employees in 2018 differed in many respects from those held by their counterparts in the early 1980s. There were proportionately fewer full-time or permanent jobs, fewer unionized jobs and fewer employees covered by a Registered Pension Plan. In 1981, 42 per cent of Canadian employees had a defined-benefits pension plan; by 2016, this had fallen to 25 per cent. In fact, only 37.5 per cent of employees had any kind of registered pension plan in 2016, compared to 44.6 per cent in 1981. At the same time, the median hourly wage, after inflation, rose just 13 per cent between 1981 and 2018. One factor that could be affecting the level of workplace pay has been the decline in union membership. In 1981 some 37.6 per cent of employed Canadians 17-64 belonged to a union. By 2015 this had fallen to 29.0 per cent. The consequences of poor economic gains for the bottom 50 per cent in particular go beyond economic insecurity. Healthy life expectancy is also affected. According to Statistics Canada, healthy life expectancy for a 25-year-old male in the bottom income quintile this decade was 41 years, compared to 52 years for those in the top quintile, a difference of 11 years; for women the numbers were 42.5 years for the bottom quintile, rising to 56 years for the top quintile, a difference of 13.5 years. We pay an economic cost with rising inequality. But we also pay a social cost, since rising inequality can undermine trust in our institutions as a significant share of the population feels left behind, as well as widening the gap in health outcomes between those at the top and those nearer the bottom. Our post-pandemic challenge is to build a better Canada, which means addressing the sources of inequality as well as the outcomes. David Crane can be reached at crane@interlog.com.

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Economic recovery plan must help those at the bottom first

Low earners have been hit the hardest during the COVID-19 recession, and were already being left behind by the richest in our economy. The government's economic recovery plan should prioritize reducing income inequality.

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