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Who are the middle class?

slice of pieOne economist recently suggested that there are as many as 156 definitions of the middle class. If this statistical potluck isn’t complicated enough, pollsters also tell us that a very large fraction of the population describe themselves as “middle class.”

You can see why politicians have made the “middle class” an election issue, but also why they might hesitate to answer the question: “Who are the middle class?”

It isn’t a contradiction for many people to feel they are in the “middle” even if their incomes are well above average or well below. There’s a certain truth to this because most Canadians share a set of common concerns that go beyond just their incomes.

You are “middle class” if you aspire to a better tomorrow, and have a hope for growth and progress in your circumstances; you are “middle class” if you are struggling with uncertainty, and worried if you and your family will be able to weather the storms that tomorrow will surely bring; and you are “middle class” if you have an expectation that your children should be treated fairly once you have done all you can to help them.

But while many people share these three concerns, their circumstances and capacities to manage them differ, something that is the result of growing inequality in access to secure and well-paying jobs.

Ninety percent of the population may belong to the “middle class”, but that doesn’t mean there is a one-size-fits-all-policy.

One way to get our heads around this is to let the answer to “Who are the middle class?” fall out of an answer to another question: “How is the economic pie divided?”

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An inclusive society seeks to eliminate child poverty

Wellington New Zealand

My meeting with senior Treasury officials began with the nonchalantly stated advice “In the event of an earthquake we like to get under the tables and hold on to the legs so that they don’t get away from us.”

As a Canadian, albeit one who has visited New Zealand three times in the past decade, I naively took this as a metaphor for the earth-shattering ideas the public service expects from its consultations with outside experts.

I assure you that the dozen or more participants gathered to discuss how the government might contribute to building “a more inclusive New Zealand” offered advice that was far from ground breaking.

How possibly could they?

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Inequality may be complex, but that doesn’t mean we can’t make sense of it

The Fraser Institute has weighed in on the income inequality debate with a report called “Income inequality: measurement sensitivities” that reviews the statistical measurement of income inequality in Canada.

The report quite rightly points out that there are many nuances in the measurement of income, and income inequality, and that the results vary substantially depending upon how economists and statisticians deal with them. Is income measured by earnings, or by total income that includes not just business and investment income but also government transfers? Should it be measured before or after taxes? And should we be looking at total family income or try to represent this as individual income by accounting for family size?

The analysis is carefully done and clearly presented, and though it covers ground that is pretty well standard for many economists working in this area, it helps to clarify the issues for a broader audience.

But the study concludes, in the words of the screaming press release, that there is “No income inequality crisis in Canada when it’s properly measured.”

That is the wrong inference to be making. What the study is missing is a coherent understanding of the link the different measures it so accurately calculates. As a result it misses important policy lessons.

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Building a more inclusive society requires a conversation about inequality

[ This post is based on the opening address I gave on the invitation of the New Zealand Treasury to the “A More Inclusive New Zealand Forum” held in Wellington, New Zealand on July 27th, 2015. ]

I would like to open this gathering with a statement of admiration for both its content, and its process. The organizers have asked us to deliberate on “inclusion”, and to do so through conversation.

As a part of my contribution to this conversation I would ask you to consider four major messages, all four of which revolve around the question: What does inclusion mean?

I use “mean” in the sense of how we define inclusion, and “mean” in the sense of its implications for policy.

What does “inclusion” mean, and how can we give it enough precision to inform public policy?

My four messages are:

  1. an inclusive society means that all children can become all that they can be;
  2. an inclusive society seeks to eliminate child poverty;
  3. income inequality has the potential to erode inclusion;
  4. public policy must address many dimensions of inequality.

 

A More Inclusive New Zealand Forum

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The US unemployment is lower than the Canadian, but not by as much as the official statistics suggest

The unemployment rate in the United States fell to 5.3% in June, while the Canadian rate as of May stands at 6.8%. When Statistics Canada releases the June numbers on July 10th they are unlikely to show much improvement.

But when comparing the two countries it is important to remember that there are subtle differences in statistical methods that tend to push the  Canadian statistic higher than the American. The unemployment rate in Canada would be 6.1% if it were calculated using US methods, rather than 6.8%

The gap between the two may be significant and it may grow even larger, but it is not as big as the official statistics suggest. See this 2012 post for an explanation.

Middle incomes, oil prices, and the fickle promise of prosperity

You could almost hear the air rushing out of a political agenda tailored around middle class malaise immediately after The New York Times published a story last April called “The American Middle Class Is No Longer the World’s Richest.” Here, with hard data, was that bastion of liberal thinking showing that the Canadian middle class was about to overtake the American on its way to becoming the richest in the world.

click on image to enlarge

Source: David Leonhardt and Kevin Quealy (2014). The New York Times. April 22nd.

The story made the talking points of the federal opposition parties—that the Canadian middle class was under threat, not well served by current government policy, and in need of something better—look more like limp balloons on the floor of a party that’s gone on too long, than a front line of battle ready troops about to seize power.

Trouble is, the claim that the Canadian middle class was doing better than the American lost sight of deeper trends. All bets are off now that oil prices have plunged, but the revised talking points of politicians are still no better at focusing on the underlying drivers of prosperity.

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