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Poverty and equality of opportunity: three pictures to motivate policy for social mobility

Read my comments presented to the Public Economics Forum on “Intergenerationally Disadvantaged: Newest Evidence and What it Means for Policy,” organized by the Melbourne Institute for Applied Economic and Social Research, on November 26th, 2019 in Canberra, Australia.

Social mobility varies across countries, but it varies in a particular way, a way that I argue is relevant for the conduct of public policy.

Inequality begets inequality. Up to 50% of income inequality is passed on to the next generation in countries like the United Kingdom, Italy, and the United States, but only 20% or even less in countries like Norway, Denmark and Finland, where there is a much smaller gap between parent incomes.

Incomes are stickier across generations where inequality is higher

But different kinds of inequality matter in different ways for social mobility.

Research using the variation of social mobility within countries like the United States and Canada shows that intergenerational cycles of low income are more likely in communities that have more bottom half inequality, the correlation with overall inequality and with top end inequality being much weaker. Upward mobility is easier when the poorest incomes are not that far off from middle incomes.

The bottom line for public policy is don’t let inequality increase in the bottom half of the income distribution, indeed strive to reduce it in a way that encourages labour market and social engagement.

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Tax the rich! Tax the rich! Tax the rich? But why?

Jagmeet Singh’s promise in his election night speech that “we’re going to make sure the super wealthy start paying their fair share” was met with cheers, the decibel level rising as his fellow New Democrats chanted: “Tax the rich! Tax the rich! Tax the rich!”

The leader of the New Democratic Party addresses his supporters.

It is not entirely true that the federal election ignored big policy issues, but if it was issues-driven, how did a wealth tax fly under the radar?

At some point in the coming weeks Mr. Trudeau will meet Mr. Singh over coffee to talk tax policy. Sadly, the election left Canadians no wiser as to what divides progressives on the issue, but if you want the full picture look south to the Democratic leadership campaign.

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My Mandate Letter for the Minister of Families, Children and Social Development

The first step a newly elected Prime Minister takes on the road to governing is choosing the members of cabinet and giving them their marching orders. Prime Minister Trudeau set to this task with zeal when he was first elected in the autumn of 2015, and surprised many by making the mandate letters public. The CD Howe Institute asked a number of experts to draft their versions, and this post offers a slightly longer version of the mandate letter I wrote for the Minister of Families, Children and Social Development published by the Institute.

Click on image to link to the 2015 Mandate Letter

All Canadians have a right to live the life they value with dignity.

As Minister of Families, Children and Social Development, your actions should be governed by this principle, and directed to three concerns:

  1. promoting economic well-being and ensuring that those facing challenging circumstances are able to fully participate in our society with dignity;
  2. fostering equal opportunities and inclusion for all, regardless of family background, gender, ethnicity, or sexual orientation;
  3. enhancing economic and social resilience, whether Canadians live in families or on their own.

With these in mind, I will expect you to work with your colleagues through established legislative, regulatory, and Cabinet processes to deliver on your top priorities.

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How do the party platforms address the changing nature of work, pay, and poverty?

The world of work is changing and creating anxiety about jobs and incomes. There is some overlap on how the major parties contesting the Canadian federal election propose to deal with these challenges, but the Conservatives are definitely the outlier. The Greens score high on vision but low on feasibility,  both the New Democrats and Liberals put a list of reasonable proposals on the table, with the Liberals offering a bigger vision that is also feasible. The Conservatives don’t seem to propose anything to address the world of work, imagining citizens as consumers, and implicitly offering a smaller role for government in the workplace.

 

The “changing nature of work” has to be—right up there with climate change—one of the hottest issues facing Canadians, a big cause of uncertainty and insecurity that underlies the middle class malaise that all of the parties contesting the Canadian federal election are hoping to address.

And quite rightly so. The future of work and globalization should raise a lot of anxiety. Richard Baldwin’s latest book, The Globotics Upheaval: Globalization, Robotics and the Future of Work, argues that as powerful innovations in digital technology meet globalization many higher paid workers in service jobs will be confronted with the disruptions that workers in manufacturing jobs had to deal with during the first wave of globalization during the 1990s.

If, as he argues, its “coming faster than most people believe,” then what should the politicians vying for our votes be doing about it? The first step for public policy is to foster higher and more secure incomes, and to offer better insurance.

How well do the platforms and promises stand up? I offer a review of the four major parties in the same spirit as the excellent review by Trevor Tombe and his co-author on climate change policies. Read “How The Four Federal Parties Climate Plans Stack Up” published in Chatelaine, and you will notice that my labour market and social policy scorecard is essentially the same.

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Intergenerational mobility between and within Canada and the United States

Intergenerational mobility is lower in the United States than in Canada, but the border only partially distinguishes the two countries with mobility varying significantly within each. The within-country differences and similarities hint at some of the reasons why the United States has lower social mobility than many other rich countries.

This is the main theme of a study released by the National Bureau of Economic Research, based upon Canadian data my co-authors and I constructed with the cooperation of Statistics Canada. Our research offers a more accurate comparison between these two countries than any cross-country comparisons made in the literature to date: tax-based administrative data, used to define similar measures of income, and coming close to covering the total population of similarly aged young people and their parents.

We cluster more than 1,000 communities in these two countries—709 American Commuting Zones and 288 Canadian Census Divisions—into four broad regions according to their similarity across a comprehensive set of five different measures of intergenerational income mobility, all referring to the strength of the tie between parent incomes and child adult incomes.

Source: Connolly, Corak, Haeck (2019, Figure 7). Click on image to enlarge.

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The “middle class” is within easier reach for low income Canadian children, than it is for low income Americans

Upward mobility is more likely in Canada than in the United States, with the middle class within easier reach for Canadian children raised in low income families than for low income American children.

Canadian children raised by parents with incomes at the bottom 10 percent can expect to be earning enough as a young adults to place them much higher, above the 40th rung of a 100 rung income ladder, and significantly higher than their American counterparts. To reach a similar point on the income ladder an American child would have to have parents who ranked as high as the 39th percentile. Read more…

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