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Inequality: for the 10th grader in you

March 25, 2013

Hi my name is Z… and I am in 10th grade, I have a history project relating to economic inequality and social justice. I found your blog on economic inequality online and I was wondering if you could answer my interview questions, the questions are — What has happened to make economic inequality relevant in Canadian history? and To what degree has a commitment to social justice been significant in creating Canada today?

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Dear Z…,

thank you for thinking of me and for the opportunity to address your questions. There is probably no single answer to these questions, but I will try to answer briefly from the perspective of economics.

1. What has happened to make economic inequality relevant in Canadian history?

Inequality has changed tremendously in Canada, and in other countries during say the last 100 years.

In the 19
20s and 1930s 1% of the population made about 15 to 20% of all the earnings in Canada and the United States. This high level of inequality was in part the cause of the great depression during the late 1920s and 1930s when unemployment was very high and many people could not provide the necessities of a good life for themselves and their children.

Du
ring World War II and afterward Canadian governments introduced many important social programs, like unemployment insurance, and a progressive taxation system that were designed to promote more equality. Also the economy was much stronger and of greater benefit to the average working person. Inequality fell, and by the 1970s the top 1% only made about 8% of all the money in the economy. The average family benefited from prosperity and was able to provide for themselves and for their children. There was a sense of optimism in the future.

But since the 1980s this has again changed, and now the top 1% are making much more, close to 14 or 15% of all the money in Canada. This happened because of globalization and the rise of computers in the work place. These forces led some people to lose their jobs, and others to make a lot more money. But the average person is not making any more money than they made 3 decades ago. This is relevant because it means that people are not experiencing progress, and they are less optimistic about the future for themselves and their children.

Inequality is relevant in understanding Canadian history because it reflects how our economy works, and because it has changed so much over the last 100 years.

2.
To what degree has a commitment to social justice been significant in creating Canada today?

Some people say that a commitment to social justice is a commitment to more equal economic outcomes, and also to more equality of opportunities so that anyone—regardless of which family they were born into—can succeed in life if they are talented and work hard.

Some peopl
e also feel that this commitment is also responsible for important Canadian government programs like: the Canada Pension Plan and Old Age Security, which offer pensions for retired people, and reduced poverty among the elderly; the Canadian education system which is of very high quality and has helped develop and encourage the talents of young people whether they come from poor or rich families; and the Canadian health care system, which is based upon the principle of equal access regardless of where you live and how rich you are.

Some people feel that these social prog
rams are a very important aspect of what it means to be Canadian, and this would imply that a commitment to social justice is an important part of creating the Canada of today.

I hope this is of some help to you, and wish you the best of luck with your project.

all the best,

Miles Corak
Professor of Economics

Graduate School of Public and International Affairs

University of Ottawa / l’Université d’Ottawa

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From → children, inequality

5 Comments
  1. I have heard several economists point to computers as a cause of rising income inequality, but this doesn’t ring true to me. Many occupations have been replaced by machines since the start of the Industrial Revolution over 200 years ago. What is different about computers?

    Whenever a job is replaced by a machine/computer, it means the remaining workers are more productive. Income inequality results from a disproportionate amount of that extra productivity going to the top. There’s no reason it can’t go to everyone, is there?

    But there is a big reason why those productivity gains should be spread to everyone. Rising productivity must be matched by rising consumption. When middle class incomes don’t rise with productivity, the wealthy must increase their consumption to compensate. In reality, this doesn’t happen — the majority of that extra income goes into investments.

    The only other way productivity can continue to increase is if the middle class borrows enough to make up for lagging incomes. This is what happened in the US until 2007. Now that their borrowing has stopped, the economy has been significantly below potential. When the Canadian housing bubble bursts, I suspect the same thing will happen here.

    • Michael this is a very good question that raises important issues. I am a bit tied up for the next couple of days and don’t have the time to respond in a way that does it justice. I will try to put together a response in the coming days. In the meantime if other readers would like to weigh in, I hope they feel comfortable doing so.

    • Dr. Dhanayshar Mahabir permalink

      When machines replace workers it is true that the productivity of the remaining workers rises. In the old fashioned Solow model the Capital /Labour ratio increases as the production process becomes more capital intensive. Of the total output that is now created labour must receive its share but now so must the owners of the capital. The owners of capital will therefore be able to appropriate more of the output as the larger capital stock will commandeer its appropriate rewards. It seems obvious that in a capitalist economy those who own capital will always be able to maintain and increase their share of the national output. Hence the middle class should in my opinion not focus only on human Capital but also on accumulating their own capital stock so that they may supplement wage income with a share in profits, interest and rent from the physical and non physical capital that they own. In fact it may be interesting to examine whether the Canadian middle class possess a net wealth per household that is higher that that of say American middle income households.

  2. Dr. Dhanayshar Mahabir permalink

    Excellent Response Miles. With respect to Education and Human Capital, it may be of benefit to examine statistics relating to the percentage of GDP spent by the state on Education over the past fifty years. Perhaps this percentage of public funding may be higher for Canada than say for the US which displays a greater level of income inequality.

  3. Those concerned about this issue might be interested in the upcoming debate in the The Great Debates series from the Macdonald-Laurier institute:

    RESOLVED: Wealth Has Too Much Power in Canada
    Thursday, 9 May 7:00 – 9:00 pm
    Barney Danson Theatre
    The Canadian War Museum, 1 Vimy Place, Ottawa

    Endless financial scandals, the Occupy movement, huge CEO salaries – has the time come to reassess our capitalist system and values? Is it time to cut the 1% down to size? Armine Yalnizyan, senior economist at the Canadian Centre for Policy Alternatives, goes head-to-head against William Watson, Professor of economics at McGill University and regular columnist in the National Post and Ottawa Citizen. The moderator for the evening is Canadian historian Jack Granatstein.

    $20 per ticket / Students and Seniors $15
    http://www.macdonaldlaurier.ca/

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