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Changing income inequality, some Canada – US differences

June 4, 2016

One of the responsibilities of being President of the Canadian Economics Association is organizing the conference program; but one of the honours is giving the “Presidential Address” to the entire assembly of the next year’s conference. This year’s address is by Charles Beach of Queen’s University who spoke on “Changing income inequality: A distributional paradigm for Canada.”

This is a particularly special meeting to give the Presidential Address, as it is the association’s 50th anniversary with a record attendance of over 1,200.

Beach’s objective is to pull together a whole host of facts, and offer a framing that can drive a consistent narrative, and in this way to understand underlying drivers of inequality in Canada and guidance for policy. Beach also points out that there are significant differences between Canada and the United States.

There has been a decline in the share of income going to families in the middle over the last 30 years, and there has been a corresponding increase in the share going to the top 10%. Interestingly the share going to the bottom 20% has not changed so much, a big difference from the United States. Median family incomes have also been slightly increasing in Canada, another big difference between these two countries. The other big cross-country difference is that while top 1% shares have gone up in both countries, the rise is bigger in the United States.

It is also true that the returns to education have risen in both countries, but again more so in the United States. Several things could be driving this: immigration policy in the US is more focused on low skilled workers than in Canada where the focus is somewhat more on high skill immigrants; Canada has experienced a boom in the resource and housing sectors that disproportionately employ lower skilled workers, and unionization rates are higher; there was also a big inflow of highly educated women entering in the labour force in both countries, but more so in Canada. All these factors have had the tendency to blunt earnings growth at the top in Canada, and support it somewhat at the bottom, but perhaps done the opposite in the United States.

Typical workers have been benefiting less from overall output gains, but again the patterns differ between the two countries. Labour income as a proportion of GDP has hovered between 50 and 55% in Canada since 1960, but in the United States drifted from about that in the 1960s to below 45% by 2010.

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