The Canadian federal government should enhance the human and financial capital of children in less wealthy families, enhance market incomes of lower paid workers, and enhance the security of working incomes by adapting three existing programs to new realities: widening their scope, making them more flexible, and making them easier to obtain.
The changing world of work is also a changing world of pay, a world that will likely lean toward greater wage rate inequalities, lower or stagnating incomes for the bottom 40 percent, and greater income insecurity for the broad majority.
I suggest three changes to current public policies that take incremental, but important, steps toward fostering capital accumulation among children from less wealthy families, increasing market incomes earned from that capital for the working poor, and finally enhancing income security for the broad majority.
These policies lean toward encouraging inclusive growth, in which the benefits of the new world of work and pay are broadly shared.
In this post I discuss the first policy proposal, which is:
Enhance human and financial capital by making community colleges tuition-free, and making the Canada Learning Bond more flexible
There is a movement afoot, and there is an election in the offing. Always a great dance to watch, no matter what the issue.
The latest show is taking place in Ontario, where “$15 & Fairness” is the rallying call for raising the minimum wage, and has found a willing partner in the province’s Premier who will go to the polls in the spring, but in the meantime has legislated significant increases in the minimum price for an hour of work. The same dance plays out in the United States, and in many cities and states a minimum wage of $15 per hour is becoming a reality.
The big question in Ontario is exactly that raised by The New York Times during the 2015 primaries when Bernie Sanders was battling Hillary Clinton for the Democratic nomination: “As the campaign for a $15 minimum wage has gained strength this year, even supporters of large minimum-wage increases have wondered how high the wage floor can rise before it reduces employment and hurts the economy.”
Something to think about, but how would you think about it if you were an economist? Here are four rules of the road that might come in handy regardless of which dance you might be watching next time.
The Pope has strong views about inequality because he has a theory, and doesn’t need data.
One of Canada’s most prominent pundits has strong views about inequality because he has data, and doesn’t need theory.
I’ll probably never convince either of them to change their views, but maybe I can convince you with both theory and data.
Give me the chance by reading my just published paper, “Inequality is the root of social evil,’ or Maybe Not? Two Stories about Inequality and Public Policy.”
I tell two stories about inequality. The first is from the perspective of those who feel it is not a problem worth the worry, and the second from the perspective of those who see it as “the defining challenge of our time.” I tell these stories to clarify their underlying logic, but also to clarify both the challenges facing Canadians and our understanding of what public policy should do about them.
But I have another motive. I would like you to appreciate the value of economic theory and statistical methods to a public policy discussion of this sort. It seems to me that without an appreciation of some basic elements of theory and measurement, it is too easy for the policy conversation to go astray.
A common way to think about social mobility is in terms of “rags to riches” movement, a type of mobility that is central to the great defining metaphor of the United States, “The American Dream.” Indeed, policy makers often frame their discussion of social mobility in these terms, as for example in a May 2016 speech by the Chairman of the Council of Economic Advisers.
Upward movement is a natural way to think about social mobility, and Americans should have more of it. But this won’t happen without lowering the chances of intergenerational cycles of poverty, and promoting inclusive economic growth.
Social policy in Canada faces three challenges having to do with income inequality, income insecurity, and the imbalance between work and family life. My presentation at the Queen’s University conference, “Social Canada Revisited,” begins by outlining three facts that illustrate these challenges:
The share of total market income going to bottom-income Canadians has fallen
Workers with steady employment suffer significant and long-lasting income losses after a layoff
Families have changed to help cushion and support middle incomes, but the family-work balance is titled
I suggest that there are precedents in the existing Employment Insurance program that can be enhanced and built upon to more fully offer Canadians the social insurance they need and want, and put forward three enhancements that will move social policy in this direction.
Enhance Working While on Claim and integrate it seamlessly with the Working Income Tax Benefit to offer steady and increased income support to lower-income Canadians in a way that mimics some versions of a Basic Income
Introduce wage insurance that would top up weekly earnings for workers with a steady employment history who have suffered a permanent layoff
Expand so-called “Special Benefits” by creating individual accounts over which individuals have complete sovereignty
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.