Friday April 18, 2014

Wealth disparity becoming a big problem


I don’t often tread into economics because traditionally it hasn’t been my strongest suit, but I’ve been studying up a bit. I have even been watching business programs including The Lang & O’Leary Exchange, even though I find it aggravating listening to Kevin O’Leary constantly spout his Gordon Gecko-esque “greed is good” mantra.

One exchange between the two hosts, piqued my interest, which I’m sure is why CBC uses it in their ads for the show. Amanda Lang asks, “Why aren’t corporate profits being shared?” O’Leary responds that if people want a share of corporate profits, they can become shareholders. Lang says she doesn’t think that’s necessary, that employers should be asked to pay their employees a fair wage.

The fact that fair wages is an increasingly hot topic should be of great concern to all Canadians. A recent report by the Fraser Institute, a conservative think-tank, suggests public sector employees earn 12 per cent more than their equivalent counterparts in the private sector.

The report’s conclusion? Roll back public service wages to be more in-line with the private sector.

In light of Bill C-4, which, among an omnibus package of legislation, seeks to restrict collective bargaining rights, it appears that is precisely what the federal government has in mind.

The Canadian Union of Public Employees (CUPE) disputes the Fraser Institute data with its own study. When CUPE crunched the numbers, they came up with a much different picture, suggesting average annual pay is pretty much on par with public employees earning a slight 0.5 per cent more.

Whether you believe the right-leaning or left-leaning version, the real problem here is that real wages for most Canadians have been declining for decades. This seems relatively intuitive to most middle class people. We are simply not as well off as our parents were. The growing inequality between the very rich and the rest of us has been big, big news since the economic meltdown of 2008. It resulted in the “Occupy” protests and generated the now-famous 99 per cent meme on social networks.

I’ve looked at a lot of data and read numerous studies and papers over the last few weeks trying to wrap my head around this. It is mind-bogglingly complicated, but certain facts stand out regardless of how one might spin the data. According to Statistics Canada, between 1980 and 2005, average income in Canada grew by 17 per cent. Not surprisingly, pay for the lowest 20 per cent of earners actually fell by 20.6 per cent, while the top 20 per cent gained 16.4 per cent. Middle income earners also lost share.

In other words all of the income gains for nearly 30 years were concentrated at the top of the food chain. That is why conservative pundits don’t like to talk about median income. Based on the same data from StatsCan, the 1980 median income (adjusted to 2005 dollars) was $41,348, while in 2005 it was $41,401, an increase that is statistically negligible. If income growth had been equitable, the median should have risen to approximately $48,000.

Still, at first glance, it doesn’t seem so bad that it hasn’t declined until you look at it in terms of the gap between real earnings growth and labour productivity growth.

A 2008 paper by the Centre for the Study of Living Standards reported that total economy labour productivity gains were 37.4 per cent for the 1980 to 2005 period, but labour’s share of the productivity gains sharply declined over that period.

Meanwhile, the top one per cent of earners increased their share of all income from five to 10 per cent. And the inequality is even unequal among the one per cent with the top 0.1 per cent increasing their share from one per cent to 4.3 per cent.

The data gets exceptionally murky after 2006 with StatsCan basically saying meaningful comparisons cannot be made between the mandatory long-form 2006 census and the voluntary 2011 household survey, but there is no reason to believe that the trend has not continued or even worsened, particularly in light of international trends.

Last week, the Organization for Ecomomic Cooperation and Development (OECD) released a report that indicates poverty is increasing among Canadian seniors. The OECD also ranks us 15 out of 17 of the richest developed nations in terms of child poverty. We rank 6th in income inequality.

Surely these things are unacceptable in a country that prides itself on being largely egalitarian.

Amanda Lang is right. Greed is never good. Employers, public and private sector alike, must be encouraged to pay workers a fair wage and the response that it will put companies out of business and destroy the economy is, frankly, poppycock.

The growth in Canada’s wealth is there, most of us are simply not getting our fair share of it.

I’m not against people getting rich. It means different things to different people and there will always be some disparity of wealth, but surely in a country this wealthy we can strike some kind of balance.

A couple of years ago I interviewed Brett Wilson, Saskatchewan’s most famous entrepreneur and former Dragons’ Den star. He told me before his bout with cancer that no amount of money was ever enough. He has changed his tune now, but is still rich beyond what most people can even imagine.

Surely in a country this wealthy, we can find a way to ensure everybody has not a minimum wage, but a livable wage. Surely in a country this wealthy, we can find a way to incentivize companies—which are sitting on record piles of cash right now—to spread that good fortune around a bit better.

Making sure all Canadians have a reasonable standard of living is good for everyone. It will reduce crime and associated costs to the justice, health and social systems.

It’s not just the right thing to do, it makes economic sense.

As I said, economics is not my forte and I will leave it to the experts to figure out how to do it, but for the time being we need to get into the mindset that we should do it. As history tells us, massive disparities in wealth never end peacefully.



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