Spinning income inequality
Over at CanWest News Service, the picture was even gloomier. Not only were the poor getting poorer, but it seems the rich were getting richer: “These are the best of times for Canada’s richest families, who keep getting richer, while the rest of Canadians are working harder and seeing no pay-off, a new study has found.” The CBC sounded the same theme: “Canada's rich are getting richer while the incomes of poor people continue to stagnate in a time when the wage gap should be shrinking, a new report on the Canadian economy said Thursday.”
But when it comes to rich-get-richer, poor-get-poorer stories, nobody beats The Toronto Star. The paper splashed the study across its front page, with gallons more coverage inside. And why not? The title of the study, from the Canadian Centre for Policy Alternatives, might have been written by a Star headline writer: The Rich and The Rest of Us.
On the face of it, the notion that most Canadians are getting poorer seems hard to square with the data. GDP per capita in 1976 was about $25,000 in present-day dollars. Today it is over $42,000, a gain of nearly 70% after inflation. In order for average incomes for “the rest of us” to have gone down in that time, somebody -- “the rich” -- must have scarfed up all those gains. Worse: they must have actually taken money away from everyone else.
Except that’s not what the study says. And what the study does say it only achieves with a great deal of selective emphasis and statistical jiggery-pokery.
What, first, does the study actually say? It says that the share of national income going to the bottom 80% of families has gone down over the period studied, while the share going to the top 20% has gone up. So the first point to be made is that this is a study of relative, not absolute, incomes. While median family incomes, it is true, slid sideways through most of the 1980s and 1990s -- two recessions will do that to you -- they are nearly 20% higher today, after inflation, than they were a decade ago.
But note that term “family income.” The CCPA focuses exclusively on families with children under 18. Why family income? Why not the more usual per capita or household measures? One possible reason: because families have gotten, on average, smaller in that time. Couples are having fewer children, and there are more single parents. So, as a matter of arithmetic, measuring family income will tend to produce a slower growth rate than per capita or household income.
Moreover, since single parents tend, on average, to earn much less than others, the rapid expansion in their number as a share of all families in the last three decades will tend both to depress the overall average, and in particular to distend the bottom of the distribution.
And of course, it isn’t necessarily the same people we’re talking about, even year to year, let alone decade to decade. Longitudinal studies show a great deal of social mobility over the years, as people rise -- and fall -- from decile to decile. The “poor” have not gotten “poorer,” in a literal sense, except in a very few cases.
But shouldn’t we be concerned with the distribution of income, regardless of its level? Yes, we should. But is the gap between the top and bottom deciles the best measure? The gap that matters to most poor people, I’d suggest, is not between themselves and the very rich, but between themselves and the average or median. A single mother on welfare is not concerned that she can’t buy a yacht. She’s concerned that she can’t get her kids a new pencil case, can’t send them on school field trips, and so on.
By those measures, the distribution of income has been getting better, not worse, again mostly in the last decade. One highly imperfect measure: the proportion of the population living below Statistics Canada’s Low Income Cutoff has shrunk from 17.6% in 1995 to 12.8% in 2004.
Final point. All of the above figures are for pre-tax incomes, before the tax-and-transfer system goes to work. What do the figures show after tax? They show the system redistributes more from rich to poor than ever before. The richest 10% of families earned 31 times as much as the poorest 10% before tax in 1976; by 2004, they were earning nearly 82 times as much. But after tax, the ratio barely moved: from 8.1 to 9.9. Put another way, the tax system compressed the earnings gap by a factor of 4 in 1976. In 2004, it was working twice as hard, compressing the earnings gap to less than one-eighth its pre-tax ratio.
This is a remarkable finding. If there is one thing the CCPA believes to its soul, it is that the last three decades have been pretty much one long neo-conservative nightmare of deregulation, free trade, tax cuts and the like. Yet their own figures show the system has grown more redistributive, not less, in that time. You’d think that would have been the headline.
3/03/2007
