Friday July 15, 2011

Social Commentary

The Great Divide

The average income of the working poor is $14,500

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he richest group of Canadians increased their share of total national income while poor and middle-income individuals lost ground since 1993, according to The Conference Board of Canada's How Canada Performs analysis of income inequality. Even though income levels for the for the poorest group of Canadians also rose, albeit minimally, the gap between the rich and poor in Canada widened.

"While the poor are minimally better off in an absolute sense, they are significantly worse off in a relative sense," said Anne Golden, President and CEO of the Conference Board. "High inequality raises two questions. First, what is the impact on the economic well-being of a country? The answer is that high inequality can diminish economic growth if it means that the country is not fully using the skills and capabilities of all its citizens or if it undermines social cohesion, leading to increased social tensions. Second, high inequality raises a moral question about fairness and social justice."

The average Canadian is better off than he or she was a generation ago. In 1976, average income was $51,100; by 2009 it was $59,700—an increase of 17 per cent over 33 years, after adjusting for inflation. But average income does not necessarily reflect how the majority of people are doing; instead, some analysts suggest using median income—the income level that divides the group into two equal parts. Median income grew by only 5.5 per cent over the same period.

The most commonly used measure of income inequality is the Gini index, which calculates how the distribution of income among individuals within a country deviates from an exactly equal distribution (a Gini index of 0 means that every person in the society has the same amount of income; whereas, 1 would indicate that one person has all the income).

Canada's 2009 Gini index (0.32) means that 32 per cent of Canada's national income would need to be redistributed in order to have a country that was completely equal in terms of income.

The pattern of inequality growth throughout the past three decades has been uneven. Canada made significant progress in reducing inequality in the 1980s, with the Gini index reaching a low of 0.28 in 1989. Income inequality rose in the 1990s, but Canada's Gini index remained around 0.32 in the 2000s.

Canada is not alone among its peers in experiencing an increase in income inequality. Global inequality is rising and most of Canada's peer countries have also experienced rising inequality. But rising inequality among developed countries is not inevitable. For example, Austria (0.265) and Denmark (0.232) have lower income inequality, as measured by the Gini coefficient, with incomes per capita nearly equivalent to that of Canada.

The average income level of the poorest group of people in Canada increased—after taxes and transfers and after adjusting for inflation—but only marginally, from $12,400 in 1976 to $14,500 in 2009. However, the gap between the real average income of the richest group (the top quintile) of Canadians and the poorest group (the lowest quintile) grew from $92,300 in 1976 to $117,500 in 2009.

Between 2000 and 2009, every province with the exception of Ontario reduced its share of the population living in low income. Recent data, however, indicates that income inequality rose during and after the recession. Between 2007 and 2009, seven out of ten provinces experienced a rise in their low-income rates - Prince Edward Island, Saskatchewan, and New Brunswick are the exceptions. The largest jump occurred in Alberta, where the low-income rate rose from 6.6 per cent to 9.9 per cent.

Another worrisome trend is the rise in elderly poverty since the mid-1990s, following 20 years of dramatic reductions. The biggest jump occurred in the group of elderly women. Between 2006 and 2009, nearly 128,000 more seniors were said to be living in low income, of whom 70 per cent were women.

How Canada Performs is a multi-year research program at The Conference Board of Canada to help leaders identify relative strengths and weaknesses in Canada's socio-economic performance. The How Canada Performs website presents data and analysis on Canada's performance compared to 16 peer countries in six performance categories: Economy, Innovation, Environment, Education and Skills, Health, and Society. This year, the Conference Board is assessing Canada's performance on 10 Hot Topics.


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