Alex Paterson

Income inequality: a top global risk

January 19, 2012

Inequality of income is one of the hot button issues of our time. 2011 saw the rise of the Occupy movement, built on lingering disquiet about bank bail-outs and stubbornly high levels of unemployment, particularly amongst younger people. In the US, unemployment amongst the under 25s stands at around 18%, a little higher than the OECD average of 17%. In the UK the rate is over 22%.

It comes as no surprise that the World Economic Forum has just named severe income inequality as a top global risk, alongside such things as severe water shortages and cyber attacks.

As in other OECD countries, inequality in Canada has increased substantially since the mid 1980s, though we remain near the middle of the pack in terms of overall measures of inequality. Our youth unemployment rate compares favorably with the OECD average at 14.1%, though this is still nearly double the overall unemployment rate. We do, though stand out when it comes to income concentration amongst the very highest earners: we are number three in the OECD (after US and UK) in terms of pre-tax income concentration of the top 1% of earners.

Although the Occupy movement was evident throughout Canada, public concern about inequality does not run as high here as in some other countries. In particular there is not such public vitriol here about `bankers’ bonuses’, probably because of the very limited bailout of banks during the crisis.

Rather than resting on our laurels, it would seem both prudent and socially responsible to use this breathing space to our advantage. How can we better address inequality and head off looming problems that might otherwise result (for example increased social unrest and economic impacts such as poor health outcomes, reduced productivity, withdrawal of support for free-market economies and trade, etc.)?

This is unlikely to be a question of simply beefing up taxes and transfers (though that might be part of the approach). In its recent report, the OECD investigates the impact of the various possible causes of inequality (globalization, the technology revolution, changes in household structure, changes in employment patterns, etc.). It finds that inequality is not inevitable, that it is amenable to policy solutions, and proposes a three-pronged policy response:

  • More intensive human capital investment
  • Inclusive employment promotion
  • Well-designed tax/transfer policies

Our aim at Canada 2020 is to strengthen and deepen the discussion about income inequality and polarization in Canada. What are the causes and effects? Are these common to other countries or unique to Canada? And which policy responses are likely to bear the most fruit in this country, taking account of the current economic climate?

Our focus is on the role of the federal government, though action in this area is likely to take place in tandem with the provinces.

Our panel debate on Thursday 19th January will tackle these issues and continue the debate that begun with the publication of our book: The Canada We Want in 2020. We hope you can join us in person or on line (click here for livestream). Your input is always welcome.

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