Defining away inequality

August 6, 2015

Closing our eyes is one way to get through those really scary moments in horror movies. It’s no way to answer one of the most pressing public policy questions of our times.

The Fraser Institute, an “independent, non-partisan Canadian public policy think-tank,” has just released a new analysis of income inequality in Canada. No surprise to anyone who follows their work, the institute claims inequality is not a public policy “crisis,” merely an error with how we measure income.

“Income inequality in Canada is often treated simplistically, is poorly defined, and presented without proper context, which can paint a flawed picture,” says Fraser Institute VP Jason Clemens in a news release. Measurement and context are always important, but to paint a more complete portrait of our society we would have to look beyond the claim made by the Fraser Institute.

The Fraser Institute claims that “between 1982 and 2010, the latest year of comparable data, the share of income received by the top 10 per cent of families increased by 12.9 per cent—a far more modest increase in inequality than other studies show.” Statistics Canada does provide accessible data on top income shares in Canada. Some simple calculations using that data should offer us a sense of where things really are.

The Fraser Institute urges us to use post-transfer, after-tax income to measure inequality, so let’s use that category for our back-of-the-envelop calculation. The share of income, including capital gains, of the top 10% income group rose 18% in the 1982-2010 period (17% in 1982-2012). The Fraser Institute’s claim, based on its more nuanced methodology, is in the right neighborhood, very generally speaking. But the corollary is that the income share of the bottom 90% dropped 7% in 1982-2010 (6% in 1982-2012).

You could say, “Well, there are winners and there are losers. That’s just life! No big deal.” But is this really the answer we want?

Since we are talking about different ways of slicing and dicing data, how about other income groups?

Let’s take a look at the top 5% and the top 1%. The share of income, including capital gains, of the top 5% income group rose by more than a quarter (28%) in the 1982-2010 period (26% in 1982-2012). Correspondingly, the income share of the bottom 95% dropped 6% in 1982-2010 (5% in 1982-2012).

One may say the top 5% worked their hearts out for that raise. Maybe so. But can you say the others didn’t and thus they deserve the smaller share they got? The share of income, including capital gains, of the top 1% income group rose 57% in 1982-2010 (52% in 1982-2012). Yes, more than half. Correspondingly, the income share of the bottom 99% fell 4% in both time periods.

Sure, this is a back-of-the-envelope calculation, as mentioned, and not formal and scientific. But it seems there’s a pattern here: the data clearly suggests the rich are getting richer.

Let’s take a look at the really rich people—the top 0.1% and the top 0.01%. The share of income, including capital gains, of the former group jumped 100% in 1982-2010 (89% in 1982-2012). The very top income group saw income double in both periods. Yes, in the time period that the Fraser Institute focuses on, the income share of the really rich doubled, but others were not so lucky.

It may feel comforting, instead of facing the problem, to redefine it away as the Fraser Institute does with inequality here. (One of the authors of the think-tank’s new report also once tried to make Canadian poverty vanish by redefining the poverty line.) The rest of us need to open our eyes to inequality and ask: Is this the kind of society we want to live in?

Thaddeus Hwong, is associate professor, Faculty of Liberal Arts & Professional Studies, York University, and a research associate of Canadian Centre for Policy Alternatives. This article was first published on National Newswatch.