Denying income inequality won’t make it go away

June 24, 2008

The May release of the 2006 Census data on earnings and incomes sparked a heated debate about inequality in Canada. Media commentators argued whether it was more informative to consider individual or families’ incomes, while others tried to convince us that market earnings are irrelevant since our system of taxes and transfers smoothes out some of the earnings inequality.

Yes, after-tax family income is more equally distributed than individual earnings, but this doesn’t mean that all is well. On the contrary, the core finding from the latest Census is stark: income inequality is growing during the best of economic times in Canada. This is a serious reason for concern.

It has been claimed that a rising tide lifts all boats, but this one seems to be sinking the boat for Canada’s working poor. Census data reveals that the median earnings of the poorest 20 per cent of individuals who worked full-year, full-time dropped by 20.6 per cent between 1980 and 2005. The poorest 10 per cent of full-time, full-year workers earned less than the abysmally low $15,375 in 2005. Without government transfers, they’d be in real trouble.

Increasingly, the story emerging is about the middle class not being able to move forward. Everyone is working about as hard as they can. They’re getting better educated. And yet the bottom is falling behind, the middle class is working more hours just to maintain their incomes, and only the richest among us are getting ahead. Young Canadians and new immigrants – our future workforce – are struggling the most.

The situation is even worse in BC, which saw the sharpest decline of median earnings of full-time, full-year workers between 1980 and 2005 – 11.3 per cent – with a 3.4 per cent drop between 2000 and 2005.

Technological change, the industrial restructuring of the economy in response to international trade, and the decline in unionization are among the most frequently cited explanations for the nationwide trends of stagnant real wages and rising inequality since the 1980s. These are often regarded as impersonal forces that governments have no control over, and thus bear no responsibility for. This is simply not correct. Public policy plays a crucial role in how we adapt to structural change: well-designed policies successfully mitigate the negative effects of changes, while misguided policies compound the problems.

The collapse of the forestry industry and the subsequent loss of stable and relatively well-paid jobs explain much of the dramatic decline in BC real wages between 1980 and 1990. Median earnings recovered slightly over the next decade, but then took another hit between 2000 and 2005, a time when our economy experienced stable economic growth and substantial declines in unemployment. This makes BC the only province to see a substantial drop in median earnings during times of economic prosperity.
The decline in median earnings since 2000 was likely the direct result of government policy. In the name of economic competitiveness and better labour market flexibility, the current government introduced a number of policies that weakened labour protection soon after they were elected in 2001.

The labour market in its current incarnation in BC doesn’t seem to benefit most workers. If we are serious about reducing inequality we should demand that our government take action.

The government must proactively enforce labour standards and implement a broad agenda of education and advocacy on workplace rights. Minimum wages should be raised to a level that ensures that no full-time, full-year worker lives in poverty. It is important to see wages not only as providing a certain level of income but also as indicators of affordability for basics like housing, child care, education to make sure we’re all set on the right path in life.

We also need to take a tougher look at the use of foreign temporary workers as a substitute to paying adequate wages to Canadians. In a tight labour market, the shortage of workers willing to take jobs at the prevailing wages should push wages up, but this cannot happen if we continue to allow employers to import cheap labour with almost no worker protection under the temporary foreign workers program. At a minimum, temporary foreign workers should enjoy the same labour rights as all Canadian workers.

Denying inequality won’t make this very real and pressing problem disappear. What we need instead is to take a serious look at the causes of the rising inequality both in BC and at the national level and commit to addressing the problem with effective public policy.

Iglika Ivanova is the Public Interest researcher at the BC Office of the Canadian Centre for Policy Alternatives.