Inequality in Canada: Trends and Policy Options Kevin Milligan Vancouver School of Economics University of British Columbia kevin.milligan@ubc.ca October, 2014 Milligan: Inequality trends in Canada 1
Inequality in Canada: Outline Why should we care? What are the trends? i) Low-income ii) Median incomes iii) Earnings stagnation iv) Income concentration at top What are some policy options? i) Taxes: Raise rates ii) Taxes: Tighten base iii) Reverse unionization slide iv) At the top: Corporate governance? v) Boost the middle: Education for the long run Milligan: Inequality trends in Canada 2
Inequality in Canada: Why Care? Many people care a lot about issues like: Fairness: luck, reciprocity, there but for the grace of God go I … Social exclusion, equality of opportunity. Political influence of money: not as large an issue in Canada as US… But even if you don’t care about the above, consider: Need middle class to buy into pro-growth policies like international trade, efficient tax policies. Milligan: Inequality trends in Canada 3
Inequality in Canada: Four trends Two of these trends suggest: ‘this isn’t a problem’… i) Low-income levels are improving ii) Median incomes are growing …but digging deeper reveals some cause for concern. iii) Earnings stagnation iv) Income concentration at top Milligan: Inequality trends in Canada 4
Trend #1: Low income proportion not getting worse… Low Incomes 1976-2011 16.0 14.5 14.0 13.0 12.7 12.1 11.6 12.0 Proportion under cutoff 10.0 9.0 8.0 1980 1995 2010 6.0 4.0 LICO Source: 2.0 LIM CANSIM 202-0802 0.0 1976 1981 1986 1991 1996 2001 2006 2011 Year Milligan: Inequality trends in Canada 5
Trend #2: Median incomes moving up Median Incomes 1976-2011 $70,000 1980 2010 1995 $60,000 $57,000 $57,000 $49,600 $49,500 $50,000 $50,800 2011 Canadian Dollars $42,200 $46,300 $40,000 $42,700 $40,400 $30,000 $25,800 $31,700 $23,100 $20,000 Family Before Tax Sources: CANSIM 202-0101 Family After Tax $10,000 CANSIM 202-0401 Male Before Tax CANSIM 202-0601 Female Before Tax $0 1976 1981 1986 1991 1996 2001 2006 2011 Year Milligan: Inequality trends in Canada 6
Trend #3: Earnings polarization hitting median males Median Earnings by Sex, 1976-2011 $50,000 1980 2010 1995 $45,000 $40,000 $42,700 $35,600 $35,000 2011 Canadian Dollars $36,000 $30,000 $25,000 $24,600 $20,000 $20,700 $19,600 $15,000 $10,000 Sources: Males Females $5,000 CANSIM 202-0101 $0 1976 1981 1986 1991 1996 2001 2006 2011 Year Milligan: Inequality trends in Canada 7
Trend #4: Income concentration at the top What is ‘the top 1%?’ Income (2010) you need to be in the top… Group Income needed Percentile Top 0.01 percent 2,571,300 P99.99 Top 0.1 percent 685,000 P99.9 Top 1 percent 201,400 P99 Top 5 percent 104,600 P95 Top 10 percent 81,200 P90 Top 50 percent 28,800 P50 Total individual income Income shares: How much of the total pie of income goes to people in each of these groups? Milligan: Inequality trends in Canada 8
Top income shares (individual before tax), indexed to 1982=100 300.0 275.0 P99.99+ P99.9-P99.99 250.0 P99-P99.9 225.0 P95-P99 P90-P95 200.0 175.0 150.0 125.0 100.0 75.0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Milligan: Inequality trends in Canada 9
Growth in Real Individual Before-Tax Income, 1982-2011 180% 157% 160% Percent Growth 1982-2011 140% 120% 102% 100% 80% 54% 60% 40% 27% 16% 15% 20% 7% 1% 0% Median Mean Bottom 90 90 to 95 95 to 99 99 to 99.9 99.9 to Top 0.01 99.99 Part of income distribution Notes: The source is CANSIM series 204-0002, which is based on taxfiler data. Graphed is the percent growth between 1982 and 2011. The income measure is total income before capital gains, and the data are inflation adjusted by the all-items CPI. Milligan: Inequality trends in Canada 10
Income concentration: driven by employment income 100% 90% 20% 22% 28% 34% 34% 80% 53% 13% 70% 9% 2% Share of Income 34% 60% 50% 32% 40% 20% 65% 65% 63% 30% 46% 20% 34% 27% 10% 0% 1946 2009 1946 2009 1946 2009 Top 1% Top 0.1% Top 0.01% Wage Business Capital Source: Veall (2012) Milligan: Inequality trends in Canada 11
Policy responses: Fight or Adapt? What’s hurting the middle? Trade, technology hurting routine, manual jobs. (David Autor, MIT) Happening in US, UK, Canada, elsewhere. Should we fight to reverse trade and technology? Not sure it’s desirable: the engines of growth; brings great benefits. Not possible: no time machine; canno t ‘uninvent’ the internet. Instead, focus should be to adapt to the world we have. Milligan: Inequality trends in Canada 12
Policy option #1: Raise high tax bracket rates Milligan: Inequality trends in Canada 13
Policy option #1: Raise high tax bracket rates Top rates in each province (2014). Remember: federal top rate is 29%... Milligan: Inequality trends in Canada 14
Policy option #1: Raise high tax bracket rates Evidence: Higher earners don’t work less; not very likely to move. High earners are likely to talk to their accountants and shift income o Should we assume those with access to best tax advice fail to heed it? Example: Moving top federal bracket from 29% to 35% ‘no response’ revenue estimate is $3B . But if some income leaks away, this would be cut by half. 2013-14 federal spending budgeted at $282.6B. o $3B w ouldn’t go very far at all in compensating middle for lack of growth. Milligan: Inequality trends in Canada 15
Policy option #2: Tighten the tax base Rather than raise rates, tighten the definition of taxable income by closing loopholes. Possibly more widespread appeal — people payi ng their ‘fair share’. For federal government, constant ‘w hack-a- mole’ with tax planning industry. Two examples: Alberta Family Trust allows income to shift to a trust resident in Alberta. Favourable taxation of stock options. Milligan: Inequality trends in Canada 16
Policy option #3: Reverse Unionization Slide Unionization in Canada has fallen (although not as much as US) Mostly driven by private sector declines. Unionization 1980-2012 2010 values 90 Women public Proportion of employees in union jobs 80 74.9 70 Men public 72.9 60 50 Women Men 40 31.6 30.8 30 Men private 20 21.7 Source: CANSIM 279-0025 Women private 10 CANSIM 282-0078 13.5 0 1980 1985 1990 1995 2000 2005 2010 Year Milligan: Inequality trends in Canada 17
Policy option #4: Corporate governance Much of the action at the very top is driven by executive compensation. A board of directors is choosing to pay these employees well. Are shareholders getting a good deal? Randall Morck (U o fAlberta): “…shareholder democracy in Canada is remarkably stunted compared to that in the United States and United Kingdom…” Caveats: Cutting executive pay would benefit shareholders. Not clear this gives big shift to income distribution. If executive pay pressure is driven by US, Canada may suffer from unilateral action. How to recruit the best executives here? Milligan: Inequality trends in Canada 18
Policy option #5: Education Returns to education continue to be very high — and growing. Raw BA-High School wage gap of 40% in 2005; 32% in 1980 (Boudarbat, Lemieux Riddell 2010) The ‘education bubble’ or ‘BA - rista’ glut story is pervasive in news coverage. o 25 year olds may have it tough — my hunch is media should interview more 40 year olds with BA vs High School…. Not exclusively about producing more university graduates Personal services, cognitive non-routine. Trades, improving HS completion. Archetype of a job that will not be outsourced: plumbers. Milligan: Inequality trends in Canada 19
Summary Are things really so bad? Bottom end is not getting worse. Median incomes growing for last 15 years. Large, fundamental shifts in labour market can’ t be ignored: Polarization of labour demand. Concentration of income at top. Not all ‘dark clouds’! Demand for non-routine, cognitive, creative labour remains strong Best policy options: Tax base tightening Corporate governance Education Milligan: Inequality trends in Canada 20
Recommend
More recommend
