Business·Analysis

Fairer wage gap a hopeful sign for middle-class Canada: Don Pittis

New Statistics Canada data shows the extremes of rich and poor may be moderating, and if the trend continues, it is one of several positive signs for the entire North American economy, Don Pittis says.

North American economy shows early signs of better wage distribution

No economic analysis would dispute that an economy where a large part of the population can afford to buy middle-class products and services is better off than one where economic activity is reserved to a small elite, Don Pittis says. (CBC)

In some circles, distribution is a dirty word.

That's because in economics, the term is a shorthand for a complaint that the rich are getting more than their share and the poor are being left behind.

But new Canadian data out yesterday is just one more indicator that the divide between rich and poor may be starting to narrow, and many economists see that as a good sign, not just for the poor, but for the entire North American economy, including business.

That's not the conventional view as debated in the polarized world of internet commentary.

In that world, one side takes the view that in a business-oriented free market, the rich are justly rewarded because of their exceptional efforts. In that analysis, redistribution is the path to communist oppression. 

The opposing view is that business is run for the benefit of greedy capitalists who oppress the poor and take their share.

Most economic analysis, including that of both the centre right and centre left, suggests that a relatively fair wage distribution is essential to running a healthy modern economy. The debate there is generally over how it is accomplished and exactly what constitutes fair.

What isn't disputed is that an economy where a large part of the population can afford to buy the middle-class products and services produced by business is much better off than one where economic activity is reserved to a small elite. 

Less wealth

Yesterday's data from Statistics Canada flies in the face of the Occupy movement initiated by Vancouver-based Adbusters.

Just as Adbusters was launching its campaign in 2011 that pointed fingers at the growing wealth and clout of "the one per cent," statistics being collected by the federal agency now reveal that the wealth of that richest slice of Canadians was actually falling.

"The top one per cent held 10.3 per cent of total income in 2012, down from 10.6 per cent in 2011, and well below the historical peak of 12.1 per cent reached in 2006," Canada's statistical agency revealed in its release.

"The push for change... is coming from young workers who want more and more to work in a place that reflects their values much more than their parents' generation did," writes Michael Enright. (Spencer Platt/Getty Images)
Of course, the Adbusters campaign was really focused on the United States, where Statistics Canada says in contrast to Canada, the top one per cent's income share increased from 18 per cent in 2006 to 19.3 per cent in 2012.

But even in the U.S,. there are some positive signs.

As Scott Barlow suggested in the Globe and Mail yesterday, the American unemployment rate has "fallen to a level where, at long last, significant wage growth is the most likely scenario in the months ahead."  

Labour worries

There is still some reticence in business circles to accept that higher wages are good. The reaction to the recent overhaul of Canada's Temporary Foreign Work Program was an indicator of that.

Even in the face of those objections, Canadian Employment Minister Jason Kenney has expressed the view that "there is very clear evidence of a labour market distortion" due to the Temporary Foreign Worker Program. He says wages at the bottom end of the labour market in his home province of Alberta are not keeping up with inflation. 

The Statistics Canada data supports Kenney's concernAlberta was one of the places where the new figures show that income inequality continued to grow between 2011 and 2012, as the income share of the top one per cent, five per cent and 10 per cent all rose.

"In Alberta, the income share of the top 10 per cent of Canadian taxfilers living in that province went down after the
recession, but, by 2012, it had recovered to reach 50.4 per cent, just shy of the 2008 peak of 50.8 per cent," said the Statistics Canada report.

This week, there was a reminder from Japan that declining incomes can be dangerous in an advanced country.

Lots of caveats

Despite an unemployment rate of less than four per cent, the Japanese economy officially fell back into recession.One of the causes is that despite the low jobless rate, real wages continue to decline and workers just don't have extra money to spend.

Of course, yesterday's Canadian figures come with lots of caveats.

Brian Murphy of Statistics Canada's income statistics division says there is nothing in this data to prove that high-income Canadians didn't begin to catch up with their U.S. counterparts in 2013 and 2014. Figures for those years have yet to be assembled. Canada might just be lagging, he said.

University of British Columbia economist Kevin Milligan also suggests that without currency fluctuations, the difference between the one per cent in the U.S. and Canada would have been less pronounced.

However, taken at face value, the numbers show a decline in wealth advantage for Canada's richest.

Statistics Canada's report yesterday said that the six years from 2006 and 2012 "also marked for the first time since 1982 a prolonged period in which the total income shares of the bottom 90 per cent, 95 per cent and 99 per cent of Canadian taxfilers rose or stabilized." 

If it isn't a blip and if the trend continues, the Statistics Canada data is a sign of the most powerful kind of economy, one with economic growth that does not depend on the rich getting richer and poor getting poorer.

ABOUT THE AUTHOR

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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