A message for the NDP: profits are people, too

By Stephen Gordon - Wednesday, April 10, 2013 at 11:46 AM - 0 Comments

The preamble of the NDP’s constitution contains this passage:

The principles of democratic socialism can be defined briefly as:

That the production and distribution of goods and services shall be directed to meeting the social and individual needs of people within a sustainable environment and economy and not to the making of profit; …

This sentiment — usually summarized by the slogans “People before profits” or “People, not profits” — is a ubiquitous theme in politics. But it reflects a fundamental misunderstanding of the role of profits in the modern economy, and the NDP would do well to follow through on the proposal(s) to remove it when the party convenes in Montreal this weekend.

Firstly, profits aren’t sent to another planet once they’re paid out: they stay among the people of Earth. I don’t suppose that revelation surprises anyone — the presumption supposedly is that profits are for the rich.

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Want to help the poor? Don’t waste your time with the minimum wage

By Stephen Gordon - Tuesday, February 19, 2013 at 1:08 PM - 0 Comments

Barack Obama has proposed increasing the U.S. minimum wage, and the discussion is spilling over to Canada. There are two things one needs to know about the minimum wage, employment and poverty in Canada:

1. In Canada the link between minimum wage increases and lower employment levels is stronger than in the U.S. The famous Card-Krueger study of events along the Pennsylvania-New Jersey border in 1992 found that an increase in the minimum wage actually led to an increase in employment. Subsequent work has challenged that conclusion, but as far as I can tell, U.S. studies generally find that the link between (small) changes in the minimum wage and changes in employment has been fairly weak.

The Canadian literature on the link between minimum wages and employment looks very different. For one thing, empirical studies that use Canadian data are able to exploit variations in the minimum wage both across time and across provinces (in the U.S., on the other hand, the minimum wage is largely driven by changes at the federal level). Estimates for the effect of minimum wage are generally stronger than those in the U.S., and as Morley Gunderson notes in his 2005 survey of the literature:

While there are substantial differences across the different Canadian studies, the following generalisations emerge:

• The earlier Canadian studies (based on data prior to the 1980s) tended to find adverse employment effects that were in the range of US consensus estimates, and sometimes higher, where a 10% increase in the minimum wage would give rise to a 1-3% reduction in employment.
• Studies based on data to include the 1980s tended to find smaller effects that were at the lower end of the consensus range, and possibly zero, as was often also the case in the US.
• However, some more recent studies using different and more sophisticated methodologies as well as more recent data (e.g., Baker, Benjamin and Stanger 1999, Yeun 2003, Baker 2005, Campolieti, Fang and Gunderson 2005a, b, Campolieti, Gunderson and Riddell, forthcoming) find larger adverse employment effects at the higher end and beyond the consensus range, especially in the longer run. The elasticities typically range from -0.3 to -0.6 for teens (slightly lower for young adults), implying that at 10 percent increase in the minimum wage would lead to a 3 to 6 percent reduction in the employment of teens. The fact that they use different data sets and methodologies suggest that these results are robust.
• Overall it appears that the Canadian studies tend to find adverse employment effects that are at least as large and likely larger than US studies; certainly none find positive employment effects as occasionally occurs in the US.

Using Card-Krueger to support calls for a minimum wage increase in Canada isn’t just cherry-picking: it’s cherry-picking from an entirely different orchard.

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Dealing with inequality, part I: The bottom 99 per cent

By Stephen Gordon - Friday, January 11, 2013 at 10:36 AM - 0 Comments

(Chris Young/CP)

I’ve made the point before that the debate about income inequality is something that occurs at more than one level, and I’ve also made the following distinction:

1. First-order inequality is visible in standard measures such the gini coefficient, and shows up as an increase in the gap between average and median incomes. If income growth is concentrated in the top half of the income distribution, average incomes will increase, but median incomes will remain unchanged.
2. Top-end inequality refers to the share of income that goes to those whose income puts them above the 99th percentile and beyond.

In this post, I’m going to talk about what we can do about first-order inequality. I’m going to ignore the top one per cent, because their numbers are too few to make any material difference in what follows.

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Talking at cross-purposes about income inequality

By Stephen Gordon - Friday, December 21, 2012 at 7:42 PM - 0 Comments

Andrew Coyne’s column arguing that income inequality has stopped getting worse drew a sharply-worded rebuke from Miles Corak and this response from Armine Yalnizyan. To a very great extent, these and other participants in the debate about what is happening to income inequality and what can and should be done about it are often arguing about different things.

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What do we know about the 1 per cent?

By Stephen Gordon - Monday, November 19, 2012 at 9:34 AM - 0 Comments

Getty Images

Not enough, really.

The surge in the share of total income that goes to the very top earners has been widely documented and much discussed. But without a proper understanding of why it’s happening, there’s not much we can say about what policy measures would solve the problem—or even if there’s a problem to solve. Many of the proposals currently being floated about have a whiff of the Politician’s Syllogism: “We must do something. This is something. Therefore, we must do this.”

So when Mike Veall, an economics professor at McMaster University, took the podium at last June’s meetings of the Canadian Economics Association to give the Presidential Address—entitled “Top income shares in Canada: recent trends and policy implications”—there was a certain amount of anticipation in the auditorium. Mike has been working on this issue for a long time, and has written or co-written some of the most important studies on the topic. If anyone could come up with a convincing explanation for the surge in top-end income in Canada, it would be Mike Veall. His answer:

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Taking it to the streets

By Aaron Wherry - Wednesday, October 10, 2012 at 10:33 AM - 0 Comments

Alex Himelfarb considers democracy, income inequality, consumerism and citizenship.

The result: a marketized politics of propaganda and pandering. It’s understandable then that, increasingly, those who want something better are looking outside of conventional politics: to their communities or global causes or to the streets. It was striking how many of the participants in the Quebec student protests found a new solidarity — and expressed a new sense of the common good — in their activism. Clearly some do care about our democracy, but many, especially young Canadians, have given up on the impoverished version offered up by our politics. That is both understandable and dangerous. The new activism and rebuilding of an independent civil society are essential but not enough.

Student leaders from Quebec have launched a cross-Canada tour to promote activism and the creation of social movements that provide a richer democratic experience than offered by contemporary politics, but also to explain to those who feel disenfranchised why voting and political participation still matter. They understand the dangers of leaving any government to its own devices, unconstrained by a vigilant citizenry. But they are also looking for a new politics, tuned into community and the streets, which at least begins to offer real engagement on the issues that matter — inequality and poverty, jobs and youth unemployment, climate change and environmental degradation. They seem to have found some hope that a renewed democracy could allow us to take back our future. It is now up to our political leadership to take up the challenge.

Claymation Ed Broadbent vs. Dean Del Mastro

By Aaron Wherry - Tuesday, October 9, 2012 at 4:57 PM - 0 Comments

The Broadbent Institute released a report today on income inequality. Dean Del Mastro is unimpressed.

With the release of the Broadbent institute’s first report it seems an appropriate time to repeat a time tested truth perfectly articulated by Sir Winston Churchill. “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.”

Taxing high earners is harder than it looks: Quebec edition

By Stephen Gordon - Monday, October 1, 2012 at 8:52 AM - 0 Comments

(Mathieu Belanger/Reuters)

Imposing higher income tax rates on high earners is one thing; expecting the measure to produce large amounts of new revenue is something else entirely. There are two problems with the idea that increasing the tax rates for high earners is the same thing as generating significant new revenues:

• There aren’t many high earners.
• High earners have access to high-quality tax planning advice.

You can add the fact that high earners are mobile, but this is a longer-term, cumulative effect: the number of high earners who leave in a given year will increase slightly, and the number of high earners who arrive will decrease. But the point remains that when governments raise tax rates, high earners will react by finding ways to reduce their tax burden.

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Dickens at 200: still the best we’ve got on being poor

By John Geddes - Tuesday, February 7, 2012 at 3:46 PM - 0 Comments

Andy Martini/Flickr

How apt that today’s bicentenary of the birth of Charles Dickens arrives at a moment when the widening gap between rich and poor is so prevalent in public-policy debate, and the grim conditions in China’s factories are back in the news.

Dickens is of course our greatest writer on the imperative to acknowledge what poverty is and try to do something about it. His way of forcing the reader to see and smell the squalor of 19^th century England is still unmatched in its moral force.

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Nash on innovation

By Aaron Wherry - Tuesday, January 17, 2012 at 1:54 PM - 0 Comments

Late last week, Peggy Nash detailed her innovation policy, including a new Canada Innovation Fund, targeted tax credits and expanded “ pre-commercial and commercial fiscal support” through a new Canada Development Bank. She recently talked to the Georgia Straight about the economy.

She characterized Harper’s economic policy as simply getting government out of the way so that corporations are free to do whatever they want—in the flawed hope that some benefits will trickle down to the rest of the country. “Well, we’ve got the highest level of inequality in Canada since the 1920s,” Nash noted. “But a big chunk of the wealth that’s being created—about a third of new wealth created before the downturn in 2008—went to the top one percent. That’s not good fiscal policy.”

Nash, a former negotiator with the Canadian Auto Workers union, said that she favours government working with business, labour, and communities “so we’re all pulling in the same direction to create good-quality jobs”. “Specifically, we shouldn’t just be shipping raw logs or raw materials or raw bitumen out of the country,” she declared. “What we should be doing is providing good stewardship of our raw materials and processing as many of those raw materials here in Canada as we can. That’s where the good jobs are; it’s where the innovation and technology are.”

Ms. Nash’s full economic policy paper is here.

Greater equality through taxes

By Aaron Wherry - Monday, December 19, 2011 at 11:50 AM - 0 Comments

Kevin Milligan and friends consider how to deal with inequality.

Brian Topp assumes his proposed 35-per-cent federal rate would yield $3 billion in new revenues. Economists have fairly good estimates of how much revenue “slippage” we might expect for top earners, and these estimates suggest the additional revenue might slip down closer to $1.5 billion … How could this new money be used to help those who are struggling at the bottom? Cutting income tax rates in the bottom bracket doesn’t do much, since the basic exemption and other tax preferences mean that few low-income earners actually pay income tax. Instead, the right target is to enhance our system of refundable tax credits. As examples, think of the HST/GST credit, the Canada Child Tax Benefit, or the B.C. Family Bonus. These payments can be targeted by family income and delivered efficiently through direct deposits into recipients’ bank accounts.

More from Kevin and the gang here, here and here.

OECD: Canada’s income inequality well above average

By macleans.ca - Monday, December 5, 2011 at 1:44 PM - 5 Comments

A labour market that rewards high-skilled workers and increasingly shifts towards temporary and part-time jobs, coupled with tax breaks for the wealthy, has widened the income gap between rich and poor to record levels in Canada, a new study by the Organization for Economic Co-operation and Developed found. Inequality in Canada is well above the organization’s 34-country average, though still considerably lower than in the United States, the Globe and Mail reports.

The Globe and Mail

Can we tax our way to equality?

By Erica Alini - Monday, October 31, 2011 at 12:02 PM - 62 Comments

Ken Teegardin/Flickr

With the Occupy protesters still camping out on city lawns across Canada, it’s worth investigating whether our tax and transfer system needs a tune-up if we’re going to tackle income inequality.

To be sure, we are a more unequal society than we were thirty years ago, even after one takes into account the redistributive effects of personal income taxes and things like the National Child Benefit and Employment Insurance programs. In 1989, the after-tax income of Canada’s richest 20 per cent was 7.2 times that of the poorest quintile of the population, according to the Conference Board of Canada. In 2009, the richest group made 9.1 times what the lowest income earners did. Continue…

Rank your income: Where do you stand compared to the rest of Canada?

By Erica Alini - Tuesday, October 25, 2011 at 12:59 PM - 92 Comments

The Occupy Wall Street movement and its various Canadian spinoffs are reviving the public debate about income distribution north of the border. On Friday, NDP leadership hopeful Brian Topp cast his lot with the “eat the rich” zeitgeist by advocating income tax hikes on the wealthy. Others are skeptical that heating up the fiscal pressure on the top earners is the most effective way to tackle yawning inequality.

Regardless of what constitutes the best policy cure, Occupy movements across the globe–and they’ve spread throughout the developed world–have put their finger on a real and widespread malaise of advanced economies. Between the mid-1980s and the mid-2000s inequality rose in most of the rich countries that make up the Organization for Economic Cooperation and Development, and in Canada income disparities have surpassed the OECD average. Granted, our super-rich are not quite as “super” as America’s wealthiest. In 2007, the threshold to qualify as one of Canada’s top one per cent of earners was a relatively modest $169,000 a year, compared to the U.S.’s eye-popping $400,000. Still, between 1980 and 2005 the earnings of Canada’s bottom income group fell by 20.6 per cent, according to Statistics Canada, whereas top incomes rose by 16.4 per cent. Folks in between generally saw their salaries stagnate like their peers in the U.S., where increased worker productivity has not translated into comparable income gains for the middle class.

Whether it’s a matter of taxing the top, or propping up the bottom and the middle, income distribution is likely to become a hot-button issue. Check out our calculator above to find out where you rank!

*Calculations are based on data from the Canada Revenue Agency’s Interim Income Statistics report, 2011 Edition (2009 tax year), Table 2 (All returns by total income class). Note that percentiles refer to income brackets, so an income of $29,999 falls into the bottom 51.9 per cent of Canadian tax-filers, whereas an income of $30,000 belongs to the top 48.1 per cent. Also, incomes below $1 and above $249,999 are not pictured proportionally. We’d like to also thank the Conference Board of Canada and Armine Yalnizyan of the Canadian Centre for Policy Alternatives for their assistance with research for the calculator.

Is Jim Flaherty a hippie?

By Aaron Wherry - Thursday, October 13, 2011 at 4:50 PM - 17 Comments

First, the Finance Minister quotes Bobby Kennedy and waxes romantic about public service and “working together” for the “public good.” Now, he expresses some sympathy for the Occupy Wall Street protestors.

Jim Flaherty says he can understand the “legitimate frustration” of Occupy Wall Street protesters in light of persistently high youth unemployment … “It really is a Wall Street proposal,” he told reporters prior to flying to France for key G20 meetings on the global economy. “In Canada we have a progressive income tax and it favours people with lower incomes who are vulnerable, quite frankly, in Canadian society. Our tax system is clearly progressive. Having said that I see a point that income distribution is important and that there is a concern that a very, very small group of people have very large incomes.”

While the present circumstance may not be as dramatic, income inequality is reported to be growing at a faster pace in Canada.

The rich keep getting richer. Should we be worried?

By Erica Alini - Thursday, May 5, 2011 at 5:41 PM - 132 Comments

Photograph by Flickr user seven_resist

That the gap between rich and poor has been widening in the U.S. and Britain is old news. What’s new, according to a recent OECD report (PDF), is that in the last 30 years the income gap has been growing even faster in unlikely places: Sweden, Denmark and Germany. Despite their notoriously generous welfare systems, the three have seen the split between top and bottom incomes grow faster than anywhere else in the OECD in the past decade. (Canada also registered a sizable increase in its Gini coefficient, the standard measure of income inequality.)

So why are the rich doing disproportionately better than everyone else? The report highlights an interesting trio of possible causes: Continue…

Idea alert

By Aaron Wherry - Wednesday, January 5, 2011 at 11:44 AM - 61 Comments

Further to the guaranteed income discussion, there is what Brazil has done to great success.

The program, called Bolsa Familia (Family Grant) in Brazil, goes by different names in different places. In Mexico, where it first began on a national scale and has been equally successful at reducing poverty, it is Oportunidades. The generic term for the program is conditional cash transfers.  The idea is to give regular payments to poor families, in the form of cash or electronic transfers into their bank accounts, if they meet certain requirements.  The requirements vary, but many countries employ those used by Mexico: families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention.  The payments almost always go to women, as they are the most likely to spend the money on their families.  The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow.

Though perhaps not comparable to Brazil, many have argued that Canada has its own inequality problem.

Megapundit: The Royal Bananadian Mounted Police

By selley - Wednesday, October 29, 2008 at 2:37 PM - 4 Comments

Must-reads: Ian Mulgrew on the Robert Dziekanski fiasco.

Canadian justice
Shameless cops, creepy hockey coaches and random urban gunfire. What a country.

The Vancouver Sun‘s Ian Mulgrew believes the RCMP may have blood on its hands in the death of 21-year-old motorcyclist Orion Hutchinson, who was struck and killed Saturday night by an off-duty RCMP officer who happened to be inebriated, and who happened to have been one of the four officers who so professionally dealt with Robert Dziekanski at the Vancouver airport. Those officers “have had a horrible cloud over their heads and their careers” while the RCMP dithers over what to do with them, he argues, and it’s not tough to imagine that stress leading to “self-destructive judgements.” As for the RCMP’s refusal to name the officer, on grounds he hasn’t yet been charged in either Dziekanski’s or Hutchinson’s death, Mulgrew says he can’t believe they “have the audacity to pull a stunt like this.” It really is staggering, the third-world depths to which the RCMP is capable of sinking.

The Globe and Mail‘s Christie Blatchford and the Toronto Star‘s Rosie DiManno report on yesterday’s developments from the David Frost trial, where a 28-year-old woman testified as to the various acts of depravity Frost forced her and his players to perform. DiManno’s is a little more in-depth when it comes to the legalese, but you won’t want to read either piece with a full stomach. (Interestingly, we note the Star seems to have reversed course and is now only identifying the female witnesses by their first names, just like the Globe.)

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