Research team investigates income inequality in Canada and offers solutions

“While economists, including myself, have been studying the growth of inequality for the last few decades, public concerns about it became really strongly voiced only in the context of the recent Wall Street "Occupy" movement in the Spring of 2011,” says Dr. Fortin. “The movement focused on the top one per cent richest individuals following some excesses on Wall Street. When the movement spread to some Canadian cities, we wanted to investigate whether a disproportionate share of the top one per cent in Canada were also players in the financial sector."

In the study, the research team confirmed that income inequality in Canada rose in the last three decades. They found that this group’s share of the country’s total income had grown substantially, from eight per cent in the 1970s to 14 per cent. More than 80 per cent of this group was also made up of men. “So despite the significant gains realized by women over the last few decades, they remain dramatically underrepresented at the very top of the income distribution,” said the researchers in their paper.

“Not surprisingly, given the relatively smaller size of the financial sector in Canada, we found that the top one per cent was a more diverse group [than in the U.S],” explains Dr. Fortin. The team discovered that top earners in Canada were not only those working in the finance and insurance industry, but included a diverse group of professionals including senior managers and CEOs, physicians, dentists and veterinarians.

The researchers considered possible explanations for the growing inequality in Canada, reporting that wage differences have been growing between different educational groups and different age groups in Canada. “Younger workers, especially those with limited education, face a world with worse earnings prospects than their fathers’ generation,” explained the researchers. And technological advances may be a factor because they increase the demand for well-educated workers and reduce the demand for less skilled workers. Improved technology has also made it easier for companies to outsource production to other countries, thereby reducing demand for low-wage workers in Canada.

The team suggested various solutions for reducing the inequality in Canada, including raising taxes on the richest one per cent and increasing refundable tax credits to lower-income Canadians. The team also suggested making the education system more flexible so that students and institutions make investments in fields with increasing opportunities, and reducing high school dropout rates.

This research study is important for Canada because to date much of the work on income inequality has been done in the U.S. By investigating and reporting on Canada, the team produced several important findings that should guide Canadian policy developments in this area.