fbpx Some factors suggesting income inequality is less important than might be thought.

" /> Some factors suggesting income inequality is less important than might be thought.

" /> Some factors suggesting income inequality is less important than might be thought.

" /> Some factors suggesting income inequality is less important than might be thought.

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Don’t mind the gap

Historically, International Workers' Day on May 1 has been associated with socialism and organized labour. However, these days it might as well be called International Soak the Rich Day. It has become an occasion where different groups, from left-wing political parties to (curiously) Quebec's Assembly of Catholic Bishops, push an anticapitalist agenda under the guise of defending workers.

One of the key rallying points of this movement is based on the notion that there is a "growing gap" between the rich and the poor. I'd suggest instead celebrating free-market economies, which allow all members of society to benefit from innovation and growth, and to present a few facts showing that the actual intrinsic economic well-being of workers should be the central focus, rather than income inequality itself.

Two different studies were published this week — one from my colleague Yanick Labrie of the Montreal Economic Institute, and the other from Jason Clemens of the Macdonald-Laurier Institute. With a simple Google search you can find them.

Here is what they argued.

Inequality and poverty are different. The main problem of income inequality is that it is often considered to be directly linked to poverty, although those two concepts have, per se, nothing to do with each other. In fact, they can very well move in opposite directions at the same time. For instance, average after-tax income for the poorest fifth of Canadian households increased by 23% from 1995 to 2009 — a period marked by rising inequality — while it had almost stagnated from 1976 to 1995, even though this earlier period was characterized by less income inequality.

Poverty is temporary. Headlines are full of references to the "rich" and the "poor," as if these groups were made up of the same people year after year. However, economic mobility in Canada is among the highest for Western countries. For example, from 2005 to 2009, 43% of the poorest fifth of households moved into a higher-income category. Moreover, only 2.1% of people remained below the low income cut-off each and every year from 2002 to 2007.

Income gaps are overestimated due to household size. Studies of income gaps use household income as the basis for comparison. Increasing inequality, however, stems in large part from a social change. The number of single-parent families is increasing, and these types of families tend to be less affluent. An adjustment carried out by Statistics Canada to make households more comparable between various decades reduces inequality by 30%. I'm not saying here that the poverty encountered by many single-parent families should make us insensitive to their plight, but simply that this important social factor is not something that can objectively blamed on "the rich."

Inequality can certainly become a harmful phenomenon when a large number of people believe that their society is unfair and when social mobility is so low that it becomes pointless to even try to improve one's lot. But this is not the case. On the contrary, in Canada, the phenomenon of inequality is clearly less worrisome — and social mobility is much higher — than alleged by those who promote an ever increasing state intervention.

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.
* This column appears in Sun Media newspapers, published both in several of Canada's key urban markets (Toronto, Ottawa, Calgary, Edmonton, Winnipeg and London) and in its 28 community dailies.

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