Income Inequality Summary Component

3 06 2011

Key Concerns/Issues

1. The gap between the rich and the poor is growing in Canada, since those earning the highest incomes are experiencing greater increases in their incomes than lower wage earners.
2. The economic recession has worsened income inequality in Canada. After the recession, high paying blue-collar manufacturing jobs have been replaced with low paying service sector jobs that offer fewer work hours, so although it appears that jobs have been recovered and unemployment has gone down, people are earning less money than before.
3. Businesses have been given a lot of wealth in order to create the trickle down effect, either through creating new jobs or expansion of the company. However, businesses are using the money instead in providing large bonuses and higher salaries for executives, keeping the money locked in at the top. Providing wealth to businesses has not benefited the poorer members of society as was expected.
4. Many Canadian jobs that require fewer skills are being outsourced to countries such as China, India and Bangladesh, where workers can be paid less to do the same job. This leaves the people who had the same jobs in Canada with no job or income.

Resulting Challenges to Canadians in the next 10 years

1. With income inequality exacerbated, the government has to dish out more tax dollars to spend on social welfare services. This reduces the amount of tax money available to fund activities that can stimulate real economic growth.
2. People with low incomes or reduced incomes have little money to spend. This reduces consumer spending, which can shift aggregate demand to the left and cause another recession.
3. Generally, extreme income inequality is connected to a lower quality of life. With income inequality becoming a bigger concern in Canada, it is likely that those with a lower-income will experience a lower quality of life e.g. shorter life expectancies, more health problems.

Supporting Statistics and Evidence

1. It costs more to provide emergency housing and hospital care for the homeless for a year than it does to provide supportive housing to the homeless for a year. Also, it costs more for a homeless person to stay at the hospital than for a non-homeless person:
http://www.theglobeandmail.com/news/national/how-paying-peoples-way-out-of-poverty-can-help-us-all/article2011940/
2. Income of the top wage earners in Canada, and a graph showing increasing income inequality in Canada. Also, more people marry others with similar incomes now than before:
http://www.theglobeandmail.com/news/national/the-rewards-of-the-rich/article1819892/?from=1819803
3. Gini coefficient increased in Canada, and number of hours worked by lower-income earners decreased:
http://economix.blogs.nytimes.com/2011/05/03/inequality-rising-across-the-developed-world/
4. Low income earners experienced less growth in income than high income earners, which worsens the income gap between the rich and the poor:
http://www.nationalpost.com/news/Economic+news+Inequality+complex/4782730/story.html

Possible Solutions

1. One solution to worsening income inequality is the Guaranteed Annual Income (GAI), which gives Canadian families with low incomes a guaranteed source of income so that they can provide for themselves sufficiently.
2. Increase income taxes for the rich, who have a large portion of Canada’s wealth. The tax revenue can be redistributed to increase income equality, for example by providing money to low-income families to boost consumer spending and increase aggregate demand. This can be done by increasing the tax rate in higher income tax brackets.
3. Increase corporate taxes. This would essentially have the same aim as increasing income taxes for the rich, as it will help redistribute Canada’s wealth more evenly. Also, corporate revenues may have been given to company executives, who would invest the money instead of spending it, which doesn’t increase GDP. If the government took this money, it would spend it, which would increase aggregate demand in the economy and cause economic growth.
4. Cut income taxes for the poor. This would increase their disposable income, which helps them live more sufficiently and increase their quality of life, as well as contribute to the economy through increased spending.





How paying people’s way out of poverty can help us all

24 05 2011

Article:

http://www.theglobeandmail.com/news/politics/how-paying-peoples-way-out-of-poverty-can-help-us-all/article2011940/singlepage/#articlecontent

Discussion Questions:

  1. Should lower income families be taxed less? Should higher income families be taxed more?
  2. Do you think providing low income families with a set annual income will encourage economic growth? Are there any distorted incentives caused by this solution?
  3. Should the minimum wage be increased to solve the problem of income inequality?