Labour Market Matters - March 2013

Vivian Tran

CLSSRN working papers from Vancouver School of Economics

Abstract: When the Dow Jones stock index hit an all-time high on March 5, 2013, some commentators said that this surge in share prices indicated a breaking of the psychological barrier faced by markets since the Great Recession. But others noted just how volatile financial markets have been – the Dow Jones index fell by half during 2008-2009, before starting its recent upward run. What happens on Wall Street, does not necessarily reflect what is happening on Main Street, and a study entitled “Increasing Inequality is Unbalanced Growth: Evidence from North America†(CLSRN Working Paper no. 102) by CLSRN affiliate Lars Osberg (Dalhousie University) may have an explanation. Since the 1980s, in both Canada and the U.S., the rising share of the top 1% has been driven by the fact that their incomes have grown strongly, but the real incomes of most other people have stagnated. Osberg argues that when income growth rates are unbalanced, one instability leads to another. Unbalanced growth in incomes means that financial assets are accumulated at the top of the income distribution while liabilities accumulate at the bottom – but rising household debts and stagnant incomes for the middle class produce a financial house of cards. When the inevitable crisis occurs, rising unemployment then swells government deficits, creating new instabilities of public debt. A poll published by the National Post in 2012 found that more than three-quarters of Canadians think that Canada suffers from an income gap where the rich are getting too rich and the poor are getting too poor. In a paper entitled “Top Income Shares in Canada: Recent Trends and Policy Implications†(CLSRN Working Paper no. 103), CLSRN affiliate Michael R. Veall (McMaster University) confirms that the gap is growing. He finds that between 1986 and 2009, the average real income of the top 0.01% of all taxfilers in Canada increased by about 150%, in contrast to an increase of only 19% for those in the bottom nine-tenths of the income distribution. Without being able to pinpoint the exact cause of the income surge, but still faced with clear evidence of growing income inequality in Canada, Veall outlines three policy priorities aimed to increase overall economic efficiency to benefit all Canadians.

Keywords: Inequality; Instability; Unbalanced Growth; Income Polarization; Top Income shares; Canadian Personal Income Tax System; Intergenerational Mobility; C (search for similar items in EconPapers)
JEL-codes: D31 (search for similar items in EconPapers)
Pages: 2 pages
Date: 2013-03-20, Revised 2013-03-20
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