Spotlight on Income Inequality

Throughout the month of October the Vital Signs Canada blog will feature guest bloggers who are experts on various aspects of community vitality. Today's contributor Lynne Slotek, CEO, Institute of Wellbeing and National Project Director, Canadian Index of Wellbeing

In Vital Signs most recent report, ‘total income’ is the indicator used to provide a snapshot on ‘The Gap Between Rich and Poor’. According to Vital Signs, “income inequality in Canada has grown over the past 25 years, through both bad and good economic times… and the current economic challenges run the risk of worsening the trend.”

Recessions are a difficult way to learn a lesson. Still, there’s one thing that the current economic meltdown has taught us, and that is to question the notion that all growth is a sign of progress. The “growth is good” concept is one that has been increasingly reinforced by the dominance of Gross Domestic Product (GDP) – a tool that was invented in the Great Depression and has often been misused as a surrogate for quality of life.

New times call for new measures. We need to adopt a new paradigm for the way we measure our wellbeing and think about ourselves and our world.  Just as Vital Signs shines a light on the quality of life of communities, the Institute of Wellbeing with its signature product, the Canadian Index of Wellbeing (CIW), is designed to do that at the national level.

One of the key goals of the Institute of Wellbeing is to connect the dots between Canadians’ public policy decisions and quality of life (measured by indicators) – to promote a new understanding of wellbeing and the interrelated factors that contribute to it; and to encourage policy makers to make evidence-based decisions that respond to the values and needs of Canadians.

In its First Report, How are Canadians Really doing? the CIW drew attention to the dynamic interactions among income, health and education. People with higher incomes and education tend to live longer, are less likely to have diabetes and other chronic conditions, and are consistently more likely to report excellent or very good health. “The stark reality”, the report says “is that household income continues to be the best predictor of future health status. This is true in all age groups and for both women and men.” For policy shapers and decision makers, it highlights the need to confront disparities in education and health, in addition to income in order to come up with real and sustainable solutions for poverty reduction.

The CIWs First Report’s message also clearly demonstrated that “the poor stayed poor”. The poverty gap – the amount of money by which the average poor family fell short of the poverty line – was the same in 2007 as it was in 1981.  At the same time, “the rich got richer”. The after-tax income of the top 20 percent of households rose 38.7 percent from 1981-2007 while the increases for all other income groups were between 21.4 and 25.8 percent.

The recession is not helping.  In July 2009, the Institute of Wellbeing, released a Special Report, The Economic Crisis through the Lens of Economic Wellbeing.  The report comments that the current recession will erase many of the economic and standard of living gains made since the mid-1990s. Unemployment and poverty will likely continue to rise and stay at high levels for years. The report points out that there has been a great loss of income since the onset of the recession and the hardest hit have been the bottom 20 percent of households. Based on previous recessions, the report predicts that unemployment will likely peak at around 10 percent in 2010 and the poverty rate will rise to 13.2 percent in 2010.

There is a wealth of information on income inequality in this country. About 11.4 percent of the total population, or nearly 3.5 million Canadians, including nearly 880,000 children aged 17 years and under, lived in low-income in 2005 (Statistics Canada 2008b). According to the OECD (2008), both inequality and poverty rates in Canada are now higher than the OECD average. The Senate of Canada, Subcommittee on Cities (2008) reported that “labour force participation is no longer enough to keep Canadians out of poverty.”  And Food Banks Canada (2008) report that nearly 15 percent of food bank users in Canada get all their income from work and still aren’t able to care for and feed their family.  Despite all of this, in June 2009, Canada rejected the UN Human Rights Council recommendation for the development of a national strategy to eliminate poverty.

So, what does this mean for policy application? The Institute’s Living Standards report links changes in the income inequality of Canadians with specific government public policy decisions. Some policy decisions have been harmful to wellbeing, such as changes to Employment Insurance and the significantly lower Welfare Benefits in 2007 than in 1986. On the other hand, the introduction of the Child Tax Credit and the National Child Benefits Supplement in the mid 90s, has provided additional income to poor working families and has lowered the poverty rate for this group somewhat – a good start towards Canadian wellbeing.

We can learn from these examples of policy decisions. The CIW, Community Foundations of Canada, other partners, and concerned Canadians, are engaging in dialogue to discover new possibilities. Sometimes, confronted with the need for significant and immediate change to complex problems, we fall back on band-aid solutions. To do so, means that we will still be looking at the same challenges or worse, come the next recession. Instead, let’s find innovative and sustainable solutions that confront root problems in integrated ways.