Inequality Issue in Canada - Essay Example

Inequality in Canada The global crisis of 2007–2008 negatively influenced the incomes of middle class and the poorest classes of population. This broke the tendency of the several previous decades towards slow, but gradual decrease of the global inequality level. Another reason of global inequality is the formation of middle class in the developing countries. The countries of the Group of Twenty Finance Ministers and Central Bank Governors can be divided into two groups: developing (The Republic of South Africa, Brasil, Mexico, Russia, Argentine, China and Turkey), and developed (France, Germany, Canada, Italy and Australia). The level of inequality in the developing countries was initially higher, but after 1980 the level of concentration of incomes in developed country significantly increased. The reason was not only the difficulties faced by middle class, but the fact that the rich became richer. Notwithstanding that Cаnada successfully resolves the problem of inequality and the social mobility in the society is high, the income distribution of the population remains unfair: the incomes of 1% of the richest class are growing during last decades, while the incomes of poor continue to decrease. “Governments are also downwardly redistributive. The most obvious effect is through the tax and transfer system (although the progressivity of Canada’s tax system has diminished). Government spending also redistributes income downward. This is partly because public sector pay scales are more compressed than the private sector — with a higher floor and a lower ceiling. As public sector activities form a larger proportion of GDP, inequality moderates. The retrenchment of the Canadian public sector since 1992 has thus contributed to the issue redistribution” (Growth of inequality in Canada cannot be denied). Moreover, the inequality in Canada grows faster than in the USA and other countries. The inequality is traced among separate citizens, towns and regions. In Atlantic regions inequality is less developed in comparison to the rich provinces like Alberta. The inequality is also growing in big cities like Vancouver, Toronto and Montréal. There is the connection between the level of income and the duration of life. The inequality of income is highly expressed among native Canadians and other residents. Indians have less employment opportunities and they very often are not able to satisfy basic needs. The reasons of inequality are too serious differences in salaries for qualified and non-qualified workers, shifts in the market structure, the growth of self-employed population, allowances reduction. “When growth is looked at over the long term, the trade-off between efficiency and equality may not exist. In fact equality appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality. Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth” (Berg, Andrew and Ostry, 2011). The common growth of inequality can be revealed by means of analyzing the distribution of incomes received due to the economic growth. During ten years of intensive growth of 1997-2007 the richest class of the population that amounts to 1% experienced 32% of income growth. Thus, we can talk about the complete change of the long-term tendency as the inequality was reducing during the postwar period. Since the beginning of the World War II till 1977 the incomes of rich Canadians decreased from 14% to 7,7% as the level of unemployment also decreased and people started receiving more well—paid positions. By the 2007 the inequality returned to the pre-war level “Now Statistics Canada has turned the attention to the problem, too. The agency’s National Household Survey has documented the stark differences in personal income between the richest 1 per cent and the rest of us. The data are less precise than would have been attained from the former long-form census (which was cancelled by the data-phobic Conservative government). But despite its flaws, the report confirms that the gap between rich and poor in Canada has become enormous” (Tencer). The growing inequality in Canada leads to the growing number of credits: the private debt of Canadians is growing due to the need to keep the standard of living, low salaries and few employment opportunities. On average Canadians owe more than 1,5 dollars for every earned dollar. The growing debt of households is an obstacle on the way to economic stability and economic growth. The main reason of the growth of inequality is the difference in salaries. Taxes and compensations do not significantly decrease the level of inequality in Canada in comparison to other countries (Yalnizyan, 2010). The main cause is the difference in the number of working hours: the working day of well-paid workers is longer than the working day of low-paid employees. The second important reason that explains the growth of inequality is the growth of self-employment as self-employed people receive less money. The third reason is the redistribution through taxes, which compensated more than 70% of market income in the middle of 1990 and 40% afterwards (Card and DiNardo, 2002). The high level of inequality imposes negative influence on the economy. The poor classes of the society can’t invest in their education and medicine that prevents them from development. Practical investigations show that the reduction of inequality can correlate with supporting speeded up pace of economic growth during the long period of time (Sisco and Stonebridge, 2010) The lack of material assets limits the abilities of poor people preventing them from participating in economic activity and business imposing negative influence on employment and the formation of incomes by decreasing demand. As a consequence, the economic growth is slowed down. High level of inequality can also be the reason of social tensity, conflicts and can negatively influence investment climate (Lazear, 2010). During last years it is possible to trace four tendencies of inequality development. First, the income of poor class decrease. Secondly, the incomes of the middle class in the big countries grow with dynamically developed economies. Third, the incomes of the middle class in the developing and undeveloped countries are decreasing because of the current new economic crisis. The incomes of the rich group of the population grow (Yalnizyan, 2010). Notwithstanding that the measures to struggle with inequality must be taken on the national level, it is obvious that it is not possible to resolve the issues only by means of national actions. These issues represent the reasons of economic inequality strengthening. For example, industrial policy directed on attracting investments to high-tech areas is highly dependent on the structure of intellectual property protection regime. In the conditions of increased mobility of capital the taxation of financial operations can’t be implemented effectively without corresponding mechanisms of international coordination “In Canada, our pre-tax incomes are slightly more equal than the U.S. or Sweden. On that measure, Canada ranks 13th of 22 countries — right in the middle of the pack. But when taxes and transfers are taken into account, Canada shoots up on the inequality rankings, and becomes the fourth most unequal of 22 countries, behind the U.S., Israel and the U.K. That means Canadian policies do far less than the policies of most other countries to reduce inequality” (Tencer). Coordinated actions of global community are the important condition for the international standards implementation in the area of employment (Ball and Chernova K., 2007). Thus, it is essential to strengthen the political will to the problems’ resolution not only inside of the countries, but in the context of international mechanisms of economic policy coordination. “Poverty can be reduced by raising the standards of living of poor people through increasing their incomes ‘in cash’ or ‘in kind’. The costs would be borne by the rich and would reduce inequalities overall -- simultaneous reducing inequalities in health” (Dennis, 2002). Inequality is a serious problem as it provokes the growth of poverty. The growth of poverty makes the standard of living of many people lower than average. They do not have an access to the services, which satisfy the basic needs of the population. This increases the number of deaths from different diseases and the number of uneducated people in the society. Thus, the problem of inequality is one of the most serious and should be addressed by the government. In Canada inequality can be overcome by means of increasing the number of jobs, the growth of education investments, allowance and taxes system reformation. It is necessary to make social services like healthcare and education available for all the classes of population. References Berg, Andrew G. and Ostry Jonathan D. (2011). “Equality and Efficiency,” Finance and Development Vol. 48, No. 3, International Monetary Fund, 2011, 13. Yalnizyan, Armine. (2010). The Rise of Canada’s Richest 1%, Ottawa: Canadian Centre for Policy Alternatives. Lazear, Edward P. (2010). “The State of the U.S. Economy and Labor Market.” Remarks at the Hudson Institute. Tencer, Daniel. Income Inequality: Canada Does Surprisingly Little To Reduce Wage Gap. Retrieved March 14, 2014 from http://www.huffingtonpost.ca/2013/11/28/income-inequality-canada_n_4356593.html Growth of inequality in Canada cannot be denied. Retrieved March 14, 2014 from http://www.thestar.com/opinion/commentary/2013/09/26/growth_of_inequality_in_canada_cannot_be_denied.html Dennis, R. (2002).Poverty, Income Inequality, and Health in Canada. CSJ Foundation for Research and Education Card, David and DiNardo, John E. (2002). “Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles,” Journal of Labor Economics 20, 4, 735. Yalnizyan, A. (2010). The Rise of Canada’s Richest 1%, Ottawa: Canadian Centre for Policy Alternatives. Ball, R. and Chernova K. (2007). “Absolute Income, Relative Income, and Happiness,” Social Indicators Research 88, 3, 497.    Sisco A and Stonebridge C. (2010). Toward Thriving Northern Communities (Ottawa: The Conference Board of Canada Read More