Impact of income inequality on the Canadian economy

Impact of income inequality on the Canadian economy

In the last 20 years, Canadian income inequality has continued to rise. Between 1993 and 2008, the richest faction of Canadians enjoyed an increase in national income while the poorest faction lost its share. Among its peers, the country has the 4th largest income inequality according to global analysis. Most of the gains in Canada go those who are ‘super rich’.

A study that was carried out by the Canadian Center for Policy Alternatives used tax file data for purposes of keeping track of the  richest 1% of Canadians whose income was high than 99% of tax filers in Canada.  The study found that the group, which comprised of 246,000 people with an average income of $405,000, took a third of the income growth from 1998 through to 2007. This is a decade in which the fastest economic growth was witnessed.

This growth noted among the ‘super rich’ is not as a result of assets they already own because it has been historically6 proved that the super rich rely greatly on the undeserved profits from assets. This means that their income is largely as a result of lavish sums they get paid when they work.

There are two important factors that contribute towards income inequality in Canada and they include:
  • Market forces-This specifically includes skill bias change and globalization which have created an increased in skilled labor demand.
  • Institutional forces-This includes decline of unionization rates, stagnation of minimum wage rate, national policies and deregulation that favors the super rich.

Income inequality has far reaching impacts on the Canadian economy. This is especially witnessed in business establishments which are becoming more concerned about the state of inequality. It diminishes economic growth because it means that the country is not using the capabilities and skills of its citizens fully and leads to increase in social tensions. In addition to this, it also raises a moral question in regard to social justice and fairness.

Also, because of income inequality in the country, consumers are often left without much purchasing power. Traditionally, economic growth meant that everyone within the country would benefit but this is not the case in Canada. The latest economic growth surge has seen the rich Canadians getting richer while the poor get poorer.

The challenge that Canada is now facing is that of preserving for the future generations so they can enjoy a fair and level playing ground. At least 61% of Canadians say that inequality stands between them and the opportunity of living a better life than their parents as reported in a survey by Ekos Research Associates.

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