I. Raphael, D. (1999, published in 2000). Health effects of inequality.
Canadian Review of Social Policy, 44, 25-41.
II. Here's how the rich-poor gap grew
BRUCE LITTLE, Toronto Globe and Mail
Monday, June 19, 2000
Corrado Gini's contribution to science got another
workout in
Canada last week. Thanks to him, we know for sure that
income
inequality grew during the 1990s. We know the market
further
divided people along income lines with growing force
and we know
that governments stopped fighting the trend as hard as
they once
did.
Gini was an Italian statistician who devised the most
commonly
used calculation of income distribution among whole
populations.
And his measure, the Gini coefficient, finds a
prominent place in
Canada every time Ottawa churns out new data on family
income,
as it did last week.
The good news was not so much that average family
income after
taxes hit its highest level ever in 1998 at $49,626,
but that it finally
exceeded the previous peak in 1989 after eight years
of decline and
achingly slow recovery.
The bad news was that income grew more unequally
distributed
during the decade. One advantage of the Gini
coefficient is that it
covers what's happened to everyone, not just those at
the top (who
did better) and the bottom (who did worse). Better
yet, one can
apply it to three different versions of income, so it
tells us both how
the market economy is treating people and how
governments are
using their power to spend and tax to take from the
better-off and
give to the worse-off.
The basic measure is market income, which is the wages
and
salaries people get from their jobs, including
retirement pensions,
and the interest and dividends they earn on their
savings.
Governments redistribute income in two ways. They
transfer money
to people (through welfare, employment insurance,
pensions for the
elderly) so that their total income is higher than
their market income.
And governments tax high-income earners more heavily than
low-income earners. So when we get to after-tax
income, the
amount left over for people to spend or save, the gap
between
those at the top and those at the bottom is smaller
than it was at the
start.
So what does Corrado Gini have to tell us about Canada
in the
1990s? Crudely put, the rich got richer and the poor
got poorer,
not in the first half of the decade, when you might
have expected the
recession to deliver a setback, but in the years from
1994 to 1998,
when the economy got rolling again.
Here's how the numbers work. In the Gini measure, a
reading of 0
represents perfect equality (everyone has the same
income) and 1
represents perfect inequality (one person gets all the
income, the
rest get nothing).
In 1989, the Gini was .396 for market income.
Transfers reduced it
to .329 for total income and taxes pushed it down
further to .292,
which is roughly where it had been for the previous 20
years.
Government action, in effect, pushed the distribution
toward greater
equality by .104 points on the Gini scale.
By 1994, the market income Gini had risen to .424, an
increase of
7.1 per cent, while the Gini for total income climbed
to .334, up
only 1.5 per cent. Employment insurance payments and
welfare
benefits had both increased during the recession,
blunting the effect
of what the market was doing to incomes. At the same
time, the
Gini for after-tax income remained steady at .292.
The impact of the transfer and tax systems on income
distribution
was worth .132 points on the Gini scale. In effect,
governments
were doing more in 1994 than in 1989 to offset the
effect of market
forces. As unemployment rose, so did EI payments; and
as more
families fell into straitened circumstances,
governments paid more in
welfare to those who couldn't make it through tough
times on their
own.
Now take a look at 1998, the latest year for which we
have figures.
The market income Gini was now up to .437, up another
3.1 per
cent from 1994. One reason is that the job market was
increasingly
favouring those with good education and valuable
skills; those with
neither, even if they had a job, had to settle for less.
At the same time, the transfer and tax systems were
doing less to
offset this trend. The Gini for total income was up
6.9 per cent to
.357 and the Gini for after-tax income was up 7.9 per
cent to .315,
its highest level in the 28 years Statscan has been
making these
calculations. Government action shaved only .122
points off the
Gini scale, down from 1994, but higher than 1989.
An improving job market explains part of that drop.
The economy
created only 124,000 jobs from 1989 to 1994, but more
than one
million jobs from 1994 to 1998. That alone would
account for a
decline in EI payments and welfare benefits; many
recipients simply
got jobs that allowed them to get off EI or welfare.
But the rest of the drop resulted from deliberate
changes to
government policies designed to redistribute less
income than
before. Ottawa made it harder for some people to get
EI and
reduced payments to those who did. And many provinces --
notably Ontario and Alberta -- restricted access to
welfare and cut
benefits to those who still qualified.
Market forces are the main reason for less income
equality in 1998
than in 1994. But there's little question that
changing government
policies after 1994 played a role as well.
Amazing Facts appears every Monday. Bruce Little may be
reached by E-mail ([log in to unmask]).
Visit our Web Site for information about our Seniors Participatory and
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********************************************************************
Long have I looked for the truth about the life of people together.
That life is crisscrossed, tangled, and difficult to understand.
I have worked hard to understand it and when I had done so
I told the truth as I found it.
- Bertolt Brecht
********************************************************************
Dennis Raphael, Ph.D.
Associate Professor
Department of Public Health Sciences
Graduate Department of Community Health
University of Toronto
McMurrich Building, Room 101
Toronto, Ontario, CANADA M5S 1A8
voice: (416) 978-7567
fax: (416) 978-2087
e-mail: [log in to unmask]
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