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There Are Too Many Misperceptions About Inequality in Canada

07/03/2015 05:13 EDT | Updated 07/03/2016 05:59 EDT
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Inequality seems to be on a lot of people's minds these days, and not just because self-described democratic socialist U.S. Senator Bernie Sanders is beating on that drum in his campaign for the Democratic nomination. It's also a popular topic north of the border, and it promises to be a contentious issue in this fall's Canadian federal election.

There are many things to say about the varied causes and potential effects of inequality. But one oft-neglected question that's worth asking is: Do people generally have an accurate picture of the level of inequality that exists in their countries?

The short answer, according to a recent paper from the Institute for the Study of Labor, is that they do not. In Misperceiving Inequality, researchers Vladimir Gimpelson and Daniel Treisman note, first of all, that only 29 per cent of respondents across 40 countries were able to identify which of five diagrams best characterized income distribution in their societies--which is not much more accurate than random chance.

People are no more aware of whether income inequalities in their societies are increasing, decreasing, or staying the same. Of respondents surveyed in 2013 in 22 countries (six of which were experiencing increasing inequality, eight decreasing inequality, and eight no significant change), only 34.6 per cent chose the option that corresponded to the situation where they lived--again, not much better than chance.

Canada was actually below average in this regard. Just 18 per cent of Canadians correctly guessed that income inequality in our country had stayed the same over the previous five years, with 76 per cent incorrectly assuming it had increased. That's right: Income inequality in Canada, as measured by the Gini coefficient (the most widely-used measure), remained essentially unchanged from 2007 to 2011, increasing by an insignificant 0.29 percentage points. In fact, Canada's Gini coefficient has remained relatively stable since the year 2000, and is right around the OECD average.

Another way of thinking about inequality is as the share of income going to the highest earners, and by this measure as well, inequality is shrinking in this country. The proportion of total income going to the top 1 per cent in Canada has been falling since 2006, as recently pointed out by Laval University economics professor Stephen Gordon. According to the Statistics Canada data he cites, it peaked at around 12 per cent in 2006, but has since fallen to around 10 per cent.

Wealth inequality has also been diminishing in Canada in recent years. According to an OECD Statistics Brief on household wealth inequality released last month, between 2005 and 2012, the wealth of the top 1 per cent of Canadians grew at a slower annual rate (1.3 per cent) than that of the top quintile (4.7 per cent), the middle three quintiles (6.0 per cent), and the bottom quintile (3.4 per cent).

This is in sharp contrast, mind you, with the situation in the United States, which according to the same OECD Brief has experienced increasing wealth inequality of late. Between 2007 and 2013, the wealth of the top 1 per cent of Americans actually shrank, but it did so at a slower annual rate (-1.2 per cent) than that of the rest of the population, and much slower than the bottom quintile, which experienced a very large relative drop in wealth (-26.4 per cent).

There is still inequality in Canada, and it's worth talking about why that is and what might be done about it. For one thing, as pointed out in a recent Economic Policy paper, inequality is uncorrelated with economic growth, which means that policies that enhance equality may either promote or reduce growth.

As the authors conclude, in the quest to "do something," policymakers should be cautious not to undermine economic growth with their well-intentioned policies and thereby end up harming the very people they want to help. And at the very least, in discussing this important issue, we should take the time and the care to make sure we're perceiving what's actually going on.

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