Prepared for EvidenceNetwork.ca by Carolyn Shimmin with John Millar
Since the mid-1990s, the gap between rich and poor has markedly increased in Canada. Though we have fared better than our cousins to the south, with 15 percent of Canadian children living in poverty versus 22 percent of American children, economic inequality may be one of the defining challenges of our times for both nations.
But as recent Nobel prize winner, economist Angus Deaton has warned, Canada may very well be going down the same road as the United States, with the same combination of inequality and slower economic growth leading to a “terrifying increase” in middle-aged mortality.
What’s the link between economic inequality and health? As Sir Michael Marmot states, “Health inequities are caused by the inequitable distribution of money resources and power.”
Economic inequality results from certain segments of society experiencing persistent disadvantage and lack of opportunity. It can affect everything from the health of individuals and communities, to the strength of social cohesion.
It can also impact economic growth and the social mobility of Canadians. Because of these broad impacts, economic inequality — what drives it and what we can do about it — has become a hotly debated concern among policy makers, economists, political leaders and the general public, leading many to ask: “Why do so few have so much, and why do so many have so little?”
What is Economic Inequality?
Economic inequality speaks to how income, wealth and consumption (or expenditures) are unevenly distributed among individuals in a group, among groups in a population or among countries. Sometimes we refer to this as the “gap between rich and poor,” but the concept can be trickier because it consists of three separate components that are often used interchangeably but are really quite different things.
When we refer to income inequality, we are talking about the extent to which money received for work or through investments is distributed in an uneven manner among members of a population. Large income gaps have implications for people’s social and physical health, including life satisfaction, who experiences illness and crime levels.
The most common measure of income inequality is the “Gini coefficient,” which represents the extent to which the distribution of income among individuals within a country deviates from an exactly equal distribution. It is a scale of 0 to 1 where a Gini coefficient of “0” represents exact equality (i.e., everyone has the same income) and a Gini coefficient of “1” represents total inequality (i.e., one person has all the income and the rest of the society has none).
What Canada’s Gini coefficient tells us is that over the past 20 years, income inequality in Canada has increased. In 1989, Canada’s Gini coefficient was 0.281. Income inequality rose in the mid-1990s and remained around 0.32, an all-time high, through the 2000s.
To put this into perspective, Canada ranks 12th among OECD (Organization for Economic Co-Operation and Development) countries for income inequality, which means income inequality is higher in Canada than 11 of its peer countries and receives a “C” grade based on this indicator. According to the OECD income inequality report card, the Nordic countries continue to be leaders for income equality, while the United States is the most unequal country for income distribution of the countries the OECD considers.
The “wealth gap,” or wealth inequality is a broader concept; it refers to the unequal distribution of assets among people — including the values of homes, vehicles, personal items, businesses, savings and investments, minus debt. Some research shows that wealth inequalities have increased more than income inequalities, possibly because stagnant wage growth makes it difficult for middle and low-income workers to save or invest money.
In Canada, there is a growing concentration of wealth at the top. In 2012, the top 10 percent of Canadians owned almost half (47.9 percent) the wealth, while the bottom 30 percent owned less than one percent; the bottom 50 percent owned less than six percent.
And in Canada, it would seem that the rich continue to get richer, while the poor continue to get poorer. Understood another way, the median net worth (i.e., the net worth in the middle of all net worths) of the top 10 percent of Canadians rose 41.9 percent between 2005 and 2012 to $2,103,200 in 2012. In contrast, the median net worth of the bottom 10 percent of Canadians dropped more than 150 percent from negative $2,000 in 2005 (representing debt) to negative $5,100 in 2012.
The top 10 percent held almost $6 in every $10 (59.6 percent) of financial assets (excluding pensions) — more than the bottom 90 percent.
Consumption represents the largest portion of expenditures for most Canadian households. Items in this category include what are seen as “durables” (e.g., house, furniture and automobiles) and “non-durables” (e.g., food, clothing and recreation). Of the three areas of inequality, consumption inequality in Canada is the least discussed.
Consumption inequality is the disparity between the amount of money spent on goods and services by people living in upper, middle and lower socioeconomic strata. These are goods and services that can be bought or sold on the market for use by one or several members of a household. The evidence suggests that income inequalities have increased more than consumption inequalities.
The Social and Political Origins of Economic Inequality
The roots of economic inequality are generally agreed to be social and political. What this means is that people are shaped by the interactions of different social locations they inhabit — including race, ethnicity, Indigeneity, gender, class, sexuality, geography, age, ability, immigration status, and religion. These social categories are dynamic, historically grounded, socially constructed and work on many levels.
Interactions between social categories occur within a larger context of connected systems and structures of power — for example, laws, policies, governments, media and public institutions. Through these processes, interdependent forms of privilege and oppression shaped by colonialism, racism, homophobia, ableism and patriarchy are created.
These structures and systems of power create what economists call “inequality of opportunities,” which means not having access to the same quality of education, healthcare, neighbourhoods, early childhood enrichment, mentors and supports, etc. based on differences beyond an individual’s control (again, things like gender, race, class, ethnicity, sexuality, geography, age, ability, immigration status and religion).
Economists distinguish between “inequality of opportunities” and “inequality of outcomes.” The International Monetary Fund (IMF) found that economic inequality is more strongly associated with inequality of opportunities than with talent and effort. This finding contradicts the assumption that with a little hard work, you can become rich.
As an example, Indigenous peoples in Canada (First Nations, Inuit and Métis) earn 70 cents for every dollar earned by non-Indigenous peoples, as a result of colonialism (e.g., laws and policies that prevent Indigenous peoples from building wealth) and racism (e.g., oppressive attitudes). Such inequalities can be found on reserves, with Non-Indigenous people working on urban reserves earning 34 percent more than First Nation workers for equivalent work; and on rural reserves, non-Indigenous Canadians make 88 percent more than their First Nation colleagues for equivalent jobs. This inequality persists, despite rapid increases in educational attainment by Indigenous people over the past 15 years.
With one exception — Indigenous peoples with university degrees have narrowed the income gap. From 1996 to 2006, the Indigenous-non-Indigenous income differential for people with a Bachelor’s degree dropped from $3,382 to $648. But there remains a significant gap in the number of Indigenous peoples obtaining a Bachelor’s degree — eight percent of Indigenous peoples have a bachelor degree or higher compared to 22 per cent of non-Indigenous Canadians. Many rural reserves do not have high schools, forcing youth to leave their communities to attend secondary school in larger urban centres.
There is further evidence that shows inequalities of income and wealth have strong associations with racism at the level of labour supply in Canada. New immigrants and racialized Canadians often face a “colour code” in the labour market that blocks them from good paying, secure jobs because of: the lack of recognition of international credentials, the devaluing of non-Canadian work experience and outright racism. (The term ‘racialized’ is used to acknowledge that race is a social construct and racialization is a process through which groups come to be designated as different, and on that basis, subjected to differential and unequal treatment).
Racialized Canadians earn only 81.4 cents for every dollar paid to non-racialized Canadians.
Though data shows racialized Canadians have slightly higher levels of labour market participation, they continue to experience higher levels of unemployment and earn less income. The work that racialized Canadians are able to attain is much more likely to be precarious, insecure, temporary and low paying. For example, it was found that racialized Canadians are overrepresented in a range of traditionally low-paying business services such as call centres, security centres and janitorial services.
Even young workers of colour who were born and educated in Canada still face a significant pay gap when compared to their non-racialized peers. This points to the ongoing racialization of poverty and racism in Canada, with racialized families three times more likely to live in poverty than non-racialized families.
Gender is another dimension of inequality. Canadian women are still paid significantly less than men. In 2011, women made 67 per cent of what men made ($32,100 for women vs. $48,100 for men). When looking at gender and race, racialized women in Canada earn 55.6 percent of the income of non-racialized men.
Gender differences in earnings varied depending on age and occupation, with gender differences wider among older workers. Women also tend to have more precarious employment which means single parent families headed by women and single women seniors are especially vulnerable to poverty. Research has also shown that women may remain in domestic violence situations because they are economically dependent on men.
How Does Economic Inequality Happen?
The inequities described above lead to economic inequality through some of the processes described here. Below is a list of factors that can impact inequality in advanced economies such as Canada’s.
1. Growing Income Share of the Wealthy
As mentioned above, evidence shows that a primary driver of growing income inequality in advanced economies is the growing income share of the small group at the top. Evidence shows that the growing share of the top one percent reflects both higher inequality in labour incomes and capital gains (i.e., returns from investments). Half the income of the top one per cent is non-labour income compared with 30 per cent for the top 10 per cent as a whole.
The IMF and the OECD have found that there is an inverse relationship between the increasing income share of the wealthiest and overall economic growth. If the income share of the top 20 percent increases by one percentage point, GDP growth is actually 0.08 percentage points lower in the following five years, suggesting that the benefits do not trickle down.
In contrast, a one percent increase in the income share of the bottom 20 percent (the poorest) is associated with a 0.38 percentage point higher economic growth. The positive relationship continues to exist between increasing the income shares of the middle class and higher economic growth.
2. Redistributive Policies
Historically, some governments have mitigated inequality through public policy. For example, in Sweden, people pay the second highest taxes in the world, an average of 48.2 per cent of GDP, and yet, also top many international surveys on successful societies and social transfers, such as public retirement benefits. However, in Canada, the progressivity of tax systems has declined over the past few decades resulting in high-income households and corporations paying lower tax rates. What this means is people with more income and more wealth make increasingly more money and pay relatively fewer taxes.
Also, the OECD reports that Canada spends less on unemployment benefits and family benefits than most of its peer countries, though we are beginning to see some changes in this regard. Our taxes and transfers do not reduce inequality as much as in many other OECD countries.
3. Changes in Age and Household Structure
The OECD also reports that one fifth of the increase in income inequality in Canada is linked to changes in the age and household structure of the population, such as the growing percentage of single-parent households (most often headed by women earning lower incomes than their male counterparts) and people living alone (e.g., Canada’s aging population).
4. Trade and Financial Globalization
While trade has been linked to growth in many countries (by promoting competitiveness and enhancing efficiency), high trade and financial flows between countries are commonly cited as driving economic inequality. In advanced economies such as Canada, the ability for companies to adopt labour-saving technologies and relocate business processes (whether operational processes, such as manufacturing or supporting processes, such as accounting) to another country is an important driver of both the decline of manufacturing as well as the growing wage difference between what is defined as skilled and unskilled labour.
Globalization can also induce skill-specific technological change which can benefit skilled over unskilled workers.
5. Wage premium for higher skills
The wage gap between skilled labour (workers typically holding university degrees) and unskilled labour (workers typically holding high school diplomas) is associated with widening inequality in advanced economies. As economies grow and new technologies emerge, the demand for specific job skills evolves. Those in the skilled labour camp, with education related to new technologies, benefit disproportionately compared to unskilled labour. These wage gains are seen at the higher end of the income distribution, exacerbating the wage gap.
6. Changes in labour market institutions and regulations
The flexibility that companies have to move where labour is cheapest or most plentiful can help explain inequality developments. In addition, a decline in trade union membership can reduce the relative bargaining power of labour, exacerbating wage inequality.
Evidence has shown that a reduction in the minimum wage relative to the median wage is associated with higher inequality, while a decline in unionization rate is strongly associated with the rise of the top income shares.
Research has also shown that a wide variation in wages and higher levels of part-time and temporary employment can drive inequality in labour earnings. Precarious and part-time employment also means few employment benefits for workers, such as augmented health insurance, sick days, etc.
Studies show that labour market policies such as minimum wages, unionization and social security contributions tend to improve income distribution. Recent research by the World Bank also shows that wage inequality falls when unionization increases, and rises, when union membership is in a decline.
What are the Consequences of Economic Inequality?
The OECD, the IMF and TD have found that increasing economic inequality may slow the economy. This is in contrast to those that position equality and efficiency as trade-offs, arguing that greater income equality reduces people’s desire to work harder, invest or get more education. However, there is growing recognition that economic inequality is not about individual behaviour; it is about government policies, systems and structures that simultaneously privilege some, based on where they fall within the social hierarchy.
Evidence shows that the rising power of the top 10 per cent, combined with the stagnant wages of people living in low and middle income, can have a causal effect on economic crises and hurt short and long-term growth. The IMF argues that the trade-off between efficiency and equality may not exist; wage equality may be one of the most important ingredients in sustaining economic growth.
How is Economic Inequality linked to Health Inequity?
The World Health Organization (WHO) defines health inequities as avoidable inequalities in health between groups of people within countries and between countries. Health inequities arise from inequalities such as economic inequality. According to the WHO, the effects of social and economic conditions on people’s lives determine their risk of illness, the actions they can take to prevent themselves from becoming ill and the actions they can take to treat illness when it occurs. As noted earlier, income inequality tends to weaken social infrastructure and social cohesion, and this too, disproportionately harms the health of low income Canadians.
Effects on mortality
In a less equal society, more people live in relative disadvantage and are less likely to have access to things like safe housing, nutritious foods, transportation, education and employment opportunities, and healthcare systems. Health suffers as a result — with individuals living in poverty having much less life expectancy than those living in higher income.
Statistics Canada found that economic inequality, including income inequality, is associated with the premature death of 40,000 Canadians a year, which is equal to 110 Canadians dying prematurely every day. The data showed that a man living on a low income has a 67 per cent greater chance of dying each year than his wealthy counterpart; a woman living on a low income has a 52 per cent greater chance of dying sooner than a wealthy woman.
The pattern continues with income-related statistics for specific health conditions. Canadian men living on a low income have a 63 per cent greater chance and Canadian women on a low income have a 53 per cent greater chance of dying each year from heart disease than their wealthy counterparts. For diabetes, the figures are even more alarming. Canadian men living on a low income have a 150 per cent greater (women a 160 per cent greater chance) of dying from diabetes than wealthy Canadians.
This means that if all Canadians were as healthy as the wealthiest 20 per cent of Canadians, there would be nearly 40 percent fewer deaths from diabetes and nearly 20 percent fewer deaths from cardiovascular disease every year. Similar income-related differences in mortality exist for cancer, respiratory disease, injuries, HIV-AIDS and many other illnesses.
For more information, check out our backgrounder on the impact of poverty on health.
There is growing evidence that the way income is distributed within countries matters to the health of communities. The widening gap between rich and poor damages the social fabric. And the social fabric — which includes things like the opportunity to participate in public life — underlies the relationship between income inequality and poor health.
Social cohesion is defined as the willingness of members of a society to co-operate with each other in order to survive and prosper. Evidence shows that smaller income and wealth differentials are associated with a greater sense of solidarity and social cohesion as well as a remarkable improvement in life expectancy. In contrast, a rapid growth in economic inequality is associated with a breakdown of community cohesion and a sharp increase in mortality.
Research has long shown that social cohesion enhances well-being. People who are socially integrated live longer lives. People who are socially isolated die at two to three times the rate of well-connected individuals, which reflects the fact that people who lack this connection have limited access to things like emotional, instrumental (for example, financial aid) and psychological support.
Whole communities can suffer from lack of social connection. Evidence shows that wide income and wealth disparities can result in frustration, stress and family disruption, which then can increase rates of crime, violence and homicide. The breakdown of social cohesion can also threaten democracy, as low levels of civic trust can turn into lack of trust and confidence in government.
Evidence also shows that people living in less equal societies suffer from worse physical and psychological health, no matter where they are on the socioeconomic scale – low, middle or high-income — demonstrating how greater income inequality can impact the health of all.
Social mobility is defined as the movement of individuals, families and households within or between different levels of social status in a society (i.e., low, middle and high socioeconomic status). Evidence shows that Canadian families living in high income are more able to invest in things like extracurricular activities and additional educational supports, like tutors and books, while families living in low income must spend on the immediate basic necessities such as food, utilities and housing. This gives children living in higher income households more of an advantage when it comes to attaining higher paying employment. All of this means that children who experience poverty are more likely to live in poverty as adults.
Every level of government (municipal, provincial and federal) can improve health and health equity by addressing the unequal distribution of power, income, wealth and consumption. People working within ministries of finance, employment, education, housing, transportation and childcare can all work to reduce inequality.
While health may not always be the main goal or aim of policies in these different areas of government, they still have the potential to make an incredible impact on the health and well-being of all Canadians.
Experts available for interview
Gary Bloch, MD, BA (Hons)
University of Toronto
Poverty and Health, Health of the Homeless
416-864-3011 (clinic) | email@example.com | @Gary_Bloch
Marni Brownell, PhD
University of Manitoba
Social Factors in Children’s Health
705-385-8225 | firstname.lastname@example.org
Jino Distasio, PhD
University of Winnipeg
Mental Health, Homelessness, and Quality of Life
204-982-1147 | email@example.com | @JinoDistasio
Elizabeth Lee-Ford Jones, MD, FRCPC
The Hospital for Sick Children
Social Factors, Child Well-Being
416-813-5443 | firstname.lastname@example.org
Jody Heymann, MD, PhD
University of California, Los Angeles
Social Policies and Health
310-825-6381 | email@example.com
John Millar, MD, FRCP(C), MHSc
University of British Columbia
Public Health, Health Policy, International Health
604-922-0995 or (c) 604-785-9058 | firstname.lastname@example.org | @JohnMillar10
Noralou Roos, CM, PhD
University of Manitoba
Poverty and Well Being
204-789-3319 | email@example.com | @nlroos
Michael Wolfson, PhD
University of Ottawa
Pensions, Income Distribution and Health
613-562-5800 ext. 3284 | firstname.lastname@example.org
Our backgrounders on poverty
Backgrounder: The relationship between burden of disease and health equity
Backgrounder: ‘Burden of disease’: What it means and why it matters
Backgrounder: The impact of poverty on health
Backgrounder: How health providers in Canada are working together to treat poverty and improve health
Our commentaries on poverty
A society with no poverty would be healthier, happier and easier to live in — and would save us all money in the end
The Canadian doctor who prescribes income to treat poverty
Child poverty a Canadian problem // La pauvreté infantile, un problème canadien
Why our governments need to address poverty now // Pourquoi nos gouvernements doivent s’attaquer dès maintenant à la pauvreté
Elimination of poverty requires more than a growing economy — it requires a dedicated plan
Poverty costs Canada billions of dollars every year
This doctor treats poverty like a disease
Another kind of poverty // Une autre sorte de pauvreté
Poverty linked to multiple health problems in new mothers // Étude sur les liens entre pauvreté et problèmes de santé multiples chez les nouvelles mères
Our videos on poverty
The latest public health crisis? Canadian kids going hungry, with Dr. Elizabeth Lee Ford Jones (5 min)
Why Canadian doctors should be on the front lines of the anti-poverty struggle
Ending Homelessness in Canada is Possible
Our infographic on poverty
For more information, see also:
Get Your Benefits | Demandez Vos Prestations or visit www.getyourbenefits.ca
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