Wealth and income inequality is a big issue and I thought some historical perspective on wealth inequality might be interesting given that my research to date has led me to conclude that little has changed for the bottom of the wealth distribution at least in terms of relative wealth shares. While there has been the growth of a middle wealth holding class over the last one hundred years in Canada, the wealth share of the bottom half of the wealth distribution is remarkably unchanged.
My brother thinks of himself as a farmer, which he is. But I think of him as an asset manager. He has chosen to hold his assets in land, tractors, ploughs; and that's him, driving his tractor, pulling his plough over his land, fixing the tractor, fixing the plough, managing his assets. He earns his income doing the 1001 things he needs to do to get the best return from his assets.
I'm a health and fitness nut, so I read a lot of health studies as well as using my own body as a guinea pig. I've discovered a lot of things - for instance, I don't know if using creatine monohydrate leads to more strength gains than using a placebo, but I do know it makes you pee every 15 minutes.
Reading health studies (or even worse, hearing reports of health studies) can be incredibly frustrating as they often appear to be contradictory. Caffeine is good for you. Caffeine is bad for you. Ephedrine and ECA stacks are dangerous. Ephedrine and ECA stacks are effective and safe to use, etc. What to believe?
We're all familiar with the concept, but for those who weren't aware that it had been formalised, given a title and a Wikipedia entry, the Politician's Syllogism goes like this:
And so it is with the minimum wage. Poverty and inequality are problems that demand some sort of policy response, and if you're not familiar with the file, then increasing the minimum wage sounds like a halfway-plausible response. At least it's something, right?
One part of Canada's tax-transfer system increases inequality of wealth. That's not an unfortunate side-effect of the policy; it is deliberately designed that way. It would be very easy to design it differently so that it did not increase inequality.
"The poor don't have enough income to save, and can't help going into debt to the rich. Debt is caused by inequality".
That statement is wrong on many levels. It's wrong theoretically. It's wrong empirically. But most of all, it's wrong because it might make inequality worse. It's the soft bigotry of low expectations. Providence is especially important to the poor. Saying that the poor can't help but be improvident is the last thing they need to hear.
(This post will piss some people off. "Nick's blaming the poor; of course they can't help either their poverty or their lack of saving!")
People give when they're asked.
Jim Andreoni and Justin Rao have proved it. They ran the following experiment: one person, the allocator, was given 100 'money units', worth $10 in real money. She was free to choose how much to keep for herself and how much to give to another person, the recipient. The recipient, however, had an opportunity to ask for a particular division of money - 50/50, say, or 30/70 or 60/40.
It turns out that people who ask for more get more - up to a point. When the recipient asks for, say, 70 percent of the money in the envelope, the allocator is quite likely to say "sorry" and give nothing. But a recipient who asks for a 50/50 split on average receives more than the recipient who asks for nothing.
I used to blog fairly regularly about the Basic Income (aka Citizen's Income, aka Guaranteed Annual Income), but the passage of a decent interval of time, Kevin Milligan's recent Economy Lab columns ( , ) and Erin Anderssen's long article in Saturday's Globe and Mail gives me an excuse to revisit the issue and perhaps repeat myself. I had almost finished writing this before I saw Kevin's most recent column, so there's some overlap that I can't be bothered to edit out at this point.
A year ago, I brought attention to a Canadian Public Policy article on poverty and the minimum wage in Ontario. A notable finding of the study was that the overlap between those who earn minimum wage and those who are in poverty was surprisingly small, small enough to conclude - as I did - that "increasing the minimum wage is only slightly more effective as an anti-poverty measure as would be distributing money at random across households." A few months later, I came across a study that found much the same results in the United States.
I knew that policy analysts in the Quebec government were working on a similar project and had heard that they had found similar results. That study has finally been made public, and is one of a set of articles on the minimum wage. Even better, it would seem that Pierre Fortin has fleshed out and put into digital form the literature survey I blogged about over here (has it really been four years?!?).
But it's this article by Jean-François Mercier and Martine Poulin that has the numbers I'm going to talk about below. A very nice feature of the study is that it pays particular attention to those earning just above minimum wage.
A recent report prepared for the Department of Finance by Keith Horner came to a optimistic conclusion about Canadians' savings levels:
Overall, it appears that about 69% of Canadian households saved in RPPs and RRSPs at rates sufficient to fully maintain their consumption levels in retirement (100% replacement rate). About 78% of households met a lower target consistent with a 10% reduction in consumption at retirement (90% replacement rate).
I read this and was stunned - if you'd asked me to guess the percentage of households that were saving enough for retirement, I would have given a number half the size of Horner's estimates, or less.
I'm just back from visiting the Getty Villa and I don't know what to make of it.
On the one hand, this is a model of what can be achieved through private philanthropy. J. Paul Getty built the villa to house his collection of Greek and Roman antiquities. The building, grounds, and setting are gorgeous, the antiquities truly impressive, the staff friendly and helpful and - best of all - due to Getty's generosity, admission is free.
Most Canadian seniors are guaranteed an income above the poverty line by Old Age Security, Guaranteed Income Supplement and the Canada Pension Plan. Seniors are less likely to be poor than children or adults under 65 - with one exception. Mike Veall has found that 71 percent of recent immigrants aged 66 and older have incomes below the poverty line. Although recent immigrants were just 2 percent of the 66 and over age group, they constituted 20 percent of those in poverty (2004 numbers based on tax return data).
That's the title of my latest column on high-income concentration at Canadian Business.
Notwithstanding the title, the article's main point is that we don't know how it's happening.
Anthony Atkinson and Andrew Leigh have a working paper on the strikingly similar patterns in high-end income concentration in five English-speaking countries.
Yesterday saw an odd coincidence:
Three years ago, I blogged about the results that Mike published with Berkeley's Emmanuel Saez on the evolution of top income shares in Canada up to 2000. The updated numbers are not directly comparable to the ones in the AER study, but they show the same trends over the periods in which the two data sets overlap. Even better, they show what has happened to the concentration of after-tax income.
I haven't seen Avatar. That's good. It means I can take a clearer look at the underlying policy problem.
The policy problem in Avatar is that some blue people own all of some valuable natural resource, and won't let anybody else have any.
Lloyd George, as UK Chancellor of the Exchequer, addressed the same policy problem in his 1909 "People's Budget". The British aristocracy owned the land, just as the blue people owned the valuable natural resource in Avatar. I don't know if the blue people in Avatar used it for hunting foxes; probably they had peculiar customs of their own.
The minimum wage in Ontario went up today, and Jim Stanford thinks that it's cause for celebration. I'm not sure why. I'm guessing that he - as does the editorial board of the Toronto Star - believes that a higher minimum wage will help reduce poverty.
Sadly, this belief is mistaken. As I noted earlier when discussing this study, recent research using data from Ontario finds that the intersection between those in poverty and those who earn low wages is remarkably small:
From that previous post:
Even under the assumption that there are no employment effects, "only 10.66 percent of total wage increases accrue to workers belonging to poor households." Given that 10.3% of households are in poverty, increasing the minimum wage is only slightly more effective as an anti-poverty measure as would be distributing money at random across households.
Not really cause for celebration, is it? I've said it before, and I'll say it again: if you want to help people in poverty, give them money.