Thank you for having me. I'm honoured to be here on behalf of Canada 2020.
I want to talk about three things. One is how great a problem income inequality is, the second is how much it matters, and the third is what can be done about it.
Globally, income inequality is an enormous issue. I think two-thirds of the world's population now live in countries in which inequality has widened over the past decade. This widening is largely due to factors that you know about: globalization, the technology revolution, changes in working hours and practices, and issues around families and family formation.
One of the key features of income inequality is that it tends to be self-reinforcing, so that the poorest groups are less able to invest in their children and in their health and education and in other things that make for success, so inequality is typically transmitted from generation to generation. Absent policy action, we can expect income inequality to continue to rise.
But the point I wish to make today is that policy action does make a difference. I am sure you are all familiar with the basic story here in Canada. We sit in about the middle of the OECD rankings in terms of income inequality, but we stand out in terms of concentration of income at the very top end. We are third, after the U.K. and U.S., in terms of the proportion of income going to the top 1%. The Gini coefficient typically used to measure this has risen only a little over the past 10 years. It rose more in the eighties and the nineties, but a good deal of that was offset by taxes and transfers.
The point I'd also like to make is that a Gini coefficient by its very nature doesn't measure changes at the top and the bottom very well. It's good on the middle, but if most of the action is at the top and the bottom, as it is in Canada, this doesn't typically show up in the Gini coefficient.
The question is, how much does income inequality matter? It's our view at Canada 2020 that it matters a lot; our attitudes to inequality go to the very heart of the type of society we wish to build. Income inequality has many effects, and I know you're going to hear from people who are more eloquent on those effects than I am, but I'd like to highlight just a few.
For us, the key one is the link between income inequality and equality of opportunity. Inequality of outcomes—and that's post tax and transfer incomes—is inevitable and to some degree desirable, within limits. But inequality of opportunity and possibilities for economic mobility are quite different. The idea that everyone has a reasonably equal chance of success in life is I think fundamental to our society and our future. There are compelling reasons to believe that in more unequal societies there is less equality of opportunity.
I know you're going to hear from Miles Corak, who produced a great paper for us on this topic. He will show you his “Great Gatsby” curve, which shows the correlation between income inequality and generational earnings elasticity, which stands in for equality of opportunity. There's a lot of discussion around causality and correlation there, but I think we can agree that people's ability to invest in their children and the broader support institutions and structures that exist in more equal and cohesive societies make a big difference to equality of opportunity.
Canada, I'd like to point out, has been a positive outlier in this regard; relative to our levels of income inequality, one would expect possibly lower levels of economic mobility. But there is a question mark as to whether we can maintain this.
Secondly, the public are clearly concerned about this situation. They don't always know the statistics, but polling now shows that they consider this to be a very serious issue, and they do not feel they will be better off in a generation than they are now.
Thirdly, income inequality is not economically efficient, and we don't want to waste human capital.
So I would say focus on what you can do about it. It's all about institutions, about preserving and maintaining and building the institutions that have served us so well in the past—the health and the education that give everyone a fair chance in life, and child care and early childhood education come in there, too. There are many other things around the working income tax benefit—better jobs, minimum wages, other things—but we at Canada 2020 want to focus on understanding what works best in our institutions, supporting them and making sure we do not lose our edge in this area.