Thank you very much for the invitation to appear today. The very existence of this study reflects the fact that there is a growing consensus around the world that evaluations of national economic performance shouldn't rely exclusively on measures of overall growth in gross domestic product. We should also take into account the extent to which the benefits of growth are broadly shared across the entire income distribution. This is a welcome development.
In Canada, as in many other affluent countries, high earners have enjoyed a large share of overall income gains in recent decades while real income growth through much of the rest of the income distribution has been somewhat slower. This sluggish income growth in the middle and bottom of the income economic distribution over the course of several decades should certainly be taken seriously. There are effective policy responses available, which I'll discuss later and which I expand upon in my written brief.
However, the committee should also recognize that there are powerful demographic and economic forces that are driving strong income growth at the top of the distribution and that these forces are likely to continue pushing in the direction of continued income inequality growth.
First, Canada's population is aging. Generally speaking, there's a greater income inequality among older workers than younger workers. The wages and salaries of highly skilled workers tend to increase faster over time than the wages and salaries of less skilled workers, leading to greater income disparities towards the end of careers than existed at the beginning. It's for this reason that the American economist Tyler Cowen went to far as to say much of the measured income inequality growth that we've seen is a matter of demographic fiat. Perhaps that's somewhat of an overstatement, but it's a very important factor that has contributed to income inequality growth in North America.
Secondly, there are global economic market forces related to globalization and technological change that are continuously driving up demand for highly skilled labour. This rise in demand for highly skilled labour is likely to continue, driving significant income gains for high earners. There are many policy options that can help increase the after-tax incomes of low- and middle-income families. The committee should study and pursue these types of reforms while recognizing that continued income gains at the top are likely. The objective should be to identify policy options that can contribute to robust income gains for families in other parts of the economic distribution as well.
The OECD has performed extensive research on policy strategies designed to mitigate income inequality growth. Their research deserves careful attention from Canadian policy-makers. OECD research suggests that some policy options represent a trade-off between the objectives of reducing income inequality and promoting economic growth. The key examples they cite are increases in corporate and personal income tax rates, which the OECD observes would likely decrease income inequality because these taxes are so progressive, but would also likely hinder economic growth because of negative effects on labour use, productivity, and capital accumulation.
However, the OECD research also identifies a number of policy approaches that do not entail this trade-off. In fact, there are other strategies likely to produce what they describe as a double dividend, which can help mitigate income inequality while contributing to growth. I suggest that the committee focus its attention on this second category of policy responses. Strong economic growth is absolutely essential to Canada's efforts to reduce poverty and ensure adequate government revenue generation. Policy responses to inequality that come at the cost of lost growth are likely to be self-defeating.
The OECD describes several broad policy strategies that are likely to produce this double dividend I've described. Their advice includes expanding the quality and reach of education. We've heard several suggestions along those lines today. They also include efforts to promote the successful economic integration of immigrants. In 2012, the Frontier Centre for Public Policy published an e-book by Professor Bryan Schwartz of the University of Manitoba, detailing strategies to reduce barriers to occupational freedom for new immigrants to Canada, many of whom have difficulty having credentials recognized. Efforts we can make to improve their successful economic integration will create the double dividend of reducing income inequality between immigrants and native-born Canadians while at the same time contributing to overall national income.
Finally, on strengthening tax policies that increase the after-tax incomes of low- and moderate-income families, strengthening the working income tax benefit is one that immediately comes to mind, a policy that might be paid for by eliminating deductions that benefit the affluent. All these approaches are applicable in the Canadian context, and I discuss them all in greater detail with specific recommendations in my written brief.
There are many policy strategies that can help promote strong income growth through the income distribution, and many of these strategies can help strengthen the economic performance of the country taken as a whole. There need not be a trade-off between mitigating inequality and promoting growth. By proposing these types of policy strategies, the committee can help promote economic opportunity for all Canadians while contributing to our country's prosperity in the years ahead.