Toronto Star, Dec. 24, 2006
THE WEALTH GAP WIDENS
by David Crane, business columnist
We might call them the "anxious middle."
Former U.S. secretary of the treasury Larry Summers does.
He argues that growing income and job insecurity among the broad
middle class at a time when corporate chieftains are racking up huge bonuses could spark a major anti-globalization backlash.
There's no question that the reduction of trade and investment
barriers worldwide, combined with new technologies, has put strong downward
pressure on wages of unskilled or semi-skilled workers.
But now it also threatens a growing number of skilled workers whose
tasks can be offshored to lower-cost countries, raising the anxiety level in Canada and many other countries. Companies now have much greater power to relocate activities to cheaper and more compliant countries if their Canadian employees push hard for
wage and benefit gains. The weakened role of unions has reduced the bargaining power of workers.
Recent numbers from Statistics Canada illustrate a growing gap
between those at the top and the rest of the country.
The top 10 per cent of Canadian families were the only group to
increase their share of national net worth ? homes, savings, family
cottages, stocks and bonds and other assets ? between 1984 and 2005.
They held 58.2 per cent of total Canadian wealth (not counting
pension plan contributions) in 2005, compared to 51.8 per cent in 1984. The bottom 50 per cent of Canadian families saw their share of national wealth fall from 5.3 per cent in 1984 to 3.2 per cent in 2005.
If pension savings are included, the top 20 per cent of families
raised their share of the national wealth from 68.5 per cent in 1999 to
69.2 per cent in 2005, and those in the next 20 per cent increased their share by a whisker, from 20.1 per cent to 20.2 per cent.
The bottom 60 per cent of families saw their share of national
income decline, from 11.5 per cent to 10.8 per cent.
One place where the gap in future well-being shows up is in the
level of pension contributions being made by families in different income groups.
According to a Statistics Canada study released in September,
high-income families are making much greater contributions to their
employer-sponsored pension plans and to their RRSPs than low-income families.
The contributions by families in the top 20 per cent rose significantly
between 1986 and 2003, while those for the bottom 20 per cent
showed no increase.
As a result, the study said, "the gap in family contributions to
RRSPs and RSPs between rich families and their lower-income counterparts widened over the last two decades." And this means that the preparedness of Canadian families for retirement, which was quite unequal in the mid-1980s, has become even more unequal since then.
This "could make the distribution of family income among seniors
more unequal in the years to come than it currently is."
Moreover, the growing shift from defined-benefit to
defined-contribution pension plans in the private sector could lead to even greater inequality among seniors because defined-contribution plans load all of the retirement risk on to individuals who may not be able to manage their plans well.
Shocks, such as the Harper government's sudden reversal of its
election pledge not to alter the tax status of income trusts, can
dramatically reduce potential income from retirement savings.
This threat of growing inequality in retirement reflects the fact
that there is also growing income inequality in family earnings. The
average earnings of two-parent families with husbands aged 35 to 54, who were in the top 20 per cent of earnings, rose 38 per cent between 1986 and 2003.
Those in the bottom 20 per cent saw their earnings stagnate.
In a recent commentary, TD Bank Financial Group economists warn
that since the wealthy own a disproportionate amount of shares, and if investment returns rise, the trend toward growing wealth disparity "will likely intensify."
Moreover, they warn, "this could be compounded by sluggish wage
gains in the low end and the financial challenges of immigrants ? the main source of growth in the younger, less affluent population."
The gaps are not as great in Canada as they are in the United
States, but they are growing and demand a response.
Two obvious measures are to restore progressivity in the tax system
and to invest in measures that increase opportunity, such as high-quality education.
As Summers argues, "meeting the needs of the anxious global middle is the economic challenge of our times." Right now, we are headed in the wrong direction.
http://www.thestar.com/Business/article/164866
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