Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue 15 - Evidence - May 2, 2012
OTTAWA, Wednesday, May 2, 2012
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 4:15 p.m. to resume its study on social inclusion and cohesion in Canada.
Senator Kelvin Kenneth Ogilvie (Chair) in the chair.
[Translation]
The Chair: Welcome to the Standing Senate Committee on Social Affairs, Science and Technology.
[English]
My name is Kelvin Ogilvie. I am a senator from Nova Scotia and am chair of the committee. I will ask my colleagues to introduce themselves, starting on my left with the deputy chair.
Senator Eggleton: I am Art Eggleton, a senator from Toronto.
Senator Merchant: I am Pana Merchant, from Regina, Saskatchewan.
Senator Cordy: I am Jane Cordy, a senator from Nova Scotia. Welcome.
[Translation]
Senator Verner: Josée Verner, from Quebec.
Senator Demers: Jacques Demers, from Quebec.
[English]
Senator Seth: I am Asha Seth from Toronto, Ontario.
Senator Martin: Welcome. I am Yonah Martin from Vancouver, British Columbia.
Senator Seidman: I am Judith Seidman from Montreal, Quebec.
The Chair: Thank you, colleagues.
We continue at this meeting our study on social inclusion and cohesion in Canada. We have two distinguished witnesses with us today. We will hear first from Miles Corak, Professor of Economics at the University of Ottawa.
Dr. Corak, if you would begin, please.
[Translation]
Miles Corak, Professor of Economics, Graduate School of Public and International Affairs, University of Ottawa, as an individual: I am very happy to have the opportunity to speak to you today about a very important topic: inequalities.
[English]
I would like to take the time that you have accorded me to make three points. First, to understand inequality in the labour market in Canada we have to be aware that there are two or three different things going on, so if we design public policy towards inequality, we have to be aware that it has to fit different problems.
Second, a certain amount of inequality in a society and in a labour market is a good thing, but only a certain amount. At a particular point, inequality starts eroding opportunity.
The third point I would like to make concerns some reflections on the possible impact of the recent recession on economic opportunity.
First, inequality has increased because those in the lower part of the wage distribution, those people with lower education, perhaps inappropriate skills, those who do not necessarily have a good deal of job experience, have not seen their wages increase, and possibly in many cases have actually seen them decrease. Something is happening at the lower end. In part, that certainly has to do with technical changes and with international trade, as we move from a good producing economy to an economy that provides services.
The second thing that is happening is a certain number of people in the upper half, the top 25 per cent or 20 per cent, have in fact seen some not insignificant gains in their earnings. These are people who tend to be more educated with a good deal of job seniority and, therefore, a little bit older. The returns to those skills and that human capital, if you will, have gone up.
Finally, the third cause behind growing inequality in our labour market has to do with what has happened at the very top. These are the famous 1 per cent, if you will. In fact, even the famous one tenth of 1 per cent have seen very significant gains in their economic well-being, however you measure it, in terms of wages or other sources of income, and that has changed quite significantly over the last 20 or 30 years.
If you can imagine trying to design public policy, there will not be one magic bullet for you to address these problems.
If you have noticed, I have slipped into a discussion here that this is something that we need to address. I share the opinion of many reasonable observers that a certain amount of inequality in society is important. It is important both as an incentive and as an opportunity to increase your economic well-being, and it also has spillovers for economic growth and productivity in our society.
However, at some point, inequality starts eroding opportunity, and that is the point when it becomes a problem.
I did give you or the clerk a picture, and I am wondering if we can refer to it. It is called figure 1, the Great Gatsby curve. It is a diagram that I took from the economic report of the president. President Obama's Council of Economic Advisers released this report last February, and what you see in that picture, as you move from left to right in a horizontal direction, are increases in inequality. As you move from left to right, societies are becoming more and more unequal.
As we move from the bottom to the top, societies are demonstrating less and less economic mobility. As we go from the bottom to the top, it is more who you know, not who you are that matters. In particular, that index that I have offered there is the strength of the tie between someone's earnings and their father's earnings, so it is about whether I can predict your earnings by knowing your father's earnings. As we move up, that means less mobility — the more your family background determines your outcomes in life and, presumably, the less your talents, energies and motivations are rewarded.
The scatter plot shows that societies that are more unequal in a point in time tend to have less generational mobility over time. I can talk about that in a little more detail, but you should think of moving from bottom to top as a measure of equality of opportunity, with equality of opportunity becoming less and less as you go higher and higher.
The inequality measure is something that came from 1985. Canada, if you look at that picture, does relatively well: moderate levels of inequality, but a great deal of mobility through time. A child's outcome in life is not determined by his or her family background. Poor people can escape poverty, and rich people are not necessarily guaranteed to have children that will grow up to be rich in turn. That is a sense of the labour market rewarding talents and energies.
Our challenge, as we move into a higher period of inequality, is not to lose that sense of opportunity, and the factors that determine that are how families function, how labour markets function and the foothold that families have in labour markets, and, particularly, how progressive public policy is and the extent to which public policy is of relatively more advantage to the disadvantaged. I would be happy to talk about this in a lot more detail if you would like.
The third point I want to leave you with is just some brief reflections on the recent recession and whether that will erode equality of opportunity.
We should be keeping our eyes more on the medium term and the long term. In Canada, I do not feel that the recession we went through will erode the life chances of children, and the best way of seeing that is in contrast with the United States. If a household goes through a permanent layoff, it suffers a permanent reduction in its economic well- being. It is hard to recover from having a job in a good, solid unionized manufacturing sector and your earnings will forever be diminished. That did not happen as much in Canada as it happened in the U.S.
The other thing that happened in the U.S. was a lot of wealth was eroded, a lot of wealth set up in the housing market. That did not happen so much in Canada. Wrapped up with the housing market were the conditions of children. Many people had to change their residences. Children's lives were disrupted. They had to move to a different location and a different school, and that can have certain negative impacts on children. That did not happen so much in Canada.
The kinds of investments society gives to children, particularly the education system, was not cut back as severely as in some states in the United States. Last year, I had the opportunity to live in New Jersey, and there was a very significant discussion of the financing of public services in that state, and that erosion will affect people at the lower end of the income distribution more than others. That did not happen so much in Canada.
I do not think the recession will necessarily have a strong impact, but it is these longer-term things associated with how families function, the foothold that families have in a more polarized labour market, and how government policy evolves that will determine equality of opportunity, and those things are a bit harder to do when there is more inequality at a point in time.
Thank you, senators.
The Chair: Thank you very much. I will correct the official record. Dr. Corak is Professor of Economics at the Graduate School of Public and International affairs at the University of Ottawa.
I will now appropriately introduce you, Dr. Beach, as Professor of Economics at the Department of Economics, Queen's University.
Charles Beach, Professor of Economics, Department of Economics, Queen's University, as an individual: Thank you very much for inviting me to these Senate committee hearings. My oral presentation will simply highlight the main points in my written submission, which you already have. I would draw your attention to section one of my written submission on how income inequality is typically measured, and take that for granted, and now go directly to sections 2 and 3.
Section 2 is on the major dimensions of inequality change, the particular features or ways in which inequality has increased in the last several decades.
First, there has indeed been a fairly substantial rise in income inequality in Canada since the late 1970s.
Second, this increase in inequality is largely driven by a substantial increase in inequality in workers' earnings in the labour market. That is really where the driving is coming from.
Third, this increase in inequality is associated with increased polarization of earnings and hollowing out of formerly middle class-type jobs, a dramatic rise in top incomes, and widening differentials in earnings or gaps in earnings between low-skilled and high-skilled workers.
Fourth, these widening differentials are largely being driven by employer activity or the demand side of the labour market.
Section 3 of my written submission was on leading explanations for income inequality increases. The leading explanations of these changes operate through the demand side or employer side of the labour market.
As an aside, many theories have been suggested. In the time allowed, I will focus on the two that are viewed as the leading ones in research literature.
First is what I will call the "globalization and international trade explanation." The growth of international competition, particularly in goods production, and increased globalization of production are driving manufacturing jobs offshore where labour costs are lower. Most manufacturing jobs are relatively less skilled, so there is a downward shift in demand for less skilled workers and hence decline in average wage levels and employment levels of such less skilled workers. However, people often forget that increased globalization also widens the market for high-skilled workers, so there is also an upward shift in the demand for high-skilled workers resulting in higher wages and employment for relatively high-skilled workers in Canada. The overall result, then, of this explanation is a widening of skill differentials, an increased inequality of earnings in the labour market and hollowing out of middle earnings jobs, particularly for men.
The second main explanation that is offered in the literature for the inequality changes that have been going on is what I will call a technological change explanation. Chip-based, information-processing, technological advances have transformed how work is done and how workplaces are organized. Such tech change is said to be skilled biased in that it benefits high skilled, high ability workers but displaces low skilled and low ability workers and those doing repetitive or routine jobs, not just in manufacturing but in the service sector as well. Such technology skill complementarity has increased demand for skilled labour, weakened the demand for formerly relatively well-paid lower skilled jobs, widened skill differentials in earnings and increased earnings in inequality, accounting for a hollowing out of men's earnings distribution in the economy.
Together, then, the international trade argument and the information technology arguments are jointly referred to in literature as the IT twins explanations, which is referred to in the title of my written submission.
The Chair: Thank you both. I will now open the floor up to questions, starting with Senator Eggleton.
Senator Eggleton: Thank you, both of you, for being here. I note that Professor Beach is about to retire, but he still has time to come and be us, and that is terrific. He has a very distinguished record in other areas of dealing with these kinds of issues. Professor Corak has been here before when we did our poverty, housing and homeless study. He was part of that.
Let me start with a question for both of you, but I will start by commenting on Professor Corak's presentation. You said that some income inequality is not bad. We have to watch for how far it goes. You compared to the United States, saying it is a lot worse there. However, I also understand that the pace in Canada has picked up in the last couple of decades or so. Perhaps the pace is getting worse than what it is in the United States.
The OECD says that we are above the average when it comes to income inequality of OECD countries. The conference board recently came out and did a study that involved some 17 OECD countries and said we ranked twelfth. It did not sound like we were on the right track. It sounds like the worse kind of income inequality is happening here. The OECD also said that the average income for the top 10 per cent of Canadians is 10 times that of the lowest 10 per cent.
If this is the path we are on, and you might want to comment on that, what are the consequences? This committee is dealing with social inclusion and social cohesion. Why should we care about this issue? What are some of the possible solutions that we at the federal level could consider? That question is to both of you, but we will start with Professor Corak.
Mr. Corak: Thank you very much for that. I certainly do not want to downplay and my comments should not have been interpreted in any way as downplaying the kinds of changes that we have witnessed. The OECD, as the senator alluded to, wrote a very thorough report that was published late last year that documents that Canada and the other anglophone countries have seen very significant increases in inequality. In some measure, this is also driven by the top 1 per cent. We see the increasing share of earnings going to the top 1 per cent, an increase in all of the anglophone countries, and next to the United States, Canada and the U.K. are sort of, if you will, "the leaders" in that.
My concern, as your question alludes to, is why should we care and what are the consequences of this. Often we make a distinction between inequality of outcomes and inequalities of opportunities. What is increasingly being recognized is that inequalities of outcomes do feed into inequalities of opportunities, and they erode opportunities. That is sort of the danger flag that I would like to raise.
This has been the topic of a great deal of attention in the United States because, in some sense, it cuts against the defining metaphor of that country, the American dream where everyone, regardless of situation, can succeed in life. We are seeing, in fact, that that is not so much the case in the U.S. If we go down that road, then that is probably in the long run not a good thing.
Now, why does that happen and why does inequality aggravate equality of opportunity, is the way I will interpret your question.
First, when the labour market is more polarized, and as Professor Beach alluded to, there are bigger returns to having skills, there is a greater incentive and an opportunity for relatively well-to-do parents to focus very much on their children, and they have the wherewithal to do that. Some groups in society can start moving ahead. That is not necessarily a bad thing.
However, at the other end, a more polarized labour market creates a much more stressful situation for families. Both parents have to be engaged in the labour market to be able to earn a reasonable amount of living. There is more time stress in households. There is less investment in children. These kinds of stresses also sometimes have the consequences of breaking families up. Children, again, are in more precarious situations. More inequality in labour markets means it is more difficult to get a reasonable foothold.
The other thing that more inequality does is it changes the nature of our political discourse and public policy discussion. As I alluded to in my opening remarks, it is important that public policy be of relatively more advantage to the relatively disadvantaged. As we become a society of more and more inequality, some people get more political voice than others and the way we talk about public policy changes. We saw that, for example, recently in Ontario with the attempt to increase taxes on the really well-to-do. This was a marginal tax on a very small segment of the population, but it was a very controversial thing. I just use that as an example of the difficulty of progressive policies.
What can you do at the federal level in terms of inequality? Well, let us start talking about the lower end. Professor Beach alluded to the lower skilled groups that previously made a reasonable living by going off to the mine or the mill or the manufacturing sector with a unionized job. What we need to do in some respects is to create a high demand economy in the lower end. We need to take those services and make them of my more value. Start selling to what the upper end really wants. Give people a skill set so that construction and carpentry turn into cabinet making and daycare becomes early childhood education so that the kinds of skills in those services start moving up.
The other thing you might want to think about at the lower end is to make work pay. We have a nice public policy, at least in principle, introduced a few budgets ago called the Working Income Tax Benefit. One could imagine the Working Income Tax Benefit being expanded much more and offering a lower floor to the market wages that lower skilled people can get.
That said, you could also work at the other end and increase taxes on the most advantaged, and there are a number of ways to do this. You can go with the income tax system, and we can have a long discussion about that. There are important capital gains that are not taxed in the same way. I have always been surprised by the huge exemptions in the capital gains from your principal residence. We have a housing market that is sort of on the verge of a bubble, and I am not sure why really well-to-do people walk away with huge capital gains from selling their homes. This is one type of tax on the relatively well-to-do that is difficult to escape, if you will.
The other thing that we can do is think about allowing people to average their income over several years and being taxed on the average income. Imagine being in a relatively well-to-do, unionized job, be it manufacturing or in a car plant, and then you lose that job. If people were allowed to average their income over several years, if they lost their job and suffered a permanent reduction in their income, then they would get, in effect, a tax rebate from having overpaid before. There are a number of other things, but I think they go beyond the labour market and I will leave it at that.
Mr. Beach: Professor Corak covered a number of points and I will complement them with some other points.
As to the question asked, yes, it certainly is the case that income inequality, pretty well however you measure it in Canada, is above the OECD average. Like many things, it is between Europe on one side of the Atlantic and the U.S. system on the other, and as a rule of thumb we are two thirds closer to the United States and one third closer to Europe.
As to why that may be the case, I would say that it is in large part because our economy is more similar to that of the United States than most other countries, and similarly with the U.K. All three economies are less regulated, less top- down than many of the European countries where such inequality changes have occurred much less or in some cases virtually not at all.
As to the pace of technological change, yes, it does appear that that has been increasing. One of the problems, though, is that technological change is notoriously difficult to measure. We know that if you measure GDP as output per capita or per hours worked, in the United States it chugged along fairly steadily for several decades at about 1.5 per cent per year, and then around 1995-96, for reasons we still do not understand, it doubled to about 3 per cent a year and it is still chugging along at about 3 per cent per year.
Canada's did not increase, and that is one of the long-run real problems, that productivity has not been growing as fast in Canada as it is in the United States. This may have changed in the last couple of years with the rise of the Canadian dollar making purchasing of capital equipment, which typically comes from the U.S. with the newest technology, cheaper, whereas when the Canadian dollar was at around 62 cents it was very expensive to buy this new technology with the Canadian dollar.
There is some preliminary evidence that firms' investment in this new capital equipment, including the new technology, has been increasing fairly substantially. We may see an increase in the rate of productivity change in Canada over the next five years. That is a prediction on my part.
As to why we should care, I do not want to lapse into lecture mode, but let me complement some of the arguments that Professor Corak gave. Certainly there is the equity argument, a basic sense of fairness of opportunity and concern for those facing slipping living standards and the opportunities to get ahead for many in society, in particular those who have no choice in the matter, such as children of people who are negatively impacted by ongoing changes in the labour market and elsewhere. There are also major efficiency arguments that the literature has come up with over the last 15 or so years. Most of these have been raised in the context of the States, but they are just as relevant in Canada, even though the change in inequality is not nearly as dramatic as it has been in the States.
First, I will mention what I call economic efficiency arguments, that inequality negatively affects economic growth and macroeconomic activity. Widening inequality and increased poverty may reduce investment in human capital and entrepreneurial activity, where start-up costs may be quite substantial as fewer people can afford educational and investment opportunities. This will reduce economic growth pretty well across the board, particularly if it goes on for several years or decades.
Increased poverty is associated with poor diet, housing and sanitation, more crime, personal stress, as was mentioned, reduced longevity, weakened health levels, shortened life spans and reduced productivity growth, both for individuals and for the people they react with in the economy.
Also, the literature identifies a number of points of political efficiencies as to why we should be concerned about increases in inequality. That increase may be associated with increased social conflict, violence and crime that would reduce security of property rights, and capital investment may be less attractive. It is not that people who may be willing to make investment will not do so, they will just prefer not to do it in, for example, Argentina, and they will put it somewhere else. Those are the kinds of arguments that one should be quite concerned about.
Senator Seth: Recognition of foreign credentials and foreign work experience is one of the biggest problems for new immigrants in Canada. This makes it difficult to find good jobs and to integrate into society. Can you explain how that obstacle affects new immigrants? Also, what steps can be taken to improve the current accreditation situation?
Mr. Beach: Certainly having their credentials recognized is a real problem for new immigrants in Canada and has been for some while, but it has become more of a problem in the last 15 years or so since we have had a points system under which economic class immigrants arrive. The points system focuses almost exclusively on white collar skills — lots and lots of education. Our system attracts people with lots of education and perhaps credentials, but when they arrive they have difficulty having them recognized. We hear stories of people who were physicians in the country they came from driving cabs in downtown Toronto.
I will say several things on how to handle that. First, as you are probably aware, Mr. Kenney, the Minister of Citizenship and Immigration, has made a large number of announcements in the last year and will make more over the next while that affect this. One is that the CIC is considering making some changes in the points system that would provide better recognition of blue collar skills, and that is partly to put less weight on those who will face the credential problem.
There has also been some preliminary announcement made on putting better effort into, first, informing applicants in their source country when they apply that there are these additional hurdles here. I think Australia has already made moves in this direction, and we will possibly follow them. There will also be attempts to get some evaluation of credentials as part of the application process before the immigrants actually arrive so that we can be more honest in telling people of problems and how to deal with them.
Finally, there was an initiative by CIC a year and a half ago to negotiate with the provinces and territories and, through them, with various professional associations, which have a major say in recognizing these credentials, on finding ways to hasten the process of recognition. They are working very hard on this, but there is still a great deal to do.
Mr. Corak: I will use your question as an opportunity to talk about the possible impact of selection rules on overall inequality in society. To the extent that we continue to draw high skilled immigrants into the country, this put downward pressure on the wages at the upper end. There have been studies that document this happens to a slight degree. That is sort of a good thing when thinking about inequality.
To the extent that we increase the inflow of people with low skills in the labour market, it is doing just the opposite of what we would like if we are concerned about inequality, namely, putting even more downward pressure on low skills and exacerbating the problem at that end, and cutting against what I suggested earlier, a high-pressure, higher- wage economy at the lower end.
Senator Demers: Income and inequality may have different impacts. Are there any regions or cities that are more severely affected than others?
Mr. Corak: It certainly varies a good deal across the country. It is important also to think about what has changed because we have always had a good deal of inequality across the country. The most important thing, quite obviously, to you and the others, is the resource boom in the Western provinces. We have seen, for example, the share of top earnings changing a great deal in the different provinces. For example, Alberta is a leader in the fraction of the total earnings going to the very top 1 per cent, then Ontario, then B.C., and the other provinces much less so.
A good deal of that variation recently has been wrapped up with the boom in commodity prices.
Mr. Beach: Let me add to that. Both of the arguments that I identified operate through loss of jobs in manufacturing and a gradual shift towards more service-based jobs. That means that, if you wish, the heartland of Canada, Ontario and Quebec, which have had disproportionately a large fraction of manufacturing in this country have been disproportionately hit by these ongoing changes.
Senator Cordy: Professor Corak, I know you mentioned it earlier. When I grew up in Cape Breton during and after World War II, we had a lot of immigrants who came to Cape Breton. They were not skilled but they got jobs at the coal mines and the steel plants. They were able to provide a good living for their families, but that is not happening with a lot of the new immigrants coming to Canada.
Are we losing our middle class? Professor Beach, the title of your paper is Canada's Hollowing-Out Inequality Rise in an I.T. World. In the United States, they talk about the hollowing out of the middle class, so are we losing our middle class?
I was at a discussion group on poverty, and someone said that we are having the very rich and the very poor. She said if you do not think you are going to be among the very rich, you better make sure there are good policies initiated because you will be part of the very poor group. What is happening to our middle class in Canada and how significant is that?
Mr. Beach: To my knowledge, there has not been a study precisely on that for Canada in recent years, but what earlier work from the late 1990s, done around 2000, showed is that there has been some decline in the proportion of families in the middle regions of the income distribution — not as much as in the U.S. — and a corresponding increase towards the upper end.
The issue of a so-called declining middle class, I think, is a bit of a false one. The evidence shows that what is a more important change is that if you look at the average incomes of families' households in the middle region of the distribution, they have been losing out. It is not so much the middle class is vanishing; it is just that in terms of their incomes, they are losing out relative to what has been going on in the top end of the distribution. They just have less income resources to send their kids to school, pay off mortgages and that sort of thing than was the case a generation ago.
Senator Cordy: It is middle class but not as affluent as it was.
Mr. Beach: That is right, yes.
Mr. Corak: The thing I would add to that is perceptions of the future, what the middle class can expect for their children. That, in some sense, is partly what we see in the Occupy Wall Street movement, relatively well educated people facing downward mobility.
Senator Cordy: What about the urban-rural split in terms of income equality? What is happening, certainly, in Nova Scotia and, I would say, across the country, is that young people are moving out of the rural areas into the urban areas. Are we seeing any split in terms of income inequality? Is there a difference in an urban area as compared to a rural area, or is it just the same things happening regardless of where you are living?
Mr. Beach: On the urban-rural split, I do not know the answer to that. I suspect that there is not much change than has been the case going on for 40 years. I would say the big shifts are more of a regional nature between Ontario and Quebec versus Alberta or the energy sectors of the economy. I would say the regional shifts are the much bigger changes that one notices.
Senator Cordy: I know in the Atlantic region we have a lot of people who are living in the Atlantic region but working in Alberta or Saskatchewan and then coming home, so you see the new cars and the increased income, but it is income being earned in Alberta.
Mr. Corak: That is not a bad thing.
Senator Cordy: That is not a bad thing. That is right.
Mr. Corak: It shows a well-functioning labour market, people responding to signals and the fact they can get over those costs and they maintain those ties.
Senator Cordy: Our committee is actually studying social inclusion. Professor Corak, I believe you made reference earlier to what we would almost call the social determinants of health, that if you do not have much of an income, you are disadvantaged in a number of ways.
Since we are doing our study on social inclusion, how would we talk about the effect that financial inequality or income inequality is having in terms of social inclusion? Are people feeling they are part of society?
Mr. Corak: I will answer in general to that. This is why I asked you in my little slide to think about equality of opportunity. That is a type of gradient, if you will. The extent to which your earnings in adulthood are associated with your parents' earnings reflects a whole series of gradients, how your children get a start in life, how healthy they are is all associated with family income background. All of these transitions that children have to go through get layered upon each other throughout time, and the net outcome is the index I have tried to offer you. To me, that is a nice indicator of inclusion, if you will, because it is a marker of our capacity to invest in our children and to let them become all that they could be. If we all feel there is that possibility, then to some extent we can live with the type of inequalities that we face.
Mr. Beach: Just to add to that, the big shift, if you wish, that has been going on in inequality in Canada is one essentially from the middle to the top. It is not the richer getting richer and the poorer getting poorer. The relative position of the poor has not changed all that much in Canada. That is quite different from what has been happening in the United States where they really have lost out big time.
In Canada, it is more a shift from, as I say, the middle class losing out relative to incomes at the very top end. One of the reasons one is always concerned about poverty is the loss of social inclusion. They just cannot participate as society feels they should in society's activities. That is a severe problem, but that has not changed all that much in the last some years.
I would classify the loss of social inclusion or concern that there could be a loss of social inclusion as essentially a middle class concern, because they are losing out relative to the stuff they see on the TV and the movies and the big houses and fast cars and all this sort of thing. They just cannot benefit from those things that perhaps even their parents could have a generation ago. I think that is where one notices it more.
Senator Cordy: The downward mobility is what you were talking about earlier in that case.
Mr. Beach: Yes.
Senator Cordy: That is interesting.
Senator Seidman: Dr. Corak, you referred to the Working Income Tax Benefit that this government introduced in the budget in 2007.
Mr. Corak: That is right.
Senator Seidman: Since then, it has effectively doubled under the stimulus phase of Canada's Economic Action Plan. Could you explain to the committee the benefits of this Working Income Tax Benefit in terms of encouraging individuals to enter the job market and how this helps the overall economy?
Mr. Corak: Yes, I would be happy to. That was introduced in the 2007 budget, as you said, and in part is similar to an important program in the United States, the Employment Income Tax Credit.
The program gives lower income individuals more of an incentive to engage in the labour market. Basically, you might think of it almost as a social wage, if you will. You get a market wage, and then there is a certain top up to that by the Working Income Tax Benefit. There are certain parameters. It kicks in at certain income levels, and then it starts phasing out at different levels. We can imagine those parameters being changed, is sort of the argument I was trying to make, to make it more generous. It seems to bite at the very low end. If we had that expanded and integrated with the EI system, you could imagine a nice floor to earnings from the labour market.
It is not a bad thing necessarily to be engaged in the labour market. It is very important also even for children. We have seen situations in which a type of dependency can develop in a household if parents rely on social transfers over a very long period of time. The downside, though, as you can imagine, in single parent families or double parent families is sort of the time stress that results. It is important for children not just to have monetary resources but also non- monetary resources from their parents.
The way I would tweak this program is to expand it a little bit more and then think a little bit through the EI program of giving parents a little bit more leeway to take leaves. In principle, we provide them a certain amount of leave when they have a new child or for caregiving when an elderly parent falls ill or when they are sick, but you could imagine giving parents a little more flexibility. We are asking them to be more engaged in the labour market. Since there is no a national childcare program, there is a lot more stress in households as a result. If they could have more flexibility to take time off through the EI system, I think that would be a lovely compliment to the Working Income Tax Benefit.
Senator Seidman: Does Dr. Beach have something to say?
Mr. Beach: No. That was a better answer than I could give.
Senator Seidman: If I could continue to pick your brains on this and go to another subject, in the budget in 2012, the government announced it would establish a panel on the labour market opportunities of persons with disabilities. The panel will identify private sector successes and best practices with regard to the labour market participation of persons with disabilities. The Minister of Finance and the Minister of Human Resources and Skills Development will review the panel's report by the end of 2012. Could you tell the committee what you would like that panel to look at?
Mr. Beach: I am less familiar with the various tax options than perhaps Professor Corak, but one thing that immediately comes to mind is possibly using the payroll tax, whether it is through the EI or some other form of payroll tax, to provide a reduction in payroll tax liabilities of firms if they make efforts to better hire and integrate into their workforce workers with disabilities. I am very much in favour of providing carrots and saying, "Well, this is something we should do. Let us make it worthwhile for employers to make that effort."
Mr. Corak: Senator, I would just like to underscore the importance of that undertaking. I am not familiar enough with this area to really comment with expertise, but I do know anecdotally that there are concerns about stability of funding from many employment agencies engaged with the disabled. There is a good deal of employment that can happen in that sector, and there are employment service agencies that help make the transition to the labour market for people with all sorts of disabilities. The trouble is that they go from program to program. It is difficult to plan over any sort of medium-term horizon. Only anecdotally and not as a labour economist, that would be one concern, but I really do not have expertise in this area.
Senator Callbeck: Thank you both for coming. Professor Beach, I am looking at your written presentation, and I am fascinated with Table No. 2 on taxable income. If you look at this, the bottom is 5 per cent, and then you go 5 to 10 and so on, up to 15 to 20. What salary range would we be talking about there?
Mr. Beach: The short answer is I do not know. I would have to go back to Statistics Canada. Actually, these numbers do not come from Statistics Canada surveys. These were calculated from Revenue Canada data based on income tax returns where you have a very large number of observations and you can calculate this detail. I just do not know the numbers. I could dig it up in terms of the median. For families, the current median family income for economic families, two or more people in the household, is something like 70,000, I think. I have forgotten.
Senator Callbeck: The bottom 5 per cent, minus —
Mr. Beach: Those incomes are very low.
Senator Callbeck: It says minus 1. Does that mean they got rebates back?
Mr. Beach: Think of a dentist who depends upon his self-employment income, and suppose he has a heart attack and is off the job for eight months. He has to continue paying office expenses and so on, so for that year he may have a negative on his net self-employment income. That would put him in the negative, since we are talking about just income here. I think self-employment income is the only way you could get a negative number. On wages, which is what most people get, you cannot have a negative wage.
Senator Callbeck: This is your taxable income.
Mr. Beach: Yes.
Senator Callbeck: It includes your capital gains and so on.
Mr. Beach: Yes.
Senator Callbeck: The amount of tax that people at the lowest end of the scale are paying has increased from 1982 to 2004. Five to ten was 0.1 and in 2004 it was 0.4, so they are paying more income tax.
Mr. Beach: This is your Table 2?
Senator Callbeck: Yes, shares of taxable income.
Mr. Beach: That is right. These are not on the amount of income tax they pay; this is of their straight income.
The Chair: This is not tax; this is per cent of income.
Senator Callbeck: Right. It is the per cent that they are paying.
Mr. Beach: No, it is the per cent of their income on which they will have to pay some taxes.
Senator Callbeck: Oh, okay. I read that wrong.
Mr. Beach: Many of those at the very bottom have incomes so low that they probably would not end up paying taxes after deductions, exceptions, tax credits and things like that are taken into account.
Senator Martin: You talk about the complexity of this issue and say that a one-size-fits-all policy does not work because of the complexity of this. What advice would you give to the legislators around this table in terms of policy development that could take place? What should we be considering while looking at policy?
Mr. Corak: As you develop policy you should be conscious of what parts of income distribution you will be affecting. I have suggested a whole list of policies at the lower end, but we have not really talked about the upper end. The mandate of the committee deals with social cohesion and inclusion and, as Professor Beach said, relativities matter to the way we feel about ourselves and our ability to participate in society. Sometimes those at the very top set the agenda. We have not talked so far in this meeting about the top 1 per cent and the causes for the increasing share of earnings going to the top 1 per cent. I feel that there should be a policy direction there because it is a huge cultural change to see the total earnings of our society going to the top 1 per cent increase from about 7 per cent 20 or 30 years ago to 12 or 13 per cent now, and that is going to the top one tenth of 1 per cent. The top one tenth of 1 per cent of top earners earned about 2 per cent of all the income in the entire country in 1980 and earn almost 5 per cent now.
What is happening at the top and what kind of agenda does that set for the rest of us? The reasons for these changes are economic and they relate to what Professor Beach talked about. There is a bigger market out there, and technology allows superstars to access that market. The best example I have is when I was growing up the best hockey player on the ice was Gordie Howe. Gordie Howe, for all his talents, played hockey in a six-team league, and you heard him on the radio or you saw him on a very grainy television screen. A generation and a half later, Wayne Gretzky was playing with equal talent in a North American market when we had technology that allowed his talents to be transmitted around the world.
You can imagine that the Wayne Gretzkys and Céline Dions are going to be making a lot more money now than the hockey players and opera singers of a generation or two ago because of technical change offering a door to a much wider market. People would suggest that this is some explanation for the fact that people in the financial services earn so much. There is a certain amount of truth to that, but we should not get carried away with that. Part of what is going on, also at the higher corporate level, is a cultural change that permits these huge amounts to be earned by a very small fraction of society.
If you are really worried about social inclusion, some of your recommendations should be directed to what is happening in the top 1 per cent. I did not speak about that in my comments to Senator Eggleton earlier. We can certainly work at the low end of the wage distribution. We can develop more skills that will allow people to move up the value-added chain at the lower end. We can restrict lower-skilled migration so that we develop a high pressure economy and we can adjust the tax system; but we have to work at the top end as well.
Senator Martin: You spoke of cultural change, and that is related to my second question. There is a role for government, and there is only so much we can do. One of the causes of this growing gap and what is happening to that top 1 per cent you are talking about is an international market driven by the demand for these talents. Like you say, they have access to the world.
However, what about the role of the social economy, social entrepreneurship, for instance? That is not necessarily related to policy, but it could be the cultural change that we need. Social economy is another topic, but I do see that that needs to play an important role in the overall makeup of our society.
Mr. Corak: I would underscore a very important point you made. As public policy makers there are some things that you cannot change. You should be aware and conscious of that because if you try to do it you could make things worse. You also need to be aware of the things that you can change.
Mr. Beach: To the first question that was asked about policy directions, I identify three. The first one, about which people often forget, is developing and following healthy macroeconomic policy. There is nothing like getting the unemployment rate down and moving the economy along well to bring people into the labour market and get earnings so that they can then get greater opportunities than they had before and get on with their lives more successfully.
The single biggest factor in dealing with inequality issues is to ensure, through monetary and fiscal policy, that the economy is well run and the unemployment rate is brought down in the long run.
Second, I would say that one should focus policies on things like education, student aid perhaps, training, and skills upgrading, particularly soft skills. If someone is laid off after 20 or 30 years in a manufacturing plant in Oshawa, for example, due to a plant closure, it will be extremely difficult for them to do an about-face and move into a whole new job, be it as a greeter at Walmart or something similar.
Part of the problem is that these people have not had to face issues of unemployment for a long time, and they have almost no knowledge of things like how to make a CV or resumé, how to handle a job interview, how to be polite and these sorts of things. That is what I mean by soft skills. We need to ensure that the resources are made available to foster those types of transitions.
The third policy direction is to foster flexibility of labour market adjustment. It would not make sense, as Professor Corak said, to try to fight the changes that are going on. They are much bigger than Canada, and it makes sense to try to ensure that our workers are well placed and can advance and take benefits from these ongoing changes. We should facilitate that.
The Chair: Professor Corak, do you have a final intervention on this?
Mr. Corak: I wanted to supplement something that Professor Beach said about the layoff experience of people who have long job seniority. It seems that our unemployment insurance system insures unemployment, and what people in that particular age bracket need is wage insurance. We could imagine an unemployment insurance system that becomes much more flexible and changes as the individual's point in life cycle changes because there are different needs there, so to move it from an unemployment insurance program to a wage insurance program for long tenure workers.
Senator Merchant: First, I will challenge you a little because you have mentioned education and skills, and you work in institutions where you are training people and trying to graduate people who will be able to contribute to our economy.
There is a feeling sometimes that universities graduate people but there is no demand for the skills that they acquire at university. At the same time, they accumulate a huge debt because going to university is an expensive proposition.
What do you do in your own institutions to help alleviate the situation, or can you do something?
Mr. Corak: It is sort of interesting how universities are judged. For example, if you look at some of the popular reports when students are making their decisions, the criteria by which universities are judged are often on process things: How big is the residence? What is the class size? It is all process as opposed to outcomes.
I often thought it would be interesting to have — and perhaps the association of universities could do this — a long- standing survey of graduates and look at their employment prospects, so that what is fed back to the universities and to future students is what has happened to graduates over the last two or three years.
Statistics Canada runs something called the "National Graduates Survey," but it is meant as sort of an overall picture of the entire economy. We could imagine having a survey like that, one that is detailed enough so that each university would run it, and you would have immediate feedback on the prospects on what has happened to graduates. I think that would be the most valuable piece of feedback that universities could receive and that future students would be interested in, as opposed to all sorts of other things dealing with campus life.
However, in the longer run, I also believe that that is what the labour market does. It sends these signals, and so people then have to make responsible choices based upon their perceptions of the labour market. In the long run, it does that, but people live their lives in the medium to short run, and so to have that kind of information would be helpful for everybody all around.
Mr. Beach: Yes, just to complement what has been said, one of the concerns that perhaps all good students or potentially good students are not benefiting from the current system is that the costs of going to university are fairly obvious. It is sort of in your face, whereas the potential opportunities, jobs and benefits down the line are far less so. I think a concerted effort could be made to see that that kind of information, namely, that if you do go to university and get a job, it could be broken down by certain areas, the expected incomes you would be getting are such and such; the likelihood that facing unemployment is such and such. There is considerable evidence by people like Ross Finnie and so on who have worked in this area. He co-authored an op-ed piece in The Globe and Mail this morning on another issue, but he is the person I am referring to.
There is considerable evidence that possible students who might be good candidates for getting a university degree are just not knowledgeable as to what the opportunities and the long-run benefits are, and I think effort could be made to highlight that.
One of the suggestions by Ross Finnie and his co-author in the op-ed piece in The Globe and Mail today, is to have universities send either academic members or university students who came from that high school to talk as peers to the students in the fall when they are thinking about this and make them better aware about the opportunities and the long-run benefits. I think that has potential.
Senator Merchant: You were talking about the top 1 per cent having advanced so much more in earnings than the bottom. Now, I do not want to talk about polls because we have seen what has happened recently with polling in the Alberta election, but whenever you ask people about taxing the wealthy, I think there is almost a unanimous agreement that there ought to be more and that the wealthier should be taxed at a different level. I do not think there is any appetite in any kind of government to do that sort of thing, so I do not know if that is a solution or if something can be done because it seems they just will not do it.
Senator Eggleton: Ontario just did it.
Senator Merchant: Yes, Ontario did it.
Mr. Beach: I think there is a bit of a difference of moving up the tax rate by 2 points, which is what I believe what Ontario did versus something like 5 or 10 points. In that case, if not just a country but part of a country, a province or a state in the U.S. did that, when you get into that range it probably would have some substantial effects. I am less concerned about the 2 per cent.
The Chair: I want to follow up on some of the questions that have been asked and the information you have given us.
I thought the comments that you made with regard to the top 1 per cent of income earners and giving the examples of the shifting returns to a skilled professional hockey player is interesting. When one looks at the debate in the social media with regard to that so-called dastardly 1 per cent at the top that is causing all of these problems, we overlook the composition of that 1 per cent, and, in actual fact, the entertainment industry — I put professional sports in that category — occupies a significant part of that upper echelon.
The fascinating thing there is that the value of that entertainment industry is, to a very large degree, based upon the interest and expenditures of the lower 20 per cent of income earners. It is a fascinating sociological issue with enormous economic consequences.
The issues that we are talking about are complex and not nearly as simple as we think when we simply see the number. When most people see that 1 per cent number, — I will not repeat the language — they refer to a particularly greedy sector of a society and forget that in actual fact it is made up of the people that I just described. I do not want to take this down a long ways, but do you have a quick comment in that regard?
Mr. Corak: I would be happy to give you a sense of how the literature speaks to the underlying explanations of the top 1 per cent, and this is much more developed in the United States than in Canada.
The entertainment sector is certainly there, but financial services are there, and senior CEOs are there. There are some accountants and lawyers, and in Canada you would also probably add some members of the medical profession, and, particularly, members involved in the resource sector.
Therefore, as we alluded to in our discussion, there is an economics to this, and that has do with trade and international and technical change.
In the U.S., it also has to do with the tax changes in the system that have incrementally been layered on over the years. It also has to do with changes in corporate governance and changes in social norms. It is important to parse these things out, as you alluded to, senator.
The Chair: Thank you. The financial service sector, of course, has tended to climb with those in entertainment, medical or whatever who are gaining those large salaries, because they require considerable expertise to help them deal with that significant wealth.
Mr. Corak: Some fraction of it, but a significant fraction, at least in the U.S. experience, is that that sector was too large to begin with.
The Chair: Professor Beach, you gave some excellent examples of the changes that have occurred structurally in our society with the impact of technology and so on. I would make an observation and then come to a question. I have spent my life in the education sector, to a very large degree, and my observation over the course of my lifetime is that Canada has significantly sociologically devalued technical and trade training relative to a university education. Wherever almost anyone talks about post-secondary education, they start off referring to university in Canada as opposed to the technical and trade training. Yet, when we look at the demand in our communities, and one of the most obvious ones is the housing construction industry, in many parts of Canada, certainly in Eastern Canada, there is real difficulty finding people who can do the trades jobs.
This is an area where technology has moved up the value of the trade, and not only just the technology but the requirement, because society, through its rules and governance, has demanded that the nature of that construction must meet higher and higher standards all along, which requires more skill in terms of input. Yet, we have significant unemployment — you referred to the issue of unemployment in various ways as we have been talking here — in these communities, and a lot of that has to do, in some cases, with these individuals not having been given the trade skills training and they cannot enter. They cannot go horizontally within the economy to get to the areas where they could actually be employed.
While you have presented a very good summary of the problems we face, in terms of solutions, how do we deal with that aspect of the issue, the fact that we are not getting people trained in the areas where at least it appears there is significant demand that is not being met? Just to finish that off, these people today have incomes, if they get into those job, that place them in that middle class you are talking about.
Mr. Beach: That is certainly a concern. I definitely concur with your initial observations. Not just in Canada but in the United States and North America as well, we seem to have devalued blue-collar skills. You should always esteem to go to university. Well, really, that is not where all people should go. Working in these other areas is extremely valued.
How do we bring that about? First, retraining older workers is very difficult, particularly if they are tied down with a family, possibly a mortgage in a smaller town, and the mill has closed. Those are very difficult to deal with. The transitions or changes are likely to be much faster if they are undertaken by younger workers and by immigrants.
In the case of younger workers, again I think younger people would benefit if there was more information available to them as to the job opportunities and that this can really lead somewhere. They may not be aware that, although they may have to put in very long hours, in Alberta, welders make over $100,000. These are extremely valuable skills. I think that kind of information should be better made available.
Also, what is driving the need for these kinds of skills is very much the natural resources, the energy sector out West. My sense is that that will go on for the indefinite future, at least 15 years. That is long enough that young people should really factor that in and consider that a career.
A second possible source is immigrants. In the short run, that is indeed one of the things the government is working on through the provincial nominee program, among others, to bring in workers with immediate skills in this area to try to fill the gaps.
The Chair: I want to broaden my question a little bit. You both referred to something that I think is extremely important when you referred to university education, and that is to develop the data that shows the relationship of degree programs to returns down the road. Universities have been very good at articulating the idea that the average income over a lifetime increases with the degree of education. That, of course, is based on the evidence over the last X number of years. There are some signals that perhaps things are changing considerably with regard to just the idea of a university degree relating to that kind of increased income over a lifetime. It is more about what that degree is and what that will do. I thought your suggestion there was really important.
There is another aspect where the universities have an important role in this, and that is in relationship to secondary education, the leaving certificate. We know universities are in the business of getting tuition fees and therefore welcoming people in their doors, but the reality is that many of the programs that will lead to immediate demand — to put it bluntly, to have skills and training that are employable in society quickly — require some mathematical capability and other high school-leaving capabilities or standards. The high school-leaving diploma may not be recognized by the university in terms of the programs that have a higher technological basis. Therefore, the students are precluded entry into those areas, and they tend to move into other degree programs because they believe a university education is valuable and so on and they want that university education.
In addition to thinking, as you have clearly indicated, that we need a much better follow-up of graduates with regard to degree program versus employment, do you think there is an issue with the socio-economic impact of the content of the leaving certificate from high school relative to the opportunity to participate in the modern economy regardless of which post-secondary education program they want to pursue?
Mr. Corak: I am afraid I cannot speak with expertise on that, senator. Clearly, you have a good deal of knowledge yourself.
As an economist, getting back to the discussion we had on public policy, you have to identify a market failure to rationalize government intervening. I am asking myself, when I hear this discussion, where is the market failure? You are telling me there is excess demand for these skills, so why are wages not rising? Why is that not sending a signal?
It is one thing to talk about shortages, but when I hear employers say there are shortages for these types of skills, what I am hearing is that the wage is too low. If we let wages rise and create that high-pressure economy, why would people not hear that signal? Where is the barrier; where is the market failure? Perhaps I do not have enough institutional knowledge to appreciate that there is one, but I believe that if we let wages rise people will respond to that.
The flip side is, although perhaps some of the leaders in Quebec will not like this, let tuition fees at university rise as well so that university education does not have a consumption good aspect to it. That will also change incentives. I do not know how many university graduates I have seen who have gone on to community college to make the transition. They spent three or four years at university consuming something, which is not necessarily a bad thing, but if you get those prices right, it will put them on a different margin in making those decisions.
To make the argument that you require government intervention, what is wrong with the price system? Part of the market failure is that we are talking not only about excess demand but, as Professor Beach said, about excess demand in different parts of the country. To move from Ontario to Alberta can be a big change in a person's life. Perhaps in those early years we should be thinking about types of programs that expose young people to different parts of the country. That will lower their psychological costs of having to make those moves in addition. I can see that as sort of a market failure. However, why not let the wage rise.
The Chair: In one of our recent studies we found that students in the secondary school system are not always provided with a lot of the information they need about going on to post-secondary education and so on. Your answer suggests to me that the policy issue is providing information to people at the stage where they need it in order to make some of these decisions.
I am aware of one university in my home province in which a significant percentage of the students already have a university degree but are going to this university to get a certificate or diploma to give them an employable skill after the university degree program.
With regard to wages, is it not dependent upon the particular area? In the example of what we tend to think of as traditional trades, plumbing, carpentry and so on, I have observed that the wages for those who have the skills to carry out functions to meet the requirements of the municipality with regard to building codes, et cetera, are very competitive. We rarely hear that the problem is that they are not being paid enough; it is that the employer cannot find people with those skills.
Mr. Corak: Over time that will correct itself. I would be reluctant to flood that market with new immigrants, for example.
The Chair: Indeed, but does that not get back to your point about getting information into the schools on careers that need people, or is that not a problem?
Mr. Corak: I agree with that.
Mr. Beach: Colleges have an important role in this process. Colleges are considerably more responsive to labour market needs, particularly blue collar skill needs, than universities. If there is a gap between what the universities feel they require and what the secondary schools are providing, colleges already play the role of filling that gap. It is not uncommon for students who cannot afford to go to university or are unsure of where they would fit in to take a few college courses and speak to some of the teachers to get a feeling of what they might like to do, and maybe going to university is a way to do that.
Colleges play an extremely important role in this, but I think there is a real opportunity for colleges to work more closely with universities to provide almost seamless pathways from secondary schools through to further training with a wider range of options so that students can choose a broader range that better fits their skills and interests.
Senator Eggleton: I was interested in your comments, Chair, about who might make up the 1 per cent. There probably are a lot of entertainers and sports figures in there, but there are also a lot of CEOs in this country. The average wage of the top 100 CEOs is $8.4 million per year. That is 189 times the average Canadian salary. While these people are important in terms of helping to create a healthy economy, which I agree with Professor Beach is important, we also have to share the prosperity in this country and 189 times is quite a difference.
The 1 per cent versus the 99 per cent has been the focus of the Occupy Movement, the gap between the rich and the poor, but I want to focus my question on the middle class.
Statistics Canada figures show that in the 25-year period between 1980 and 2005, the income of the top 20 per cent increased 16 per cent and the income of the bottom fifth decreased 21 per cent, and most of the brackets in between remained fairly stagnant. The ones in between are a lot of middle class.
Professor Beach, you said that although the middle class has not necessarily shrunk, its income has shrunk a bit. They are now at the lower end of the middle class. Correct me if I am wrong on that.
Professor Hulchanski from the University of Toronto was here a few weeks ago. He did a study on Toronto and is now completing one on Montreal, Vancouver and other cities. He says that Toronto is being divided into three cities; one for people who are fairly well off, another for people in the inner suburbs who are poor, and one for the shrinking middle class. In fact, he says that the middle class has gone from 66 per in the 1970s to 29 per cent today. I asked where they went, whether they went to the suburbs. He said no, that the suburbs have a shrinking middle class too. He said that the number of poor neighbourhoods in Toronto has gone from 19 per cent to 53 per cent. He said that Vancouver has similar numbers and that in Montreal the numbers are a little lower but have a very similar pattern.
This strikes me as a potential danger in terms of the social fabric of our cities. Eighty per cent of our population live in cities, so we have to be concerned about this.
Could you talk about the threat to the social fabric, social cohesion and social inclusion of people? When I was in Toronto city hall and when I was mayor of Toronto those conditions certainly did not prevail. Things have changed.
How do you see that working into this equation of income inequality issues?
The Chair: Could you answer the question quite succinctly and, as I suspect this could require a fairly detailed response, follow up later with a more substantial answer, as I would like to get the other questions on the record before we conclude.
Mr. Beach: There have been several studies on this, particularly for Toronto.
Unquestionably, what you are saying is going on, and that is quite new relative to 20 or 30 years ago. It is quite a concern that you have this sort of split into three groups. To me, that is of particular concern because it means if people are are stuck in one area for whatever reason — I do not want to say ghettoized — they have reduced opportunities. There is less mobility to move around, benefit and see what the opportunities are generally. For example, if an immigrant arrives and settles in some area, there may be less incentive to learn English or French, as the case may be, to move ahead relative to what was the case 30 or 40 years ago. That is a real concern, yes.
Senator Cordy: Going back to Senator Eggleton's comments about CEOs making $8 million, and we have early childhood education teachers and home care workers making minimum wage, there certainly is a gap and an undervaluing of some jobs.
Professor Corak, you spoke about workers who have been at the same job for a long time, perhaps unionized workers, who suddenly lose their jobs, and they should not be collecting employment insurance but they should have wage insurance. It was coming close to what I would think of as a guaranteed annual income. As an economist, what would you say about a guaranteed annual income in terms of reducing inequalities?
Mr. Corak: Often we think of a guaranteed annual income as a certain floor, regardless of whether one is working or not.
This particular wage insurance scheme, which was thought of in the United States during periods of recession when there were these important permanent layoffs, would not be of that type.
You could imagine, as we were talking earlier, if the government were to think, in conjunction with the provinces, of fully integrating the Working Income Tax Benefit with the EI program in a seamless way, that you would have a type of guaranteed annual income conditional on some employment. That would not be a bad thing. That is what I was alluding to earlier. We can think of that working income tax benefit as a type of social wage, if you will, but always conditional on having some engagement with the labour market. That would be the crucial distinction between it and the guaranteed annual income that is usually proposed.
Senator Cordy: I think in the U.S. you had to have been working for a fairly substantial amount of time; did you not?
Mr. Corak: I am not sure what the qualification rules are. It is usually geared to how much you make annually, but I am not certain.
Senator Merchant: I have a question about immigrants. I hear about the disparity. I would like to hear about the role of the immigrant because I am an immigrant myself.
Professor Beach, you said something about immigrants not learning English. I am not sure that is true. I would like to see some study that shows this is a problem with immigrants.
When we first came to this country, we arrived in July and I was to go to school in the fall. I was 12 years old. I came from Greece, and my parents immediately started paying us 5 cents or 10 cents to speak English at home. They wanted us to maintain our Greek culture and language, which we did, but they said you are going to start school in the fall. I had taken English lessons in Greece, but I had not learned much because I did not realize I would need to speak another language when I came here or that I could not speak it. They started to pay us 5 and 10 cents to speak English and to get out and play with the other children. I blamed them over time because I have lost a lot of my Greek because they were paying me to speak English.
I would like to know what it is, other than the accreditation, which is a problem. I am a little fearful because I see what is happening in Europe and how they are demonizing the immigrants, and I do not like it. I would like to understand that.
Mr. Beach: Thank you for an excellent question. The evidence is overwhelming that functioning knowledge of English or French is critical for an immigrant getting ahead and more so now than a generation ago. I think it is fair to say manufacturing was sort of the traditional classic route for an immigrant who, perhaps, did not know much English or French, to start off, get a job and once having learned the job, whether it was putting wheels on a car or something like that, could do it quite well and get a very good paying dependable job, and not be that fluent in English or French.
However, there has been an ongoing shift in Canada and elsewhere away from the proportion of the workforce in manufacturing jobs into services. When you move to services, there is a much greater emphasis on or importance of the role of not just getting by in English or French but actually being quite good at it.
The role of language, English or French, is becoming more important to the point of critical. That was not the case a generation or so ago.
The second point is that the last generation has seen quite a shift of immigrants that come into Canada by source country. Twenty years ago, the great majority came from Europe, the British Commonwealth countries and the United States. Now, I think I saw statistics a few days ago indicating that the top five or six source countries immigrants are China, India, Pakistan, Philippines, somewhere else and then the United States was fifth or sixth. These are people coming from a much more foreign place where the language that they know is quite different. The adjustment process they will have to go through will be more difficult.
Mr. Corak: Without disputing any of the facts that Professor Beach has mentioned, I feel I share very much your perspective that there is an overemphasis on language requirements, especially if the discussion is around social cohesion.
What Professor Beach has spoken about is economic integration. The litmus test on whether we have an inclusive and cohesive society is what happens to children. The people who rioted in the suburbs of Paris or on the beaches in Sydney were citizens of that country. They were born there, and the fact that those societies excluded the children of immigrants is the real danger sign.
Canada has a type of recipe here that is something that should be celebrated. The children of immigrants, young immigrants like you and the second-generation immigrants, are the most dynamic parts of our society. Their education levels are well above average, and they speak fluent English and French.
I think that is the margin, if you are concerned about social cohesion, that you should be worried about. Placing too much emphasis on the current speaking ability of older immigrants that come here does not necessarily speak to that issue.
Senator Seth: I thank you for that answer. I think I agree to an extent that, yes, English may be a part of the problem with immigrants, but when I see the medical schools and the professional schools, 60 to 70 per cent of the population is who is there. They are either from India or China, unfortunately. I can understand maybe they are immigrants, but they are quite intelligent. Traditionally, they are very much into education because in most families of Indian or Chinese origin, attention is paid to education more than compared to any other part of the world. I must say that.
When you look at the universities, who is there? These people are there. That is what I see. If you see a number of doctors, who are they? They are maybe Indian or Chinese.
Mr. Corak: As I said, I think that is a real positive sign of the way our education system works. For immigrants, whether they are highly educated or not, their children do go on to become highly educated. The thing that makes many immigrant families different is that even if the parents do not have a high level of education, the children go on and they become highly educated.
Senator Seth: I agree. Parents may not know a word of English, but the children are so smart.
The Chair: I think the point is made. We will move on.
Senator Eggleton: I want to get your thoughts on how much real estate and consumer debt plays into income and equality. Real estate prices have been going through the ceiling in some parts of this country, and a lot of people would suggest that the 1 per cent or people in the top income brackets really set the pace. They are paying great amounts of money for real estate, and it seems to drive the prices up. People are always trying to get ahead and buy the next house a little bigger than the one they have already, but the prices keep going up and there is a big affordability problem. We saw what happened in the United States when they got in over their heads with sub-prime mortgages because they really could not afford to do that.
The other part of this is that Mark Carney, the Governor of the Bank of Canada, has indicated concern about the level of debt in the country, and a lot of that is related to real estate or buying the things that people want to try to get a little ahead. They are not necessarily going to follow the example of the 1 per cent if they are way down here, but it sort of trickles down this whole thing. Somebody called it trickle down debt. You keep trying to climb the ladder a little bit further, and it is getting more and more expensive because these people at the top are really setting a very wicked pace in terms of prices. What is your thought on those theories?
Mr. Corak: I think this is one of the corrosive aspects of inequality. In economics, we call these positional goods. This is what has happened in the United States. With all these huge real, economic gains going to the top, they set a sort of standard that others had to emulate. This developed a type of rat race, because everyone wanted to keep those relativities in par. The only way to sustain that middle class, growing lifestyle in the U.S. at that time with a polarized labour market for people in the middle was to take on more debt. It is fortunate that we have not gone to that extreme in Canada, but this is one of the downsides of more inequality.
Mr. Beach: Just to add to that, the thing I would be most concerned about is if there is a bubble and it bursts. I do not have the concern that this is going to be nearly as bad as the experience in the United States, for a whole mess of reasons I will not go into here. We are talking quite different orders of magnitude. Nonetheless, if there is some sort of bit of a bubble that bursts, that means a lot of people will be thrown out of work, and not just construction workers but people who service lots of different things.
To get back on the earlier point I made, one of the single biggest factors affecting inequality is the state of the labour market. If this brings about a recession or a slowdown in the economy and higher unemployment rates, that will really disproportionately affect people at the bottom end of the distribution, young people, immigrants and those who we are most concerned about and want to see they have the opportunities to get ahead.
The Chair: Thank you for your input to us today and the handling of the questions. If you have further thoughts on the issues that you have identified, including the ones that I came back to on following up with regard to developing information that is valuable to young people in making decisions, or on any other topic that we came across during our questioning today, we would welcome your further input. I hope you will consider that. Otherwise, on behalf of the committee, I thank you for being here with us today.
(The committee adjourned.)