Trends in Income Inequality in Québec

In the previous post, we saw that poverty levels in Québec, as measured by the Market Basket Measure (MBM) fell relative to Ontario (and Canada as a whole) from 2000-2009. What has happened to the level of income inequality?  First, however, it is always worth remembering — not that the Fraser Institute would ever let us forget — that poverty and income inequality are not the same. Over time, the incomes of the poorest people could rise substantially and income inequality rise at the same time if the incomes of the higher-income people rise more than the incomes of the poor. An absolute measure of poverty, like the MBM, would show a decline in poverty accompanying an increase in income inequality.

The most commonly used measure of income inequality is the Gini coefficient, a number that ranges between 0 (indicating that all families have the same income) and 1 (indicating that one family has everything and all others nothing).[1]

As Fortin et al. (2012) emphasize in their excellent review of trends in Canadian income inequality, it is important to distinguish trends in market income — income measured before taxes and transfer are taken into account — and disposable income — income measured after taxes and transfers are included.[2] Fortin et al. go back to 1980 in their discussion of inequality and note (p. 3) “that there is no doubt that market income inequality has risen in Canada in the last three decades.” But policies that affect the progressivity of the tax system and the generosity of social assistance programs can limit the extent to which increasing inequality in market income is translated into increasing inequality in disposable income.  What seems to have happened in Canada is that, until the mid-1990s, those policies kept inequality in disposable income from rising along with inequality in market income; then, when some governments moved to limit social assistance and to reduce taxes, inequality in disposable income grew.

The Table below shows Gini coefficients for Québec, Ontario and Canada for the period 1990 to 2009. The first three columns show the distribution of market income while the second three columns show the distribution of disposable income. Throughout this period, Québec had a more unequal distribution of market income than either Ontario or Canada as a whole. All three experienced growing inequality in the 1990s and a level of inequality that remained constant at the new higher level in the 2000s. However, the Québec tax and transfer system consistently did more to reduce the inequality than the corresponding systems in Ontario or Canada.  In any year, this can be seen by comparing the Gini coefficient for market income to the Gini for market disposable income. In most years, Québec had a more unequal distribution of market income but a more equal distribution of disposable income.

Fortin et al. discuss and summarize the evidence concerning a number of different explanations for the Canada-wide patterns in the distribution of market income. One is technological change in how goods and services are produced, changes that have increased the rate of return to education (driving up the income gaps between those with and without advanced education) and led to a polarization of the earnings distribution “with fewer jobs paying a ‘middle class wage’ and greater employment at the top and bottom of the distribution” (p.12). Minimum wages and rates of unionization are another potential explanation for changes in the distribution of market income because of their impact on the wages earned by those in the lower part of the income distribution.[3] Studies examining these factors, or others, have not been undertaken on the provincial level.

To summarize then, the distribution of market income in Québec is more unequal than in Ontario or in Canada as a whole. However, the effects of the tax and transfer system in Québec combine to make the distribution of disposable income less unequal than in Ontario or in Canada as a whole.

———————

Trends in Market and Disposable Income Inequality, 1990-2009

All Family Units

Inequality in Market Income (Before-tax, Before-transfer)

Inequality in Disposable Income (After-tax, After-transfer)

(1)

(2)

(3)

(4)

(5)

(6)

Gini Coefficient

Québec

Ontario

Canada

Québec

Ontario

Canada

1990

0.415

0.379

0.403

0.269

0.280

0.286

1991

0.436

0.409

0.422

0.278

0.291

0.292

1992

0.433

0.414

0.429

0.270

0.287

0.291

1993

0.443

0.421

0.429

0.274

0.291

0.289

1994

0.448

0.426

0.432

0.278

0.292

0.290

1995

0.446

0.423

0.430

0.280

0.294

0.293

1996

0.454

0.434

0.439

0.290

0.305

0.301

1997

0.454

0.431

0.438

0.290

0.305

0.304

1998

0.462

0.437

0.446

0.295

0.311

0.311

1999

0.441

0.435

0.437

0.284

0.318

0.310

2000

0.443

0.437

0.439

0.294

0.325

0.317

2001

0.450

0.434

0.440

0.298

0.321

0.318

2002

0.448

0.430

0.439

0.301

0.320

0.318

2003

0.442

0.432

0.437

0.295

0.321

0.316

2004

0.445

0.444

0.442

0.299

0.332

0.322

2005

0.442

0.430

0.435

0.296

0.321

0.317

2006

0.443

0.430

0.436

0.294

0.321

0.318

2007

0.444

0.431

0.435

0.292

0.319

0.316

2008

0.448

0.438

0.439

0.299

0.323

0.321

2009

0.442

0.447

0.445

0.289

0.324

0.320

Source: CANSIM Table 202-0709. Available at http://cansim2.statcan.ca/cgi-win/cnsmcgi.pgm?Lang=E&ResultTemplate=OLC&CORTyp=2&CIITpl=CII___&CORCMD=GetTRel&CORId=75F0011X&CORRel=4

[1] Sources that describe the Gini coefficient, explain how it is calculated and point out its strengths and weaknesses are easy to find.  See, for example, http://adarnay.wordpress.com/2010/04/27/the-gini-coefficient-but-dont-run/. The World Bank has a more complete but still accessible discussion of measuring inequality at http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPA/0,,contentMDK:20238991~menuPK:492138~pagePK:148956~piPK:216618~theSitePK:430367,00.html.

[2] Fortin, N., Green, D, Lemieux, T., Milligan, K. & Riddell, C. (2012). “Canadian Inequality: Recent Developments and Policy Options.” Canadian Labour Market and Skills Researcher Network, Working Paper #100. Available at http://www.clsrn.econ.ubc.ca/workingpapers/CLSRN%20Working%20Paper%20no.%20100%20-%20Abstract.pdf

[3] For a discussion of the evolution of market and dispoable income in Québec through 2004, see Stéphane Crespo’s analysis at http://www.stat.gouv.qc.ca/publications/conditions/pdf2007/InegaliteRevenu.pdf.

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About Saul Schwartz

Professor School of Public Policy and Administration Carleton University Ottawa, ON K1S 5B6 Canada
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