BC's Rich and Poor: A Gap Pried Wider

The recent deterioration of B.C.'s economic fundamentals has very real consequences for the way British Columbians live. The growing income gap between rich and poor and the stagnation of real wages is behind many of the mounting social problems we face in our communities.

It's true that British Columbians have seen modest real-income growth per capita in the past eight years. From 2001 to 2008, inflation-adjusted income per capita rose by 2 per cent per year from $32,727 to $37,477, reports BC Stats. However, as we shall see, much of the statistical rise in income was illusory, in the sense that much of it was in fact captured by already wealthy individuals. Looking at the income-growth figures alone masks serious emerging problems.

Income distribution

The gap between the rich and poor in Canada widened significantly in the past ten years, partly because Ottawa spent less on cash benefits than many other developed countries, as the Organization for Economic Co-operation and Development reported in March.

It was a reversal of the trend over the two previous decades when the gap was narrowing, the OECD report said. It said Canada's poverty and income inequality rates both spiked between 1995 and 2005 and now each exceeds the 30-member organization's average. The organization said Canada experienced an especially rapid rise in both poverty and inequality; only Germany's gap widened at a comparable rate.

The study also found that Canada's well-to-do enjoyed a more substantial income than their counterparts in other developed countries. The report said Canadians in the top 10 per cent income bracket were earning an average equivalent to $US 71,000, more than 30 per cent higher than the OECD average of $US 54,000.

A Canadian Centre for Policy Alternatives study released about the same time showed that the situation in B.C. is even worse. "The gap between the wealthiest and the majority of B.C. families has grown dramatically over the past 30 years," CCPA economist Iglika Ivanova wrote, noting that the share of income going to the richest 10 per cent of families has grown fast, while the share going to the bottom half of families has declined substantially. This is true for both earnings and after-tax incomes.

Not only has inequality grown, adds Ivanova, but most B.C. families with children have also fallen behind in absolute terms. The bottom 70 per cent of families have lower real (inflation-adjusted) earnings than their counterparts in the late 1970s, and the bottom 60 per cent saw a decline in their after-tax incomes as well. And middle-class families in B.C. have been squeezed to an extent not seen in other provinces, she notes.

Just as the OECD found for Canada as a whole, Ivanova found that government taxes and transfers reduce labour-market inequality in B.C. somewhat -- but not nearly as well as it used to. "When we examine after-tax income instead of earnings, the benefit of the tax and transfer system becomes clear for the poorest 10 per cent of families with children: they are no longer the ones who experienced the largest drop in income," Ivanova notes. "While their earnings fell by a staggering 74 per cent over the 30-year period, their after-tax incomes declined by only 4 per cent."

However, she adds, the tax and transfer system in B.C. fails to adequately help the rest of the bottom half of families, whose after-tax incomes declined considerably. In fact "drops in real after-tax incomes are substantially larger in B.C. than in any other province. That is, whereas other provinces have managed to offset declines in earnings through the system of government transfers and taxes, B.C. has been much less successful."

We can see clearly the result of the Gordon Campbell tax cut and other income-distribution programs, in other words. After the tax cuts, only the top 30 per cent of families earned more than had their counterparts in the late 1970s; the gains were highest for those who were better off to begin with. The top 10 per cent benefited the most as their average earnings rose by 29 per cent from $152,374 to $196,457 between the late 1970s and the mid-2000s, says the CCPA.

The gap between rich, lower-income and working British Columbians was in fact heightened by the Campbell tax cut of June 2001 and subsequent policies, for instance the so-called "carbon tax". The 2001 cut gave the 13 percent of taxpayers making more than $60,000 about 52.8 percent of the total tax savings.

At the very top of the income ladder, the 1.1 per cent of taxpayers earning over $150,000 got a whopping 20 per cent of the total savings.

Meanwhile those earning under $30,000 -- 48.4 per cent of all taxpayers -- shared among them just 13.4 percent of the tax-cut benefits.

Real wages

Average hourly inflation-adjusted earning for all employees increased by just 1.3 per cent in B.C. from 1998 to 2007. But while workers' pay actually fell, managers got substantial increases. Management occupations saw a 13.4 per cent rise in average hourly pay. Workers in manufacturing received a pay cut of 7.1 per cent, while those in sales and service jobs saw a 1.1 per cent drop in their hourly pay.

And with the loss of thousands of jobs in manufacturing and resource industries, it's unsurprising that the number of good jobs also declined. The number of jobs paying between $20 and $29.99 an hour actually fell, even though the size of the workforce increased.

The widening income gap between those at the top of society effectively transforms into a social problem the economic problems of falling productivity, declining exports, a deteriorating manufacturing base and growing dependence on oil and gas and a few unprocessed commodities.

This shift is in fact at the root of the growth in poverty and the growing inequity being built into B.C.'s economy today.

Tomorrow, last in this series: How government policies that weakened B.C's economy are, as a result, harming a key asset in the global economy, our vaunted 'quality of life'.