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Income Polarization - General

When a nation has a great many lower income earners and a few very high-income earners with a small number of middle-income people, it can be said to have a high level of income polarization.  This is the opposite of a more socially healthy nation with a large number of middle class and smaller proportions of the very poor and very rich.

The income distribution of a nation has a profound effect on the society at every level.  

  • A highly polarized income structure means a much lower level of social safety net as the per capita tax harvest from a few wealthy individuals and a great many poor people is vastly less than that from a preponderance of middle-income earners.
  • A nation with a great many poor people has a much higher demand for very expensive social services from income support programs to increased law enforcement and health services costs. 
  • Across the board, it is more expensive to maintain social order in a society with a high degree of income polarization.

Many factors contribute to an increase in income polarization. 

  • They range from a loss of middle-income jobs through free trade.
  • Off-shoring and importation of cheap labour
  • To the pursuit rapid growth of cheap labour jobs. 

Conversely, investment in training, productivity and education produces higher income, higher quality employment which reduces the number of working poor.

Focusing on simple growth and a bigger economy increases income polarization while focusing on creating better jobs and higher incomes reduces it.  A healthy society and a strong social safety net cannot be sustained on the backs of a growing body of working poor.

When a nation has a great many lower income earners and a few very high income earners with a small number of middle income people, it can be said to have a high level of income polarization.  This is the opposite of a more socially healthy nation with a large number of middle class and smaller proportions of the very poor and very rich

The income distribution of a nation has a profound effect on the society at every level.  

-        A highly polarized income structure means a much lower level of social safety net as the per capita tax harvest from a few wealthy individuals and a great many poor people is vastly less than that from a preponderance of middle income earners.

-         a nation with a great many poor people has a much higher demand for very expensive social services from income support programmes to increased law enforcement and health services costs. 

-        Across the board, it is more expensive to maintain social order in a society with a high degree of income polarization.

Many factors contribute to an increase in income polarization. 

-        They range from a loss of middle income jobs through free trade,

-        Off-shoring and importation of cheap labour,

-        to the pursuit rapid growth of cheap labour jobs. 

-         

Conversely, investment in training, productivity and education produces higher income, higher quality employment which reduces the number of working poor.

Focusing on simple growth, a bigger economy, increases income polarization while focusing on creating better jobs and higher incomes reduces it.  A healthy society and a strong social safety net cannot be sustained on the backs of a growing body of working poor.

Income Polarization - Advanced

Examine the graphs below. They show the distribution of jobs by hourly wage for several sectors of the Canadian economy in 2011.

Different sectors of the economy have dramatically different wage rate profiles. In Canada, we have been losing jobs in the manufacturing sector and gaining jobs in the lower paid sectors. Unfortunately, there is no data available for the self-employed sector which is growing as well.

The shift in jobs to lower wage sectors from higher paid sectors means more than a simple reduction in hourly pay. Very often the wage reduction comes with reduced hours and benefits. Many cheap labour employers strive to keep weekly hours worked under 27 so that they do not have to provide benefits. This greatly increases the real decline in financial welfare for a great many workers.

While a shift of people from the middle income jobs to lower income jobs has occurred, there has been an increase in the number of very rich individuals. The decline in the middle class and the increase in both very rich and working poor components of the work force constitutes income polarization.

The effects of income polarization are discussed further in the Equality and Structural Deficits sections but here are several points to consider.

The decline in the quality of life of wage declines is exacerbated by low hours, minimal benefits and the stress of having multiple jobs. This places more load on our social safety net.

The social safety net is maintained by the government through taxes. The wage distribution of workers in the main government sector is shown in the Public Administration graph. Clearly, government workers are well paid which is necessary for the quality of services to be maintained. However greater numbers of working poor both reduce the tax revenue inflow and increase the demand for services. (See Structural Deficit) An increase in the number of working poor makes maintenance of the quality of government service impossible. This manifests itself in the form of program cuts and failing infrastructure.

The point at which a job becomes tax positive, meaning the amount of tax a wage rate generates vs the value of government services the individual consumes, is in the area of $14 to $16 per hour, full time. Employers who have a preponderance of jobs below that level are getting a substantial subsidy from the government.

The forces driving the income polarization trend are numerous. Globalization has resulted in shipping high paid jobs overseas through outsourcing. It also simply eliminates sectors of the economy by exposing them to off-shore producers with much lower labour and environmental standards using artificially controlled exchange rates making competition impossible.

Importing huge numbers of low skilled workers has been effective in keeping wages (an consequently productivity) down and, in extreme cases, foreign temporary workers are even brought in to fill jobs that Canadians won’t take at the wages offered.
At the top end of the scale, the finance industry has created the a large percentage of wealthy individuals in the United States while figures for Canada are not available. In the US, 60% of the wealth added by the upper tier rich has gone to individuals in the financial sector.

Wage Distribution Graphs by Sector of the Canadian Economy

accomodation

retail-trade

manufacturing

finance-and-insurance

utilities

Income Polarization - Reference

Subject MatterSource

Byron York noticed the great paradox of the cheap labor efforts of American business. York observed last week that Merck plans to lay off one-fifth of its workers.
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Center for Immigration Studies

Aside from stagnant wages, we also have a stubbornly high unemployment rate, historically low labor force participation rate, and plenty of people who are underemployed.
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Center for Immigration Studies

Economist Don Drummond hasn
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The Star

Taxpayers are shelling out $1.2 billion a year to help pay workers at McDonald
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Huffington Post

The self-imployment mirage
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CBC News

Wage rates in Mexico for various jobs
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Wage Indicator

David North, a Fellow at the Center for Immigration Studies, discusses the winners and losers of U.S. immigration policy.
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Center for Immigration Studies

The findings of this report show that the employment picture is bleak for less-educated native-born Americans, who are the most likely to compete with illegal immigrants for jobs.
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Center for Immigration Studies

In reality, the employers' motivation is primarily to cut labor costs by hiring less expensive foreign workers, but it is more complex than that in many cases;
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Center for Immigration Studies

Part Time Work - Work crumbling to bits and pieces - The most recent figures have 5.8 million in permanent full-time employment in a workforce of just over 11.6 million.
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Crispin Hull

The War Against Youth
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Esquire

In reality, the employers' motivation is primarily to cut labor costs by hiring less expensive foreign workers, but it is more complex than that in many cases;

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CIS

More Canadians in low-paying jobs

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Globe

Changes to immigration policy could transform society

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Globe

The continuing decline of the middle skill worker.

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Globe

Liberal Voice Laments Mass Immigration?s Inequitable Impact on the Labor Market

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CIS

Offshore bids price Canadians out of housing market

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CBC

The Impact of Recent Immigration on the Australian Workforce

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Monash University

Canada ranks 3rd last in paid vacations

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CBC

Minimum vacation time around the world legally required (most recent) by country

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NationMaster

How resource economies drive provincial wage gains

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The Globe and Mail

Canada accused of still failing its poor

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CBC

We work hard, they enjoy life. Canadians live to work and Europeans work to live. The differences between a cheap labour and an egalitarian society.

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The Globe and Mail

Canada ranked worst of G7 nations in fighting bribery, corruption

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The Globe and Mail

The gap between Canada?s rich and poor is growing amid shifts in the job market and tax cuts for the wealthy

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Globe

The federal budget and 50 years of Canadian?debt

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National Post

Locals lose to migrants in the battle for jobs

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Patricia Karvelas

Bringing in such a large new residents to participate in the Canadian labour market has wide-ranging implications for the Canadian economy, particularly for Canada’s labour market.

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Patrick Grady

Real Unemployment Rates - Inside the labour market downturn

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StatCan

Using the year 2000 as the numerical base from which to “zero” all of the numbers, real wages peaked in 1970 at around $20/hour.

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Jeff Nielson

Economist Don Drummond hasn?t found a shred of credible evidence to back up Stephen Harper?s claim that Canada has a serious mismatch between skills and jobs.

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Don Drummond
Impact Index

Income Polarization

Loss of High Income Jobs/Decline of Manufacturing Impact

40%
Causes of Income Polarization
  • Loss of High Income Jobs/Decline of Manufacturing 40%
  • Mass Immigration of cheap 35%
  • Growth of Financial Sector 15%
  • Growth of Government Sector 10%

The causes of income polarization are loss of the manufacturing high wage base, outsourcing and the importation of large numbers of workers to supress wages and productivity increases.  On the other side, very high incomes have been generated for a very few people in the financial sector and to a lesser extent in the government/utility sector.

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