Monday, May 5, 2008

Income Distribution Despair in Canada

A small -- or perhaps large -- furor broke out in Canada with the publication of Statistics Canada's report on wages in Canada. The headlines featured the fact that over the last twenty-five years the median income has not grown or in the case of some provinces (ie British Columbia) actually slipped. This has produced hand-wringing all around on issues such as the growth of wage inequality but for me it has shown the shallowness of the media.

First, on the right we get to see Canada's own right wing bootlicker Terrence Corcoran (over at the National Boast -- er I mean Post) demonstrate how he will ignore any sense of practical reality or even basic ideas like "let's not compare apples to oranges" in order to avoid addressing the idea that even one sorry person has suffered as a result of the last twenty-five years of conservative policy experimentation (yes, even the Liberals were largely conservatives in this time frame). Terry the Hun suggests that we have it all wrong getting worried about the stagnation of median personal income but instead we should be jumping for joy over the increase in family income.

Terry suggests that this is the real measure of personal happiness since we all live in families and that is where we share our wealth. The stupidity of this idea is obvious to anyone who actually lives in one of those modern families -- preferably one with small kids -- and asks "why is it that I have more money but it seems harder than it was for my parents at home." Well the answer sticks out immediately -- it is because instead of one parent being largely at home managing the tasks of the house and the growth of the children both parents are now working. This of course leads to a very different family dynamic than in the past and a whole different range of costs, including substantial daycare bills and bills for assorted summer camps.

Terry is trying to dig himself out of a little conservative hole by comparing a cohort of one or perhaps one and half income earners to a world of two income earners and saying -- "see, you are 11% better off than you were" but ignoring the fact that they are working twice as hard to get there.

On this disappointing media side in all of my reading of the coverage I saw no-one really try to delve into the numbers to make it clear what the issues really were or to make any effort to explain what these numbers really were beyond the notion of "maybe this, maybe that". I suspect largely this is due to the fact that few journalists have a sweet clue about statistics. Allow me a chance to give two illustrations on how this report may mean quite different things.

First, it is useful to remember that the reports in the paper focused on median wage -- that is the number where half the wages are below that number. This is not the mean (average) or the mode (most typical) wage. The significance of this number depends massively on a number of different things, starting with, for example, what is being measured.

In reading the press reports it is not clear to me if the reports in question examine wages being earner or the earnings of the whole population whether employed or not. The difference this can make is huge as can be seen by this example -- take the mythical province of Behind Columbia in 1980 and suppose it had one person employed earning 500,001 and another earning $499,999 and 1000 unemployed people earning nothing. The median in 1980 of wager-earners would be somewhere around $500,000 per year. The median for the population as a whole would be somewhere around $0. If in 2005 the wager-earners were now making $499,999, $500,001 and 498 others were now employed in new jobs making $50,000 and 502 were making $30,0000 the median wage for wage-earners would now be somewhere around $40,000 -- a drop of $460,000 but surely no-one would argue that this shows that there has been a decline in the well-being of all.

While this example uses contrived numbers it raises a not unrealistic question: to what extent is the change in median wage due to the growth in employment and participation in the workforce? A large part of the right vs. left debate over the last twenty-eight years (since the election of Ronald Reagan) has been about whether it is better to have broad participation in the economy at potentially lower wages as opposed to securing the earnings of higher income wage earners and protecting the gains they made through the New Deal and related initiatives. Is it too much to expect that the national media -- particularly the Globe and Mail -- will dive in and try to dig out these answers.

The distribution beyond the median is also important. Taking Backwards Columbia as our example again, if we 500 people making $100,001 and 500 people making 99,999 then the median income would be $100,000. If in 2005 the numbers become $150,000 and 50,000 the median would stay the same (there are a few statistical fudges going on there but the point is basically right) but income has become more unequal. By contrast if the numbers were reversed, then a standstill in the median would match with an increase in wage equality. Without really delving into the numbers though and actually showing the distribution merely reporting the median with some vague commentary about possibilities tells us nothing.

Oh well, I guess I will just have to read the report myself -- of course then the headlines should have been kept to "Stats Can Publishes Report"
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