Inequality Archives - Centre for Future Work

The K-Shaped Economy

Jim Stanford — Sat, 23 May 2026 17:57:54 +0000

Millions of Canadians continue to struggle to pay the bills for the necessities of life, and with Donald Trump’s trade war and his new conflict in the Middle East, things are getting worse. Meanwhile, the stock market sets record highs and financial wealth become increasingly concentrated in the hands of a small minority. Based on income tax data, the richest 1.5% of Canadians own over half of all net financial wealth (based on distribution of capital gains).

The striking gap in economic trajectory between a lucky elite at the top, and the challenges faced by the majority of society, has given rise to the term ‘K-shaped economy.’ The term first became popular in describing the growing gap in U.S. society, but it is increasingly applicable in Canada, as well.

In this 25 minute podcast for CityNews’ In This Economy program, Centre for Future Work Director Jim Stanford spoke with host Kris McCusker about the K-shaped economy, its causes and consequences.

Narrowing the gap between the two parts of the ‘K’ requires addressing both the ‘predistribution’ of income (empowering workers to capture a larger share of value-added in the first place) and the ‘redistribution’ of income (using government taxes and transfer programs to achieve greater equality in after-tax incomes).

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Alberta Continues to Slip in National Wage Rankings

Jim Stanford — Tue, 28 Jan 2025 12:00:13 +0000

After a decade of declining real wages, Alberta continues to lag the rest of Canada in repairing wages and living standards for the province’s workers. That is the finding of new research released by the Centre for Future Work.

Alberta once boasted the highest wages and the strongest labour market in Canada. This was a key component of what was once caused the ‘Alberta Advantage’. Unfortunately, the economic tides have turned dramatically over the last decade. Once a promising place for workers to find jobs, earn decent wages, and support their families, Alberta has more recently demonstrated among the weakest labour markets in Canada. Unemployment is relatively high, wage growth has been far below other provinces, and yet the cost of living is among the highest in Canada.

Alberta is no longer the highest wage province in Canada: payroll data for hourly employees shows Alberta was passed by B.C. in 2023, and more recently by Quebec in 2024 (now ranking third). Average hourly wages in 2024 were under 2% higher than the Canada-wide average – whereas in 2013 they were 17% above the national average.

During 2024, when wages in most of Canada were finally recovering from the effects of post-pandemic disruption and inflation, average hourly wages in Canada continued to lag behind inflation. Average hourly wages, adjusted for inflation, fell by another 0.8%. That’s the fourth consecutive year, and ninth year in the last eleven, that average hourly real wages declined (with wages lagging behind inflation). In contrast, real wages in most of Canada were rebounding briskly in both 2023 and 2024.

Since 2019 (when the current UCP government came to power), real hourly wages have fallen by a cumulative total of 4.5%, by far the worst of any province. Including salaried workers, and adjusting for average working hours, real weekly earnings have also performed worse than any other province: falling 3.4% in inflation-adjusted terms since 2019. In fact, Alberta is the only province where average real weekly earnings were lower in 2024 than in 2019.

In sum, where wages are concerned, workers now face an ‘Alberta Disadvantage.’ Wages continue to go backward, and real living standards are in crisis. This is partly the result of economic challenges and disruptions beyond anyone’s control – like the pandemic, fluctuations in global energy prices, and inflation (which gripped all industrial countries after 2021). Ironically, that inflation was worse in Alberta in 2024 than any other province last year – despite the weakest wage growth of any province.

However, much of Alberta’s wage disadvantage is self-inflicted: the intended outcome of deliberate policies to suppress wages, and shift income to corporations and investors, away from workers. No single policy reveals that anti-wage bias than Alberta’s shameful freeze in the provincial minimum wage: now tied for lowest in Canada, having been frozen through 6 years of rapid inflation. The resulting 17% decline in real earnings for the lowest-paid workers in the province is economically destructive and morally bankrupt.

The effects of this cruel minimum wage policy are amplified by other wage suppression measures – including:

the most restrictive limits on trade unions and collective bargaining of any province;
uniquely austere provincial public sector wage settlements in 2020 and 2021 (which produced especially severe declines in real wages across health care, education, and public administration).

The new report updates earlier research published by the Centre for Future Work in 2024. Unfortunately, the conclusions of that earlier report are ratified in this update: Alberta workers still confront the weakest wage growth, the biggest decline in real earnings, and the most aggressive wage-suppressing policies anywhere in Canada.

Deliberate efforts to suppress wage growth in Alberta have resulted in a widespread decline in real living standards for millions of workers and their families. Wages have not kept up with inflation and Alberta’s high cost of living. While workers elsewhere in Canada are now experiencing robust improvements in real wages, wages in Alberta continue to go backwards. Meanwhile, corporations and investors in Alberta have been uniquely profitable – enjoying the highest share of profits in total GDP of any province.

To reverse these trends, the provincial government can take obvious measures to alleviate the downward pressure on wages, and support workers in rebuilding their real incomes. These include:

Immediately raising the minimum wage by 17% (to reverse the effects of inflation since 2018), and then increasing it in future years to at least match inflation.
Relaxing unique restrictions on union organizing and collective bargaining in the province.
Reaching fair settlements with workers in Alberta’s broader public sector, to repair real wage loses experienced since 2020 and protect against future inflation.

Please see the full report, The Alberta Wage Disadvantage: Evidence on Alberta’s Continuing Suppression of Wages and Salaries, by Jim Stanford. The report was published in collaboration with the Alberta Federation of Labour.

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Strikes Have Economics Benefits, Not Just Costs

Jim Stanford — Sat, 04 Jan 2025 21:27:25 +0000

In the tumultuous years since the COVID pandemic and the subsequent outbreak of inflation, Canada has experienced a large number of work stoppages. Canada experienced over 800 strikes and lockouts in 2023, resulting in 6.6 million days of work time lost. That’s much higher than in most recent years, but still lower than peak levels of industrial disputes experienced in the 1970s and 1980s. The year-end numbers for 2024 (which won’t be published for some months) will show a downturn in days lost (which will likely total about 2 million, including the recent postal strike).

Business lobbyists and commentators complain loudly about the economic costs and disruptions associated with these work stoppages, regularly calling on government to order workers back to their jobs (even violating labour rights guaranteed under the Charter of Rights). It is important to keep in mind, however, that occasional disputes (which in 2024 will have totaled just 0.05% of all person-days worked in Canada) are a healthy feature of a labour relations system that equips workers with enough bargaining power to win fair wages, benefits, and workplace protections. In this light, strikes have economic benefits, as well as costs.

Centre for Future Work director Jim Stanford explored these issues in a recent commentary, originally published in the Toronto Star:

The Cost of NOT Striking

By Jim Stanford

As a labour economist, I’ve been asked repeatedly by reporters about the economic costs of recent labour disruptions: ports, railways, airlines, and most recently postal workers (whose five-week strike was forcibly ended last week).

Reporters press me about the dire consequences for Canada’s economy. How many billions will be lost? Isn’t this the worst possible time for a work stoppage?

I point out that in most cases, major economic losses from work stoppages (whether strikes or employer lockouts) never come to pass. Yes, there are delays and inconveniences. Indeed, that’s ultimately the point of a work stoppage: to impose an economic cost on the other side, in hopes of pressuring them to compromise.

But once workers are back on the job, backlogs get cleared, and production and sales resume. It’s rare that the impacts of a work stoppage can even be detected in national economic data.

Curiously, I have never been asked about the economic costs of not going on strike – that is, the costs of an absence of labour disruptions. But I should be. Because apparent labour ‘peace,’ in its own right, does not automatically signify economic well-being. Instead, it can indicate deep problems in how the economy operates, and how its fruits are distributed.

Without the bargaining power that comes with having a union, including a viable choice to stop working, employers always have the upper hand in wage determination. Wages and conditions will trend toward legal minimums, profits will be higher, and inequality greater.

The wages and benefits won through union power, backed up when needed by strikes, contribute to a more balanced and inclusive economy. And most of the victories won on picket lines don’t only benefit those who walked off the job. Rather, they can spark important progress in all workplaces.

A timely example is a 42-day strike by postal workers in 1981, which won the first paid maternity leave provision in Canada. This right (broadened to both parents) is now enjoyed by most workers in Canada through the Employment Insurance system. Without that precedent-setting strike, it would have taken many more years to achieve parental leave – imposing major costs on families, and the economy.

A telling comparison can be made with Australia (where I have also worked), which has among the strictest limits on strikes of any industrial country. Among other barriers, an unelected commission can order an end to almost any strike deemed too damaging, with no back-to-work legislation or ministerial intervention needed.

Therefore, strikes are rare: relative to population, Canada lost 14 times more days to work stoppages since COVID than Australia. However, Canadian wages have rebounded much more strongly from recent inflation. Real (inflation-adjusted) hourly wages in Canada are now 5% higher than in 2019 – whereas in Australia, they are 5% lower. With less ability to defend wages against post-pandemic inflation, Australian workers have experienced a historic reduction in living standards.

That 10% difference in real wages translates into an extra $135 billion per year in workers’ wallets in Canada. That’s $135 billion more consumer spending power – and right now the economy needs every dollar of it.

To be fair, Australia has other policies (like strong minimum wages) to support wages, even though strikes are rare. But Canada’s system – replete with the occasional frustration of work stoppages – has more successfully protected workers’ purchasing power. Other international comparisons also confirm that when workers exercise real bargaining power, including strikes when needed, wages are higher, and income is distributed more evenly.

It may seem like Canadian workers have been strike-happy lately, as they fought to protect living standards against inflation. But in historical perspective, work stoppages are still relatively uncommon.

Even with the postal strike, work stoppages this year (both strikes and lockouts) will total about 2 million lost days of work: about 0.05% of all days worked. Back in 1976, a record 11 million days were lost – in a labour market half as large. Relative to population, strike frequency is down 90% since then.

Recent strikes have helped rebuild the purchasing power of Canadian workers after the tribulations of the pandemic. In so doing, they served an important economic function: improving incomes, spending, growth, and fairness. And without those strikes, we’d all pay a big cost.

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‘Vibecession’: Reconciling Positive Statistics with Negative Sentiment

Jim Stanford — Mon, 02 Dec 2024 20:29:03 +0000

There are encouraging signs that Canada’s economy and labour market are improving after a period of stagnation brought about by the Bank of Canada’s aggressive interest rate hikes in 2022 and 2023.

Newly released data for the third quarter of 2024 (July-September) shows the economy has continued to grow, albeit slowly. Consumer spending was the brightest light in the third quarter data: growing at an annualized rate of 3.5% (in real, inflation-adjusted terms), and constituting the largest single source of new demand.

Stronger consumer spending is being supported by continued rapid growth in wages. Average wages are continuing to advance at annual rates of 4-5% (depending on the specific wage measure chosen). Wages remain strong despite the rise in unemployment since 2022 (from 4.8% in July 2022 to 6.5% today), and the rapid slowdown inflation (now running at just 2% year-over-year).

This sustained strength in wages is surely causing much hand-wringing in both corporate boardrooms and at the Bank of Canada. It reflects the determined efforts of Canadian workers to win a fair share of the pie they produce: including through an upsurge in trade union action, and pressure (successful in most provinces) for significant increases in real minimum wages.

Wages have now been growing faster than prices for the last 18 months (and are currently growing more than twice as fast as the CPI). The resulting growth in the real purchasing power of wages has more than offset the decline in real wages that occurred during the initial outbreak of post-pandemic inflation.

Real wages are now about 5% higher than in 2019 (before the pandemic hit). Median wages have grown slightly faster than average wages, which indicates that proportional gains were somewhat stronger for lower-wage workers. (Please note that the 2020 peak in both series illustrated on the attached graph reflects a composition effect from huge job losses during the COVID pandemics, which disproportionately affected low-wage workers in retail, hospitality, and personal services; because of those job losses, the average wage for those who kept their jobs seemed to rise, but only until the return to work in those other industries pulled the average back down.)

The more-than-complte recovery of real wages in Canada after the pandemic is among the most successful of any industrial country. The U.S. is another country where real wages have recovered, even more strongly than in Canada – and, again, the strongest gains were received by lower-income workers. In contrast, real wages in most European countries and Australia remain several percentage points below pre-pandemic highs.

Thanks mostly to rapid growth in wages, household incomes have increased significantly in Canada in the last year: up by 7.5% in nominal terms, and over 4% in per capita terms. Again, that is significantly faster than inflation. That growth in incomes, combined with lower interest rates (which the Bank of Canada has now cut 4 times, for a total of 1.25 percentage points) and improving confidence, underpins relatively strong consumer spending. Barring another major global shock, it is likely these results will continue strengthening in coming months. (Unfortunately, there are many candidates for potential global shocks, ranging from Donald Trump’s threatened tariffs to escalation of war in the Middle East or Ukraine.)

These improving economic results stand in contrast, however, to a continuing sense in media and popular discourse that Canadians are angry and pessimistic about the economy. Political polls indicate the federal government is very unpopular (similar to incumbent governments in many other countries), with economic concerns seemingly top of mind for voters. Hyper-polarized social media, and the generally conservative bias of commercial mass media, reinforce the Conservative Party’s mantra that “Canada is broken” due to taxes, deficits, and general economic mismanagement.

This dissonance between positive economic indicators and persistent negative sentiment (especially expressed around politics) remains a puzzle to economists. Some traditional explanations do not hold water:

- Some argue that even if the average real wage has increased, that doesn’t imply that all workers experienced the same gains. Of course that is true – but the nature of an average is that there are almost as many people who got even better wage increases, as who received below-average gains. And the stronger growth in the median wage confirm that the gains, if anything, were even stronger for lower-wage workers.
- Some argue the consumer price index (CPI) used to compute real wages isn’t a ‘true’ measure of inflation. There are certainly some living costs (particularly housing) that are imperfectly captured by the CPI. But, again, there are also ways in which the CPI overstates true inflation (by ignoring the impact of quality improvements or substitution effects by consumers).

I believe the portrayal of rising real wages and strong household incomes above is an accurate depiction of what is happening in Canada’s economy. But as an economist, I cannot explain the contrast between those numbers and apparent sentiment. This negativity is especially visible in political surveys. In contrast, surveys of consumer economic sentiment (such as the Conference Board of Canada index) show gains in confidence this year.

A similar puzzle bedeviled the Democratic side in the recent U.S. election. U.S. economic performance since the pandemic was by far the strongest of any industrial economy (thanks in large part to very strong fiscal stimulus), and wide swaths of society experienced documented economic gains. But anger over the economy (perhaps fostered by negative reporting in the media, and virulent social and alternative media) was the major reason identified by researchers for gains in Republican support. (Claims of a Republican landslide, of course, are far-fetched: Trump received 50% of the presidential vote compared to 48.4% for Kamala Harris. Only in the U.S., with its byzantine electoral system, could this be construed as a “clear victory”.)

Two interesting journalistic reports have tried to make sense of the gap between economic outcomes and mass psychology. Ontario opinion pollster David Herle addressed the economic and psychological dimensions of the ‘affordability’ crisis in a recent episode of his influential podcast, The Herle Burly. The podcast featured Centre for Future Work Director Jim Stanford, and progressive economist Armine Yalnizyan. Listen to their full discussion here.

In response to popular concerns about the cost of living, the federal government recently announced a temporary two-month ‘holiday holiday’ on GST payments on a selected range of products (including some prepared foods and children’s toys). In promoting this measure, Finance Minister Christia Freeland described it as an effort to combat the so-called ‘vibecession’: that is, persistent negative sentiment that, if it restrains consumer spending, could actually hold back the economy. (As noted above, consumer spending and reported sentiment are both growing, suggesting again that the ‘vibecession’ may be more of a concern in the political arena than in the actual economy.)

CBC journalist Abby Hughes pursued this idea of ‘vibecession’, including an interview with the U.S. economist who coined the term. She also interviewed Jim Stanford on the gap between economic and political indicators. Please see Hughes’ interesting feature article here.

Without being complacent about the challenges many workers face surviving in Canada’s harsh and unequal economy, the successes of Canada’s labour market institutions (like strong trade unions and higher minimum wages), which repaired real wages better & faster than most other OECD countries, should be acknowledged and, indeed, celebrated.

Defending and strengthening those institutions (which are now being targeted by Conservatives, and their “Canada is broken” mantra), and fighting for other policies to address bigger material challenges facing workers (especially the housing crisis, which needs a mass non-market strategy to resolve), may be more progressive response to ‘vibecession’ than either temporary tax cuts or a simple-minded crusade to “throw the bastards out”.

The overarching task for trade unions and progressive political movements is to ratify the legitimate anger of working class people over their constrained life prospects (even if they are getting somewhat better, on average!), help them identify the main culprits for that situation (corporate power and greed), and then channel that anger in directions that will make life better for workers – rather than feeding a burn-it-to-the-ground mentality that is feeding right-wing populism here, and around the world.

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Unions and Racialized Workers: Media Coverage and Webinar

Jim Stanford — Tue, 20 Aug 2024 12:30:46 +0000

The Centre for Future Work recently released new research on the extent of wage inequality across racialized categories of workers in Canada, and the importance of union representation in supporting racialized workers to win better jobs and better pay. Please see the full 85-page report, The Importance of Unions in Reducing Racial Inequality: New Data and Best Practices, by Winnie Ng, Salmaan Khan, and Jim Stanford.

The report generated extensive media coverage across Canada. See this detailed story by Rosa Saba of Canadian Press, which appeared in hundreds of newspapers and other platforms, and ably summarized the main findings of the report. Co-author Winnie Ng appeared on several television segments, including CP24 and OMNI News (in both English and Cantonese), while CTV television news featured an interview with co-author Jim Stanford as well as comments from Leslie McCurdy, chair of the Black Council of Windsor-Essex:

Jim Stanford was also interviewed on 13 local CBC Radio afternoon shows, from Cape Breton, N.S., to Vancouver Island, discussing the report’s main findings and policy recommendations.

The co-authors of the report also presented their findings in a one-hour webinar, which was chaired by Larry Rousseau (Executive Vice-President of the Canadian Labour Congress and a long-time activist for racial equality), as well as comments from Colette Murphy of the Atkinson Foundation (which has partnered with the Centre for Future Work on its PowerShare research programme, of which this report is part). See a full recording of the webinar here:

The webinar was attended by an audience of 150 unionists and researchers from across Canada, and internationally. The slides presented by the authors in the webinar are available here.

The Centre thanks the three co-authors, participants in the webinar, and the fifteen racialized trade unionists who participated in qualitative interviews as part of the research for the report, for their contributions to this important discussion. The Centre is also analyzing new Statistics Canada data (which the agency collects in a separate stream from its data on racialized workers) on the importance of unions in addressing wage inequality for indigenous workers in Canada; stand by for a companion report on that topic to be published later this year.

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Capital Gains Tax Preferences Benefit Speculative Corporations and Very-High Income Individuals

Jim Stanford — Mon, 19 Aug 2024 06:00:30 +0000

Capital gains income is starkly concentrated among the richest 1.5% of Canadians, and corporate sectors with non-existent job-creation. They are the main beneficiaries of special loopholes which reduce taxes on capital gains.

That’s the conclusion of a new report, Fact and Fiction on Capital Gains Taxation, co-published by the Centre for Future Work and l’Institut de recherche et d’informations socioéconomiques (IRIS, a Québec-based think tank).

The vast majority of capital gains are received by the highest-income 1.5% of Canadian households, and by corporations in sectors (like financial intermediation and real estate) that focus on buying and re-selling assets – not on production, innovation, or job-creation.

Key findings of the report include:

- The highest-income 1.5% of tax-filers (those with total income over $250,000) receive 61% of individual capital gains, and 67% of tax savings from partial inclusion of capital gains.
- Capital gains are more concentrated among very high-income tax-filers than any other kind of income – even more than other forms of investment income (like dividends or interest).
- Most very high-income tax-filers (over $250,000) report capital gains, and the average those with capital gains report is over $180,000 per year (not counting the capital gains those tax-filers are allowed to exclude). Average tax savings for those claimants (under the previous 50% inclusion rate) is estimated at $95,000 per year.
- For very high-income tax-filers, capital gains make up 18% of their total incomes. For those with less than $100,000 income, capital gains make up less than 1% of their (much smaller) total incomes.
- Capital gains increase the ratio of inequality between top and average incomes by 16%.
- Capital gains have grown seven times faster than overall personal income, and have tripled as a share of total assessed income (per tax-filer).
- Federal revenues were reduced by $38 billion in 2021 due to the partial inclusion of capital gains for individuals, trusts, and corporations. Provincial governments lost many billions more.
- There’s no historic correlation between capital gains taxes and business investment in machinery, equipment, or research. Canada’s strongest sustained technology investment performance was in the 1980s and 1990s, when capital gains inclusion was 66.7% or 75%.
- Capital gains reported by Canadian corporations have doubled since the COVID pandemic, and risen 11-fold since 2002. Corporate capital gains set a new record in 2022 of $87 billion.
- Most corporate capital gains are captured by industries that buy and sell assets, rather than engaging in direct production. A growing share (over one-third) is captured by financial firms.
- The biggest recipients of corporate capital gains, in general, have very poor job-creation records. In the last five years, the two biggest recipients (Miscellaneous Intermediation and Real Estate) received over half of all corporate capital gains, but between them created no net new jobs.

Preferential tax treatment of capital gains has no predictable impact on real investment or job-creation. Treating capital gains more equally with other types of income is not just fair, it will also reduce economic distortions that are undermining real investment and job-creation. Capital gains tax loopholes do not help the middle class – they overwhelmingly aid the rich.

The federal government is moderating the size of these tax loopholes, by increasing the inclusion rate (the share of capital gains which recipients have to declare on their tax returns) from 50% to 67%. This will still leave capital gains facing much lower tax rates than other forms of income (like wages and salaries, which have a 100% inclusion rate), and will only slightly reduce the loss of government revenue from the loophole.

Please read the full report, Fact and Fiction on Capital Gains Taxation, by Jim Stanford.

The report is also available in French.

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The Importance of Unions in Reducing Racial Inequality

Jim Stanford — Tue, 13 Aug 2024 14:00:03 +0000

The Centre for Future Work has released new research regarding union coverage and wages across different racialized categories of Canadian workers. The report also contains a review of efforts by Canadian unions to improve their representation of Black and racialized workers, and recommendations for strengthening the union movement’s practices.

The research confirms that racialized workers are under-represented in unions. New Statistics Canada data, which now disaggregates statistics on employment, wages, and union status according to a set of racialized categories, indicates that racialized workers are significantly less likely to be represented by a union or covered by a union contract. This lack of collective bargaining power contributes to racial gaps in job quality, wages, and employment benefits.

In 2022, racialized workers earned hourly wages almost 10 percent lower than non-racialized workers – and were 8 percentage points less likely to be covered by a union contract. Only one-quarter of racialized workers are covered by a union contract, compared to one-third of non-racialized workers. The gap is even worse for racialized women, reflecting the intersectional barriers they face in accessing decent work – and achieving collective representation to fight for improvements.

The correlation between lower union coverage and lower wages confirms unions need to become more effective at organizing with racialized workers, and engaging with them in collective action for better jobs and better pay. For that to occur, however, unions need to become more visible and more consistent in fighting for racial equality in everything they do: from organizing campaigns, to collective bargaining, to union education, to leadership development, and grassroots community engagement.

This report also shares insights from interviews with fifteen experienced racialized trade unionists, that shed important light on the experiences of racialized workers organizing within unions. These interviews reveal a mixture of hope and frustration: hope that unions can and must be vehicles for racial equality and overall economic justice, but frustration that negative attitudes, inertia, and systemic racism within unions hold back the labour movement’s engagement with anti-racism struggles.

The simple math of Canada’s labour force cannot be denied: if unions cannot become more representative of the growing racialized segment of Canadian workers, their power will inevitably shrink in future years. But to succeed in organizing among racialized workers, and lifting their wages, job quality, and living standards, unions must act as vehicles of racial justice at the same time as they fight for better jobs and wages. From the interviews, and a survey of research and documents on previous union anti-racist initiatives, the report identifies several best practices which can strengthen unions’ racial justice work – and enhance their visibility and credibility among racialized workers.

The report concludes with several recommendations for specific initiatives and reforms so that Canadian unions can rise to the challenge of organizing and mobilizing with racialized workers in the struggle for both better jobs and a racially inclusive and equitable society. The fundamental conclusion of this report is that those two struggles are inseparable.

Please see the full report, The Importance of Unions in Reducing Racial Inequality: New Data and Best Practices, by Winnie Ng, Salmaan Khan, and Jim Stanford.

This report was prepared as part of the Centre for Future Work’s PowerShare program, in partnership with the Atkinson Foundation and the Canadian Centre for Policy Alternatives.

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Self-Interest of Wealthy Investors Explains Over-the-Top Reaction to Capital Gains Reform

Jim Stanford — Tue, 25 Jun 2024 05:16:58 +0000

The federal government’s 2024-25 budget included an important reform to the taxation of capital gains. Capital gains occur when an asset is sold for more than it cost to acquire. Capital gains are heavily concentrated among high-income Canadians – more so than any other form of income. And making matters worse, they receive lucrative tax preferences: until this year, recipients only had to declare half their gains on their income tax (for a so-called ‘inclusion rate’ of 50%). The other half was entirely tax-free. In contrast, other forms of income (like wages and salaries) must all be reported on a tax return: that is, their ‘inclusion rate’ is 100%!

The federal budget announced a change in the capital gains inclusion rate: rising to 66% for corporations, and for individuals above a threshold of $250,000 capital gains in any single year. The number of individuals directly affected by this change will be very small. But they are also very powerful (given the concentrated wealth in the hands of the largest capital gains recipients, and their powerful allies in the financial sector). So this provision is being aggressively resisted by an alliance of wealth-owners, financial advisers, and Conservatives – the latter hoping that rolling back capital gains taxes can be the spark for a broader revolt against general taxation (and the public programs that taxes pay for).

Below is a version of a column by Centre for Future Work Director Jim Stanford, originally published in the Toronto Star, debunking some of the most common myths about capital gains and the proposed tax reform. Dr. Stanford also appeared as a witness in the first hearing into this measure hosted by the House of Commons Standing Committee on Finance; see his opening remarks here.

Capital Gains Reform is Hardly Cause for a Tax Revolt

By Jim Stanford

Finance Minister Chrystia Freeland tabled legislation last week with details on a key feature of her recent budget: reforming the tax treatment of capital gains. At present, individuals and corporations only include half of their capital gains (profits captured by selling an asset for more than it cost) on their income tax returns.

In future, individuals will have to declare two-thirds of those gains in excess of $250,000 in a year (below that threshold, the inclusion rate remains 50%). Corporations will also have to include two-thirds of capital gains in calculating corporate tax (although only one in eight corporations report capital gains at all). Important exemptions (for small business owners, farmers, and start-ups) will be maintained and expanded.

A capital gain results not from producing and selling a product or service, but rather from acquiring and re-selling an asset. It reflects speculation, not production. Other forms of income (like wages for workers) must be fully declared. Granting asset owners this unique preference is morally unfair, and fiscally wasteful.

Since the wealthy, by definition, own most wealth, the benefits of the capital gains exemption are captured overwhelmingly by very well-off Canadians. Indeed, there’s probably no other tax loophole so targeted at the wealthiest Canadians. In 2021 (most recent Canada Revenue data), Canadians with over $250,000 in taxable income made up 1.5% of all taxfilers, yet they pocketed 61% of capital gains exemptions – worth a cool $180,000, on average, to each.

The government cleverly split off this measure from legislation implementing the rest of its budget, in hopes of revealing who in Parliament aligns with the interests of this favoured minority. Ending weeks of speculation, Conservative leader Pierre Poilievre took the bait and voted against the reform. Worried this will show he supports rich “elites,” despite his ostentatious criticisms of them, Poilievre frames his opposition as just the opening salvo in a bigger crusade against overtaxation.

But it’s hard to even interpret this change as a ‘tax increase’. The tax rate on declared capital gains won’t change. It’s the mere fact they’ll have to pay tax at all on an additional one-sixth of their gains (the difference between 50% and 66%) that has the well-heeled reaching for torches and pitchforks. Meanwhile, the rest of us somehow manage to go through life with a 100% inclusion rate for our hard-won incomes.

Finance Canada analysis suggests a tiny fraction of individual taxpayers (0.1%) will be directly affected by this change each year. But powerful voices want to defend this rich loophole for rich people, and are trying hard to portray it as a wider-ranging tax grab. These are some of the most disingenuous myths propagated in this fear campaign:

It Will Undermine Entrepreneurship: A capital gain is not generated by starting and running a business; it’s generated by selling it. If your goal is to profit from running a successful productive business, please keep doing that with no change in your taxes. Generous new exemptions for start-ups mean capital gains taxes will actually fall, not rise, for genuine entrepreneurs.

It Will Discourage Innovation and Productivity: Spending by Canadian business on machinery and innovation has been falling since the 1990s – the exact time when corporate taxes (including on capital gains) were slashed dramatically. Cutting the capital gains inclusion rate (it used to be 75%) didn’t boost productivity; raising it won’t reduce it.

Punishing doctors: Most professionals incorporate to obtain generous tax and liability benefits. Capital gains exemptions are just the icing on that very sweet cake — and most of the icing is still there. Doctors and other professionals can fund retirement like the rest of us (via CPP, RRSPs, TFSAs and savings) despite a smaller capital gains loophole.

What About the Family Cottage?: Any modestly intelligent accountant will easily avoid most or all higher capital gains inclusion on family cottages and farms. Farms have a $1.25 million lifetime exemption. The $250,000 annual threshold can be claimed by each member of a family with shared ownership. And by staging property sale over several years (through a capital gains reserve) that threshold can be invoked five times over.

Most academic economists support this reform because it creates a more level playing field between different types of capital income. But the best argument for it is the $20 billion in additional revenue it will raise over five years, overwhelmingly from Canadians of ample means, to fund important new programs also announced in this budget. This revenue will help Ms. Freeland fund school lunches, affordable housing initiatives, dental care, and disability benefits – while still staying within her fiscal ‘guardrails’.

It’s not just how this revenue is raised, but how it will be spent, that will make Canada a somewhat fairer, healthier place. And make no mistake: wanting to defund those programs is the main motivation for Mr. Poilievre’s opposition to this tax measure, and taxes in general.

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Union Coverage and Inequality in Canada

Jim Stanford — Thu, 19 Oct 2023 17:08:08 +0000

International evidence attests to the positive role of trade unions and collective bargaining in lifting wages and economic security for workers, and reducing inequality – both within workplaces, and across society. In this article, originally published in Jacobin magazine, labour law professor David Doorey (from York University) and Centre for Future Work Director Jim Stanford present Canadian data on the link between the strength of the union movement and trends in income inequality. The material was prepared for the forthcoming third edition of Doorey’s best-selling labour law textbook, The Law of Work.

By David Doorey and Jim Stanford

Strong unions can reduce inequality in society via numerous channels. Most directly, through collective bargaining they lift wages for union members, and negotiate other employment benefits that stabilize incomes and household financial well-being for union members.

Within workplaces, unionization is also associated with smaller wage gaps between workers – since wages are determined according to transparent, negotiated wage schedules (based on seniority, experience, and other objective factors), rather than arbitrary management decisions and favouritism.

In the policy and political arenas, unions mobilize to support public programs that also reduce inequality: from public pensions to unemployment insurance to more progressive taxation systems.

Finally, by lifting labour costs and limiting the unilateral authority of management, unions may reduce the profitability of private firms – although this effect may be partly offset by positive impacts of unionization on labour productivity. Reduced profitability in turn constrains the incomes received by the owners and top managers of those companies. Management bonuses, stock options, dividends, and other forms of profit-dependent income (all received disproportionately by the richest segments of society) are thus reduced, when unions are able to redistribute income from capital to labour. This produces a further moderation in income inequality across households.

The combined effect of these impacts of unions are visible in recent data on income inequality and trade union density in Canada. Canada’s overall union coverage rate (the share of workers covered by a union collective agreement) is higher than in the U.S., but has declined modestly in recent decades – from around 35% in the 1980s and early 1990s, to about 30% today.

In the same period, the share of national income captured by the richest 1% of Canadian households has increased significantly: from under 10% of national income until the early 1990s, to 14% today (with even higher shares experienced during stock market peak years, such as 2007 or 2015). The following chart illustrates this inverse relationship between union coverage top income shares.

Source: Centre for Future Work calculations from Statistics Canada and World Inequality Database data.
1996 data for union coverage unavailable.

Some of the channels linking union power to greater equality listed above are driven by overall union membership and coverage. But some are especially important in the private sector – especially via the impact of unionization on business profits, and hence on the capital income flows received by the richest households.

Unfortunately, annual data on trade union coverage in the private sector in Canada is not available before 1997. Occasional data points are provided by census surveys and other irregular sources. The following table compares the erosion of private sector trade union coverage (which has been more rapid than the erosion of overall union coverage in Canada), to the growth of top incomes.

Private sector union coverage has been halved since 1970: from 32% to 15%. Meanwhile, the top 1% share of national income has almost doubled in the same period: from 8% to 14%. Clearly, the reduced capacity of workers in Canada to use collective bargaining to wrest a greater share of income from private sector employers, has translated into a rising share of income for the richest Canadians.

Another instructive comparison can be made between Canada and its southern neighbour. Canada and the U.S. share many economic characteristics, but a stark difference is the more resilient state of Canadian unions. Overall union coverage in Canada is now almost 3 times higher than in the U.S. (30% versus 11%). Coverage in the private sector is 2.5 times higher than in the U.S. (15% versus 6%). Not surprisingly, the share of national income received by the richest 1% in the U.S. is significantly higher than in Canada: 19%, versus 14% north of the border.

The moderated intensity of inequality in Canada is not solely due to stronger unions, of course. Other policies (including higher and more progressive taxes, more generous public programs, and larger redistributive transfer payments) are also vital in moderating inequality. However, those programs, too, owe their viability in part to the continued influence of trade unions in Canada in political and social debates.

Directly and indirectly, therefore, trade unions play a vital role in strengthening the capacity of workers to win a larger share of the economic wealth they produce, and correspondingly constraining the ability of employers and owners to extract maximum economic surplus. The statistical evidence shows that Canadian unions are indeed doing that. However, to continue to play that role, unions will need to find ways to arrest and reverse the steady decline of union power that is visible in Canada’s private sector economy. Updating labour laws to extend the reach of collective bargaining to more private sector workers will help that cause, as will a heightened commitment by the Canadian labour movement to prioritize organizing in the years to come.

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The Failures of ‘Trickle-Down’ Economics in Alberta

Jim Stanford — Wed, 24 May 2023 21:57:27 +0000

Since its election in 2019, the current provincial government in Alberta has emphasized a classic ‘trickle-down’ economic strategy. It argues that by boosting profits of private business, capital investment will grow, and job-creation, rising incomes, and economic growth will then ‘trickle down’ to the rest of the population.

The key elements of this business-focused strategy (consolidated under the moniker of the ‘Renewed Alberta Advantage’) include relaxed business regulation, a four-year freeze in the provincial minimum wage, privatization of public services, and a one-third cut in the provincial corporate income tax rate (from 12% to 8%).

Those policies are now being debated in the provincial election campaign. For example, the NDP has proposed a partial reversal of the corporate tax cut: lifting it to 11%, still the lowest in Canada. Business leaders and conservatives have responded with dire warnings that corporations would then flee the province, taking investment and jobs with them.

To evaluate these dark predictions, it is important to examine whether the trickle-down strategy delivered any of its promised benefits in the first place. In a new research report (jointly published with the Alberta Federation of Labour), Centre for Future Work Director Jim Stanford has compiled official Statistics Canada data for 10 different economic indicators, comparing Alberta to other provinces since these policies were implemented after the last election.

Contrary to the promises of trickle-down advocates, Alberta’s economic performance has badly lagged other provinces. In fact, by most of the indicators surveyed, Alberta has ranked dead last among provinces since the implementation of these policies beginning in 2019.

For example, business capital spending did not increase under the lower tax rate. When the tax cut began in 2019, business non-residential capital spending weakened. It then plunged further in 2020, when the lower rate was fully phased in, and has remained weak despite the re-opening of the world economy and surging oil and gas prices.

Non-residential fixed capital spending totaled just $45 billion in 2021, almost 20% lower than 2018. That equaled 12% of provincial GDP in 2021 – the lowest since Statistics Canada began publishing provincial GDP data in 1981. Preliminary data suggests the investment share declined further in 2022, to just 11% of GDP. Alberta’s share of Canada-wide business spending has also declined to historic lows since taxes were cut: falling to 21% in 2022, from 24% in 2018.

It’s not just business investment that performed poorly over the last four years. By several other economic metrics, Alberta has badly underperformed other provinces.

In sum, it seems that trickle-down economics has been more focused on redistributing the economic pie, not growing it. Profits have surged to record levels – the only metric on which Alberta outperforms the rest of the country. Unfortunately, the flip side of that unprecedented corporate success has been the erosion of real living standards for most people.

Please see Jim Stanford’s full report, The Failures of Trickle-Down Economics in Alberta.

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