To whom do we compare ourselves when we think about reducing inequality?
On June 6, 2012, former Toronto mayor John Sewell and conservative MPP Peter Shurman had the following exchange before the Ontario Parliamentary Committee Hearings on the Ontario Budget Bill (55):
Mr. Peter Shurman: Thank you, Mr. Sewell. I appreciate your presentation. I’m interested in getting a clearer definition of what “equality” means to you. In a perfect world, does everybody make the same amount of money?
Mr. John Sewell: No, not at all. What I’m trying to do is reduce inequality.
Mr. Peter Shurman: Please be more specific in your definition of what that means so I understand it better.
Mr. John Sewell: Terrific. What I would suggest—really, really simple—is I think it would be good if [MPPs] didn’t get paid any more than five times the average amount that people at the very bottom of the system get paid ... You must remember that when I grew up, when I went to school—university across the street there—the economic inequality in society was much, much less than it is now. In fact, if you took the top 20% of society and compared them with the bottom 20% of society, you’d find that their incomes, the top, were only four to five times higher than those at the bottom. Now, it’s more like eight or nine times higher. We’ve got to reduce that. That’s the only way we’re going to get a better society.
Mr. Peter Shurman: Interesting, because I think you and I grew up in the same times. I grew up in a relatively modest family; I could even say poor and not be stretching the point. At this point, I’m not a rich man but I’m not a poor one either. No risk, no reward. What do you think of that adage?
Mr. John Sewell: I’m not quarrelling with that at all.
The Occupy movement has succeeded in turning income inequality into a public issue. Almost everyone knows now that the rich are getting richer, the middle class is stagnating, and the poor are getting poorer.
Those among us who study history know that extreme income inequality is the stuff of nightmares-- concentrations of fabulous wealth in the hands of just a few, while millions live close to starvation, from Imperial China to Czarist Russia to the England of the early Industrial Revolution. Are we headed back in that direction? What can we do, from a public policy perspective, to stop the drift?
It is hard to talk about income equality because it is an abstraction, and a negative abstraction at that. It is not a concrete issue like homelessness, with concrete solutions, such as supportive housing. The solution to inequality is not “everybody makes the same amount of money,” as Messrs. Sherman and Sewell agree. The answer is to reduce inequality. The problem is that no one has a magic formula for how much inequality should be reduced.
Former Manitoba Premier and Governor General Ed Schreyer was perhaps the first public leader to invoke the ‘pay scale solution’ to inequality. In the 1970s, he famously said that a CEO shouldn’t make more than two and a half times what a worker does. In the intervening decades, CEOs have pulled a long way ahead of that. They’re making 10 times, 20 times, 30 times, 100 times, and 1000 times what wage-earners make. We now have Tim Cook, the CEO of Apple, making $378 million per year. That is about $1.1 million a day.
For Mr. Sewell, a simple example of the pay scale solution was to reduce the salary of an elected representative to no more than five times what people “at the very bottom of the system” were being paid. At the budget hearing Mr Sewell was addressing, another MPP said, under his breath, “Gee, it might be nice to make as much as a rookie constable.” This was not for the record, of course. But there’s Mr. Sherman’s point again. The rookie constable with the overtime hours is going to make more than $75,000 – perhaps more than the MPP would under Mr. Sewell’s equality scheme.
Few of us think there is one scale that embraces all types of work and all types of pay. In addition, opinions, biography, effort, family, fame, study, risk, reward, and personal choice all figure into the cacophony of scales we use to judge the worth of our labour.
But notice that the MPP compares himself to a police constable, a fellow servant of the public, someone within his frame of reference. Everybody does this. When we seek to reduce inequality, we compare ourselves to others within a frame of reference that makes sense to us.
Let me give you another example. I recently overheard a conversation in which a middle aged man despaired at the inability of Toronto City Council to cut the wages of janitors 50% -- from $23 an hour to about $11.50. Later on, he talked in glowing terms about how a smart Toronto sports franchise had snagged a ball player for $14 million a year.
The pay ratio between the janitor and the player is 312:1 at a $23.oo hourly rate. The pay ratio rises to 624:1 at an hourly rate of $11.50. Should I have burst into the conversation and confronted the gentleman, asking him how he justified a professional sports player receiving 624 times the salary of a person who keeps our public buildings clean? The answer is “no,” because I don’t have an answer for how much a ball player should be paid compared to a janitor. I know that 624 times is too much but I don’t know where the ratio should be capped.
Most people don’t compare themselves to ball players, or hockey players, or to CEOs for that matter. But they can see where they fit in relation to the janitor or the rookie constable. Professional athletes and CEOs are in some other, far-off land of remuneration.
The proportionality debate always comes down to the people with whom you compare yourself. If things start to get too unequal within your own group, then it becomes an issue, but it doesn’t seem to become an issue between groups. Proportionality is an unsuccessful way to put forward solutions for inequality, because it does not take this mindset into account. Inequality is a negative abstraction with no absolute solution – a very difficult policy frame indeed.
The bottom 1%: Single people receiving social assistance
I would now like to turn to a very clear example of inequality: single people receiving welfare – the bottom 1%. Few of us compare ourselves to people receiving social assistance. They are not in our group. Perhaps that is why, just as ball players and CEOs can score stratospheric pay packets without much backlash, low-income people’s pay packets can drift ever lower without serious debate.
By June 2012, three years following the greatest recession since the Great Depression, 1.1% of Ontarians (158,000 single men and women) received social assistance (Ontario Works). That number has increased by more than 65% (from 95,000 to 158,000) since the year 2000.
Ontario’s single social assistance rate was $663 a month in 1993. If it had been adjusted for inflation each year since 1993, the rate would now stand at $944 a month. But that is not what has happened.
As of December 2012, Ontario’s single social assistance rate will be $606 a month. Of that, $230 will be allocated (by regulation) to basic needs, including food, clothing, and personal needs and $376 to shelter costs. The minimum monthly cost of a nutritional food basket -- requiring secure, energy-efficient, and affordable storage, freezing, refrigeration, and cooking facilities -- is $270. The costs of shelter are equally distressing.
It would take a 56% rate increase to equal the single rate paid in 1993. Who else in Canadian society has seen their base income rate drop by 56% over the last 19 years? Not janitors and definitely not ball players. This is a true measure of greater inequality for the bottom 1%.
One of the arguments for keeping social assistance rates low is to provide an incentive to take work. In 1993, the social assistance single rate stood at 60% of full-time minimum wages ($6.35 an hour). The social assistance rate for singles now stands at 36% of the full-time minimum wage, which is $10.25 an hour. As I have said, the number of singles on social assistance has increased by 65%. Clearly, the financial incentive is not working.
If we were to frame this as a proportionality issue, we might say that it takes 47,000 social assistance recipients to receive the equivalent of Tim Cook’s annual salary. But as we have seen, most people cannot make sense of a comparison between a CEO and a welfare recipient. Perhaps it is more compelling, even more chilling, to look at it this way: I mentioned that the social assistance single rate now stands at 36% of full-time minimum wage. That proportion is the same as it was in 1937, at the height of the Great Depression, when minimum wages were first legislated.
We all know where this slide began. In 1995, the Harris government cut the single rate by 21.6% to $520 a month. The rate was not adjusted in the next 8 years. The McGuinty government inherited the $520 rate and has raised it several times, for an aggregate increase of 16.5%.
The current $606 a month rate – in real terms – is $115 a month less than what it was following the Harris cut of 21.6%.
The question asked by the Limbo dancer during the dance craze of the 1960’s was: “How low can you go?” The answer in Ontario seems to be: “Let’s keep going and see where we get to.”
But this sort of inattention is not just bad social policy. It keeps a significant cadre of the poor in virtual destitution, with little hope of escape. We can do better.
