A little help? Income inequality in BC could have been better under both the BC NDP and the BC Liberals

(Burnside Road, Victoria)
* This is the third segment of a four part analysis of BC’s economic performance under the BC NDP government(s) in the 90s and the BC Liberals government(s) since. The summary page can be read here

 

The Gini Coefficient and the Kuznets Ratio

BC is one of the most unequal Provinces in Canada, but our relative standing (compared to other Provinces and Canada as a whole) has been pretty steady since the BC NDP formed government in 1991. Given the stories regularly told about the BC Liberals being primarily a party of the wealthy, I was a little surprised by this. As I don’t have the Labour Force Survey microdata, I can’t look at the exact distributions of wealth over the time both parties were in office. Instead, I decided to use two metrics: the Gini coefficient and the Kuznets ratio. Both are imperfect measures of inequality, but taken together they begin to paint a picture.

The Gini coefficient essentially measures how far from perfect income equality is an economy. A coefficient of 0 means perfect equality; a coefficient 1 means one person literally has everything. Most industrialized countries have Gini coefficients between 0.25 and 0.4 (the US, one of the most unequal rich countries, has a coefficient around 0.39; for Canada it’s around 0.31). As the Conference Board of Canada had this analysis ready to go based on Statistics Canada data, I use their figures and visualization based on after-tax income (without permission, I acknowledge).

Gini
Source: Conference Board of Canada

.During the 1990s, when the BC NDP’s was in government, inequality rose in most of Canada. In BC the Gini coefficient rose from 0.28 to 0.33–about the same as in Ontario and Canada as a whole.

The Gini coefficient rose from 0.28 in 1991, when the BC NDP formed government, to 0.33 in 2001, when the BC Liberals took office. It has since declined to 0.31. On average it was lower under the BC NDP than under the BC Liberals, but compared to the other jurisdictions it was pretty even under both parties (it has relatively declined very slightly under the BC Liberals).

But the Gini index doesn’t tell us exactly how that inequality has decreased (for example, whether wealth is spread more equally among the wealthiest people or among the middle class), so I also look at the Kuznets ratio, which measures the share of income received by the top 20% of earners divided by the share of the bottom 40% of earners. This gives us a sense of how the highest earners are doing relative to the poorest (this includes reported income from sources like employment and investments, but ignores wealth including the value of assets like housing, which is obviously problematic). A Kuznets ratio of 0.5 would imply perfect equality; a ratio of 2 suggests the top 20% of earners are together earning twice as much as the lowest-earning 40%.

Kuznets
Kuznets Ratio, After-tax Income.
Data sourced from Statistics Canada (April 2017)

.

While the Kuznets ratio spiked to 2.2 during the first year the BC Liberals were in office, it broadly declined thereafter, through 2014

Again using StatsCan data (Table 206-0032) which were available through 2014, I decided to do the analysis using after-tax income. As with the Gini coefficient, the Kuznets ratio crept up over the 90s across Canada. In BC it went from 1.66 in 1991 to 2.06 in 2001.

While it spiked to 2.2 during the first year the BC Liberals were in office, it broadly declined thereafter, through 2014 (the last year for which data were available), to 1.85. Put differently, relative to the poorest earners and looking at after-tax income, the highest earners were actually doing worse in 2014 compared to the last year the BC NDP were in office.

Making too much out of this would be a mistake, as it’s clear the Kuznets ratio can fluctuate a lot from year to year (and we don’t have data for 2015 or 2016). However, taken with the Gini coefficient figures it does seem that inequality in BC has been stable or may even have improved very slightly over the BC Liberals’ time in government–though it remains above what it was for nearly all of the BC NDP’s time in office, and has on average been above that seen in the other jurisdictions over the entirety of the BC Liberals’ time in office. As with the GDP/GDP per capita and labour market figures, it seems inequality outcomes under both parties were about the same relative to the other jursidictions. This is to say that it could have been better under both parties. But as we still can’t see any real difference in relative economic performance between the two parties, I guess it’s time to look at what happened to Provincial debt during their respective time in government.

 

Detailed analysis, Part 4: Provincial Debt

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