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Michael C. Wolfson and Brian B. Murphy
Conventional wisdom has it that U.S. society is both richer and more unequal than Canadian society and that the two have become more unequal in recent decades. Moreover, increasing globalization has raised concerns about a "race to the bottom"—that global competition in the production of traded goods and services is forcing countries with more generous social transfers or more egalitarian wage structures to abandon these mechanisms or risk losing out. This article addresses such conventional wisdom by focusing on a comparison of income inequality in Canada and the United States over the past two decades. Given the similarity of the two countries’ societies, as well as their close and growing economic integration, with the highest level of bilateral trade of any two countries in the world, this comparison provides an opportunity to assess the possible impact of globalization on the convergence of income inequality.
The distribution of income in any society is complex and multifaceted. The analysis that follows endeavors to give an overall picture by presenting data from several perspectives. In particular, it starts with data on the labor market from an individual viewpoint and then moves to the broader perspective of families and their disposable incomes.
A number of intriguing results emerge from the analysis. One is that, even though the U.S. economy appears better off in terms of total output per capita, families (including unattached individuals) living in the United States are not necessarily better off, in terms of disposable income, than their Canadian counterparts. Indeed, roughly half of Canadian families had disposable incomes in 1995 that gave them higher purchasing power than otherwise comparable U.S. families. The reason is that the very rich in the United States pull up the average income much more than in Canada, while those at the bottom of the U.S. income spectrum have less purchasing power than those at the bottom in Canada.
This excerpt is from an article published in the April 1998 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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