SOCA01H3 Study Guide - Economic Inequality

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3 Mar 2011

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Chapter 8: Economic Inequality in Canada
-regarding the sale of body parts people selling body parts are almost invariably poor
and people buying body parts are invariably rich
-North America (especially US) poor people are more likely than rich to suffer illnesses
that could be alleviated by organ transplantation and yet are less likely to be offered
transplant opportunities In the US, this is largely the result of the poor not having
adequate private health insurance to cover transplantation costs
-Materialism, the attempt to satisfy needs by buying products or experiences, is a
defining characteristic of modern society economic prosperity has made Canada one
of the best countries to live in
-Figure 8.1 shows growth of prosperity in post-WW2 Canadian economy (Note:
incomes in graph corrected for inflation) Today’s average income $70000 versus
$30000 in the early 1950s
-purchasing power of families rose b/c economic productivity was enhanced by
improvements in workers skills and by advances in the technologies used for
-Notice from Figure 1 that average earnings have increases at a slower rate recently
event though the number of earners in a family increased more women entered the
paid labour force Despite working harder and longer, families incomes have not
grown proportionately
-Figure 8.1 simplification b/c it is based on averages
-economic prosperity and benefits of materialism are not equally shared
-two extremes (rich and poor) most of use inb/w the two extremes
-best way to measure inequality that falls b/w these two extremes organize into
-the concept of the share of income held by each quintile is frequently used to
investigate income inequality in Canada and elsewhere
-Figure 8.2 shows that for 2002, lowest quintile (20%) of income earners received
4.6% of all income while the top quintile received 45% of all income almost half of all
income was held by 20% of individuals and families
-Income inequality is somewhat less marking in Canada than in the US
-Figure 8.2 also shows that since the mid-1980s, there has been growing evidence of
widening income inequality in Western industrial countries, including Canada
-incomes in Figure 8.2 pre-tax incomes: the money ppl receive before paying taxes
-Table 8.1 illustrates that in 2002, the govt did redirect some income from the highest
earners in Canada (the top quintile) to each of the other quintiles
-furthermore, during the last decades, redistributive effort of governments declined in
Explanations of Income Inequality
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-much about income inequality traces back to what kinds of work (career, job) a person
is able to obtain (see Table 8.2)
-Although talent and effort matter, rewards follow only when these are refined into
particular skills who gets to develop which skills depends on access to learning
-when individuals begin to participate in formal education, what they encounter varies
in compatibility with earlier experience, mostly gained with family members
-success at formal schooling is the key to acquiring economically valued skills natural
talent and effort are important ingredients in this process, to be sure, but education
matters a lot
-importance of education as a determinant of occupation and income continues to
-although education opportunities have expanded enormously, in nearly all developed
economies, including Canada, the chances of advancing in educational systems has
consistently remained higher for people born into families that are relatively more
-Individuals must supply talent and effort to accumulate human capital (useful
knowledge and skills) but rates of success also depend on the human capital their
families accumulated in the previous generation
Human Capital Theory (HCT)
-HCT stresses the increasing centrality of education as a factor affecting economic
success human capital is investment in education and training
-knowledge intensive jobs are increasingly numerous in Canada and better educated
workers are more skilled and productive in these jobs b/c they have made investments
in acquiring the research skills and knowledge base essential to the new economy
-much evidence supports a HC interpretation of the link b/w schooling and incomes but
this is not a complete explanation for why ppl earn what they earn
-part of the reason why ppl with the same amount of human capital may receive
different economic rewards is that they possess different amounts of social capital
Social capital refers to peoples networks or connections knowing the right people
and having strong links to them helps in attaining opportunities
-A related version of this argument is captured in the notion of cultural capital
-cultural capital emphasizes a set of social skills people have, their ability to impress
others, to use language and images effectively and to influence and persuade people
-social capital stresses your networks and connections with others but cultural capital
emphasizes you impressions managements skills and your ability to influence others
-both concepts emphasize that families higher in the social hierarchy enjoy more
capital of all types
Summary: natural talent and effort are important, level of education is a critical factor
in finding continuous, well-paying employment and in addition, social or cultural
capital is consequential for many in finding economic success see Figure 8.3
Income Vs. Wealth
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-Table 8.3 suggests a mix of opportunism, business acumen, and a family fortune as
key determinants of wealth
-also illustrates the increasingly diverse ethnic origins of elite families in Canada
-only a few families acquire the great wealth of major business enterprises, but all
families own assets and these add up to greater or lesser family wealth
-Figure 8.4 shows the percentage of Canadian families that had accumulated wealth in
1999 two patterns stand out 1) for most families, wealth accumulation is fairly
modest and 2) the relative few who manage to accumulate a lot do so relatively late in
-Unfortunately, social scientists have neglected the study of wealth, partly b/c reliable
data on the subject are hard to find
-US has surpassed all other highly industrialized societies in wealth inequality
-Table 8.4 1999, wealthiest 1/5 of families owned 73.1% of the wealth while poorest
had -0.6% of the wealth
-also wealth inequality in Canada increases sharply from 1984-1999 and the net shift
of wealth was away from the bottom 90% in favour of the wealthiest 1-%
-Wealth inequality is also significant b/c only a modest correlation exists b/w income
and wealth income distribution has little effect on the distribution of wealth
Income and Poverty
-at the other extreme of the income distribution are the homeless
-in recent decades the number of ppl with no fixed address has increased considerably
-homelessness is one manifestation of poverty
-poverty lacks an agreed definition should poverty be defined in absolute or relative
-an absolute definition of poverty focuses on bare essentials (food, shelter, clothing, etc)
-what constitutes bare essentials depends on social context (e.g. heating is essential
here but not in Ethiopia)
-Should poverty be defined on the basis of income or on the basis of consumption?
-Definition of poverty matters b/c social policies are enacted (or not enacted) based on
levels and trends in poverty
-Social policy has a profound impact on the distribution of opportunities and rewards in
-politics can reshape the distribution of income and the system of inequality by
changing the laws governing peoples right to own property
-politicians can also alter patterns of inequality by entitling people to various welfare
benefits and by redistributing income through tax policies
-A definition of poverty showing fewer poor Canadians implies little need for govt
-Unlike other countries like the US, Canada does not have an official definition of
-Stats Canada reports what it calls a low-income cutoff
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