Chapter 15

Chapter 15 Equity and Income Distribution

Chapter 15 Learning Goals

We will be able to Explain how tools such as the Human Development

Index, the Lorenz curve and poverty lines can be used as indicators of socio-economic wellbeing

Explain how government is involved in the Canadian economy as a redistributor of income

Evaluate the effectiveness of government programs designed to ensure greater equity and economic security for Canadians

Equity in Canada Definition of Equity in economics – a distribution

that if just and fair. Sometimes equity means equality and sometimes it is meant to suggest that rewards be proportionate with differences in workload and effort that is required.

Marx’s use of the word equity? Capitalism’s use of the word equity?

See figure 15.1 on page 332. What kind of equity is shown on the graph?

Canada’s Equity Efforts

Canada’s efforts to redistribute income to make life better for all Canadians has resulted in a society that is recognized around the world as a good place to live as evidence by the Human Development Index.

Socio-Economic Indicators

Statistics that show levels of life quality and related  to social needs, economic needs and the environment

The Human Development Index

JORGE Explain, show examples, why is it

important. How can it be used as an economic indicator?

Do an activity that checks for understanding.

Average Incomes in Canada

http://www.itc-canada.com/news/highest_and_lowest_paid_occupations_in_canada.htm (table of 2012 highest and lowest paying jobs in Canada)

Average Median income in Canada is $29 250 (http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil105a-

eng.htm)

The average income is calculated by dividing Canada’s total income by the population. This is called the mean average income.

What is the problem with calculating the average this way? Median Income – the middle income dividing Canada’s

range on incomes into two equal parts. In 1996 Canada’s Mean Average was $25 196 and the Median

Income was $18 891. What does these numbers tell you?

Income Distribution Economists divide Canadian income earners into

groups called Quintiles A quintile is one-fifth (20%) of the total number of

earners. E.g. Suppose the incomes of 10 million Canadians

were ranked from lowest to highest. 1st quintile – 2 million people earning the lowest

incomes 5th quintile – 2 million people earning the highest

incomes

See figure 15.2 on page 333. We can see that the first quintile only recieves 4.4% of Canada’s total income and that the fifth quintile recieves 45.3%.

What do these statistics tell us?

The Lorenz Curve Explain curve, pg 334 How can it be used as an economic

indicator Do question 1 and 2 on the board as a

class. Make the class give the information. Assign questions 3 to class to do

individually.

Reasons for Economic Inequities

Ways to obtain income : wages and salaries, rent, capital gains, dividends, interest, profits, and government transfers.

Reasons1. People have different physical and mental abilities2. People differ in the degree of education and training

that they receive3. Some individuals are willing to work longer and harder4. The assumption of risk and responsibility is usually

rewarded. E.g. oil riggers, high rise construction workers, and other dangerous occupations.

5. Luck and Health - inherit money, win the lottery, marry into money.

6. Family background - high income families vs. low income families.

7. Market power means higher income - size = power=money e.g. McDonalds vs little unknown burger joint.

8. Discrimination – age, gender, ethnicity, and disability. As the population becomes more educated and open minded the discrimination factor has lessened. However, effects of discrimination are still felt in some cultural groups. E.g. African Canadians – higher unemployment and lower wages (pg 337).

9. Regional economic disparities – some regions report lower economic incomes. See chart 15.7. In communities that are dependent on few resources and industries, setbacks in these sources can have large economic repercussions. E.g. the collapse of the fishing industry in Atlantic Canada.

Checking your Understanding

Pg 338 Case Study (this is actually really interesting). Questions 1,2 and 3

Pg 339 4a)

Poverty Lines Pg 339-340 Explain how can it be used as an economic

indicator? Assign “a matter of opinion” pg 341 to

class.

Back to Learning Goal #1

I understand and can explain how the Human Development Index can be used as an indicator of socio-economic wellbeing

I understand and can explain how the Lorenz Curve can be used as an indicator of socio-economic well-being

I understand and can explain how Poverty Lines can be used as an indicator of socio-economic wellbeing

Poverty in Canada The stats

1 in 5 children live in poverty The level of poverty has increased by 4%

since 1980 Food bank use is increasing. 140 000 people

in GTA a food bank

Two Definitions of PoorThe Working Poor – people who work for low wages

The Welfare Poor – The non-working poor.

Canada’s Marginalized

Rural inhabitants where people depend on seasonal employment.

People who live in regions where jobs are scarce. Others lack marketable skills (education and training) to

earn large enough incomes to lift them out of poverty Children born into poverty are at a disadvantage. They tend

to be undernourished and do less well in school. They are also less likely to move on to post secondary education.

Parental lack of self-esteem and motivation can be passed on to children.

Situation is far worse for Aboriginal people in Canada. 43.4 percent are living in poverty.

A look at Aboriginal Culture

Case study pg 345. A unit 4 test question will be derived from this article.

Redistribution of National Income

Scenario 1 – a nation with complete equity. Individuals will be less inclined to work harder and

longer, take risks, and student harder. Efficiency would fall, and with it, the economy’s ability to increase its production of goods and services. BUT, everyone would have income.

Scenario 2 – in a capitalist society income inequalities are essential for it to succeed. Productivity is high and people who work hard and

invest in themselves tend to be rewarded for it. HOWEVER, we have people who are not earning income due to sickness, age, or other circumstances.

The Big Question

How do we ensure people’s economic rights (pg 347 Declaration of Human Rights) and reduce inequality – particularly poverty – without ruining the economy?

Canada’s Answer It established a welfare state (check your

notes if you don’t remember what this is!) It implemented a progressive tax system Tax money goes towards public education,

social services and health care. These are things that benefit all Canadians.

Government finances home-ownership programs, student loan programs, RRSP, RESP, scientific research, business development programs, environmental initiatives etc etc.

Provincial Distribution - Equalization

“Equalization is the Government of Canada's transfer program for addressing fiscal disparities among provinces. Equalization payments enable less prosperous provincial governments to provide their residents with public services that are reasonably comparable to those in other provinces, at reasonably comparable levels of taxation”.

(http://www.fin.gc.ca/fedprov/eqp-eng.asp)

Attacking Poverty – 2 Techniques

1. Structural Strategies – programs that attempt to eliminate the causes of poverty. These focus on long-term economic adjustments needed to reduce disparities. E.g. training programs E.g. Education, Day Care, and increasing

employability and employment (training programs)

Attacking Poverty Relief Strategies

programs that attempt to reduce the symptoms of poverty.

E.g. welfare benefits, seniors benefits, Canadian Pension Plan, Employment Insurance, Child Tax Credit, compensation for work related disability, and charitable and community-based relief e.g. food banks

Checking Your Understanding

How does the nature of Capitalism simultaneously lead to both production efficiency and income inequality?

Create a cost/benefit analysis of the Structural Strategies in general.

Create a cost/benefit analysis of the relief strategies in general. (you don’t have to go through each strategy)

Learning Goal 2 and 3 - Checklist

I am able to explain how the government is involved in the Canadian economy as a redistributor of income

I am able to evaluate the effectiveness of government programs designed to ensure greater equity and economic security for Canadians