Writing in the National Post, Macdonald-Laurier Institute author Philip Cross picks apart a
“The report ultimately is an unappetizing mix of anecdotes, unjustified extrapolations and bad statistical analysis, all strung together by a flimsy storyline that tries to justify social engineering as evidence-based”, he writes.
By Philip Cross, March 5, 2015
United Way Toronto issued a report last week called The Opportunity Equation headlining that income inequality in Toronto was the highest in Canada, undermining “our city’s economic progress, health and social fabric.” No hint of exaggeration there. Portraying opportunity as a mathematical equation whose parameters are set by inequality betrays a mindset that views society as a mechanical system that can be controlled by industrious social engineers. This is borne out by the report’s ideologically-driven analysis and poor grasp of statistics and economics.
Before dissecting its worst errors, let’s summarize the report’s main findings. It claims that income inequality among Toronto households rose 31% between 1984 and 2005. Based on an Ekos survey, it finds Torontonians in 2014 were anxious about their own economic futures and those of their children. It concludes that where one lives increasingly determines your destiny.
There is so much wrong with this report, it is hard to know where to begin. Let’s start with the income data. Incomes are measured before taxes but after transfers. Using before tax data exaggerates inequality within a province since high income earners need more gross income to pay tax, and distorts the comparison across provinces because high income earners in Ontario are compensated for the government swiping twice the tax that Alberta collects.
The analysis is outdated on a couple of points. The latest data point is 10 years old, and therefore misses the whole resource boom in western Canada that threatens all the inter-city comparisons with irrelevance. And the largest increases in inequality occurred in the 1980s and especially the 1990s, with the smallest increase over the last decade. In other words, the problem being highlighted was most pressing 20 years ago. Finally, the report uses survey instead of income tax data; the difference is important, as real income growth for the latter was 30 percentage points more than the data used in this report.
Even if one accepts the report’s data, there is no concrete evidence that inequality increasingly determines long-run outcomes. To study that requires panel data that follows individual incomes over time. Saying that incomes in the past 25 years rose 2% in the poorest neighbourhoods and 80% in the richest only shows that the constantly changing mix of people in these neighbourhoods saw such changes in income. It is likely, for example, that immigrants congregate in certain neighbourhoods when they arrive, get established in our society, and then move to other neighbourhoods, to be replaced by the next wave of immigrants. This reflects a healthy dynamic, the opposite of the allegation that one’s postal code determines long-term outcomes.
Another obvious methodological flaw is using the Ekos survey for 2014 as the basis for assertions about long-term trends. For example, no claim that people are showing “rising pessimism” can be made without citing their attitudes in earlier years. This is so basic it raises serious questions about the whole review process of this “research.”
The authors routinely make extrapolations which conform to their inherent prejudices, not objective measures of reality. In this vein, the report automatically assumes that the one-third of people who feel worse off than decades ago were lower income people. However, Statistics Canada data clearly show that very few people stay in low income for long, so it is likely that low-income people in one year subsequently became better off, often substantially so. It is more plausible that higher income people are the ones who feel less well off, squeezed by provincial government policies raising their taxes and inflating their hydro bills. Nor does the report explain how it handled Toronto’s substantial immigrant population when comparing their situation today with 25 years ago, when many lived in another country. Whether they feel better or worse off says nothing about the dynamics of what is happening in Toronto.
The United Way wasted precious funds on a survey that found that “Torontonians are anxious about the future and fear the next generation will be worse off.” That is undoubtedly true in every major city in this country, irrespective of the recent trend in inequality, because human nature’s inherent insecurity about future prosperity is constantly exploited by commentators who don’t understand that our standard of living rises inexorably irrespective of the ebb and flow of annual income growth.
The report botches the data and analysis of youth unemployment. It claims youth unemployment in Toronto is 22%, when Statscan data shows it was 18.6%. More importantly, what is really disturbing is that youth unemployment has reached a record high even as adult unemployment has fallen to near a record low of 6.3%. This reflects more how poorly our politically correct education system prepares students for the workplace than a weak economy. Meanwhile, kids living in mom’s basement are hardly destroying our social fabric. The social problems in U.S. cities that the report blames on rising income inequality are attributed by experts such as Charles Murray to the erosion of the family unit, often resulting from government policies.
The report ultimately is an unappetizing mix of anecdotes, unjustified extrapolations and bad statistical analysis, all strung together by a flimsy storyline that tries to justify social engineering as evidence-based. The document is so transparently driven by a political agenda, reflecting the favourite narratives of interventionists (such as the increasingly precarious nature of work, rising inequality, and high youth unemployment as a harbinger of a return to hard times) that the question arises whether the United Way Toronto has crossed the line from charity to advocacy group.
Philip Cross is the former Chief Economic Analyst at Statistics Canada.