Issues in the Analysis of Inequality

In spite of data and methodological challenges, research has largely reached the conclusion that earnings inequality has risen in Canada, the US and elsewhere, and that the rise has been mainly driven by large increases at the top of the earnings distribution. Researchers offer two competing explanations for causes of the rising inequality: (1) innovations in information and communication technologies, and (2) institutional changes such as the freezing of the minimum wage, decline in unionization, and the spread of performance-related pay increases. Inequality is influenced by changes in population composition, specifically, the size of cohorts entering the labour market, and immigration. Not much research has examined the effect of cohort size in Canada. Immigration seems to have reduced inequality by decreasing the wage levels of college graduates, but it may have also increased inequality by putting pressures on the earnings of young, and new entrants to the labour market. Inequality can be and has been reduced through the tax and transfer system. However, because measurement of inequality is fairly fragile, policies that try to weaken the causes and ameliorate the consequences of inequality need to be sensitive to issues of both measurement and substance