Institute releases Tenth Working Paper

For Immediate release
September 10th, 2007

Growing prosperity is the best avenue to lower poverty in Ontario
The Institute for Competitiveness & Prosperity releases new findings on the relationship between Ontario’s prosperity, inequality of income distribution, and the incidence of poverty.

Toronto – While Ontario has one of the most prosperous economies in the world, inequality of income distribution in the province has been rising since 1980. A more important consideration, however, is the persistence of poverty among high risk groups.

Poverty and inequality are not the same.

Inequality has also been increasing in Canada and in most developed economies. The factors that are driving this growing inequality – technological change and the strengthening importance of knowledge and skills – are also important factors for prosperity growth. But it is incorrect to say that greater prosperity is driving greater inequality.

Poverty is concentrated among six high risk groups – high school dropouts, recent immigrants, lone parents, unattached individuals between the ages of 45 and 64, the disabled, and Aboriginals. Individuals in these groups are much more likely to be at the bottom end of Ontario’s income distribution and are more likely to live in poverty. To help these people, we need greater investments in their skills and capabilities. These can be funded more easily if Ontario achieves its prosperity potential. Then, in a virtuous circle, if more of these Ontarians participate in its economic development, our prosperity will grow even further.

These are some of the key conclusions of Working Paper 10, Prosperity, inequality, and poverty released today by the Institute for Competitiveness & Prosperity.

“We have been urging Ontarians for five years to pursue a prosperity enhancing agenda because we are concerned that we are not living up to our full potential, and this means less opportunity for individuals and for governments to pursue worthwhile social and investment spending,” said Roger Martin, Chairman of the Institute and Dean of the Joseph L. Rotman School of Management at the University of Toronto. “But we sometimes hear the objection that increasing prosperity will only benefit the rich and turn Ontario into a Darwinian-type economy where more people will wind up in poverty.” The purpose of the working paper is to explore the relationship between prosperity, income distribution, and poverty.

The working paper did find that income is being distributed less equally than it was 25 years ago – income earned by those at the top has outpaced income earned in the middle and the bottom. This is a phenomenon that is occurring in many developed economies including Sweden, Norway, Australia, and the United States. Researchers who have studied this phenomenon are not in complete agreement about the driving forces behind this inequality, but an emerging consensus is that knowledge, skills, and technological capability are more important with advancing globalization. Those with fewer skills will find their income potential is reduced. Government redistributive policies through progressive income taxes and transfer payments have reduced inequality of income distribution, but they have not been enough to offset market forces completely. There is, however, some evidence that inequality has not been increasing in the past few years.

While higher inequality appears related to long-term global factors, the incidence of poverty seems to follow local economic trends. “We find that the proportion of Ontarians below a low-income threshold increases during recessions and falls during better economic times,” said Martin. “And poverty is experienced by individuals in six specific high risk groups who are nearly four times more likely to be below Statistics Canada’s Low Income Cut Off.”

We cannot afford to exclude people in these high risk groups from opportunities to emerge from poverty and to become strong contributors to our economy. Since each of these groups is excluded from Ontario’s prosperity for its own reasons, each requires its own solution, which the working paper highlights. To the extent we are not successful in helping individuals in these groups move out of poverty, we are hurting our future prosperity potential. We need the skills and capabilities of all Ontarians in creating economic success.

The Institute concludes that if Ontario succeeds in realizing its full economic potential by following an agenda for prosperity, including focused and innovative solutions for addressing poverty, more Ontarians will contribute to and participate in the fruits of enhanced prosperity. Increasing prosperity and addressing poverty will create the virtuous circle Ontarians desire.

About the Institute
The Institute for Competitiveness & Prosperity is an independent not-for-profit organization established in 2001 to serve as the research arm of Ontario’s Task Force on Competitiveness, Productivity and Economic Progress. The Institute is supported through the Ontario Ministry of Economic Development and Trade. Reports published by the Institute are primarily intended to inform the work of the Task Force. In addition, they are designed to raise public awareness and stimulate debate on a range of issues related to competitiveness and prosperity.

Please visit the Institute’s Web site http://www.competeprosper.ca for more information.

The complete report can be downloaded directly from:
http://www.competeprosper.ca/download.php?file=WP10_FINAL.pdf
For more information contact James Milway, Executive Director of the Institute for Competitiveness & Prosperity at 416.920.1921 ext. 222.