Prosperity, inequality, and poverty

Released September 2007

In its tenth Working Paper, Prosperity, inequality, and poverty, The Institute for Competitiveness & Prosperity explores the relationship between prosperity, income distribution, and poverty.

While Ontario has one of the most prosperous in the world, inequality of income distribution in the province has also been increasing. But the same is true for Canada and for most developed economies. 

The working paper finds 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. Researchers who have studied this phenomenon are not in complete agreement about the driving forces behind this inequality, but one consensus that is emerging 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 not enough to overcome market forces. 

While inequality growth appears related to long-term global factors, the incidence of poverty seems to follow local economic trends. The Institute finds the proportion of Ontarians below a low-income threshold increases during recessions and falls during better economic times. Also, 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. Since each of these groups is excluded from Ontario’s prosperity for its own reasons, each requires its own solution. 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, and we cannot afford to exclude people in these high risk groups.

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

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Topics: Social policy