As we try to understand the restive state of our economy and politics, the role of income inequality and the accompanying wealth gap in Western societies remains the source of considerable debate. 

Progressives contend that unequal outcomes are harming social mobility, weakening social cohesion, and contributing to the overall state of political dysfunction. Conservatives, by contrast, point to different arguments including that inequality has stabilized, or that it reflects life-cycle trends, or that it doesn’t really matter anyway. 

I’ve made versions of the latter arguments over the years. My main case has been that unequal outcomes generally aren’t a problem to be solved in a market economy and instead the goal of public policy should be to extend opportunity as broadly as possible. Policymaking attention should, in other words, be paid to fostering greater social mobility rather than trying to equalize outcomes through higher levels of redistribution. 

What if, however, both sides are somewhat right? Or, to be more precise, the truth is somewhere in the middle—namely, the middle of the labour market’s skills distribution. Let me try to explain. 

The chief problem with the Left’s inequality analysis is that it has misread causes. Its arguments tend to imply something corrupt, greedy, or systemic about the unequal outcomes in our society. This is how in large part we’ve ended up with the language of “privilege” permeating modern political discourse. It ceases to be about a question of policy trade-offs and becomes a moralistic enterprise to overturn generations of social arrangements including, in some cases, the market economy itself. 

The whole “tax-the-rich” movement therefore often seems to view higher taxes as an end in itself. Talk of “taxing billionaires out of existence” from leading progressives like Thomas Piketty is a bit of a tell. The case for confiscatory taxes is often implicitly presented as a means to equalize downward rather than as part of an overall plan to boost low-income individuals or households upwards. 

Notwithstanding the inherent flaws in these arguments, it would be a mistake to underestimate their political salience. Polling tells us that Canadians, Americans, and other Western populations broadly support higher taxes on high-income earners. 

This has manifested in growing political action. In Canada, for instance, we’ve seen a steady set of redistributive tax reforms at the federal and provincial levels, including new and higher tax rates on high-income earners, a redistributive carbon tax and cash transfer, and new taxes on capital and now luxury goods. 

Yet while the Left has been wrong in how it has come to think about the causes and in turn proper responses to income inequality, I’ve come to understand in recent years that its basic insight isn’t completely incorrect. Structural changes in our labour market—namely, the relative decline in mid-skilled jobs—are far more responsible for income inequality than any nefarious actors. The decline in manufacturing employment in particular is a major factor in understanding what’s come to be called an “hourglass economy.” 

The basic idea here is that the old goods-producing economy produced a more egalitarian labour market in which most jobs were clustered in and around the middle of the skills distribution. Today’s service-based economy, by contrast, is far more bifurcated into low-paid and often low-skilled jobs in care work or personal services and high-paid and often high-skilled jobs in professional, administrative, and financial services. This labour market development is often described as “job polarization.” 

It’s been occurring across Western economies for the past 30 years or so. Canada is no exception. Between 1989 and 2019, the Canadian economy experienced a 6-percentage point decline in the relative share of mid-skilled jobs (see Figure 1). That number jumped to 7.5-percentage points in Ontario and Quebec where there was a high concentration of manufacturing employment that had historically been a significant source of middle-class opportunity.  

These labour market developments have major political economy implications including for the broader debate about income inequality. As the relative share of mid-skilled jobs falls, many are able to climb up the skills distribution into higher-skilled opportunities, but some invariably fall downwards into lower-skilled employment. The income consequences can be significant: those in high-skilled jobs earn almost four times more than those working in low-skilled jobs. The upshot is that we’ve ended up with a more bifurcated labour market in which unequal outcomes may be increasingly hard-wired into its structure.

A key exception to these trends over the past two decades has been natural resource employment. Research in fact shows that Canada’s job polarization has been less marked than peer jurisdictions because natural resource sectors in general and the oil and gas sector in particular have had significant labour demand for mid-skilled workers and therefore represented an “employment alternative to low-paying service jobs.”

This point cannot be overemphasized: as the labour market has gone through a process of polarization in the twenty-first century, natural resource employment has generally counteracted this trend and in so doing fortified Canada’s middle class. As University of British Columbia economist Kevin Milligan has put it: “The resource sector has contributed substantially to the good jobs that underpin middle-class resilience.” 

There are two main policy takeaways from this analysis. The first is that it should challenge the simplistic view that income inequality is caused by unjust economic forces and therefore the best policy response is greater redistribution in the tax-and-transfer system. This dominant yet wrong interpretation focuses too much on the symptoms of inequality rather than aiming to properly understand and address the underlying cause of an increasingly bifurcated labour market in which unequal outcomes are something of a natural outgrowth. 

The best means for addressing income inequality in the modern labour market is to create a new generation of middle-class opportunities in order to replace the ones that have disappeared in recent decades due to a combination of technology and trade. In simplified terms, this amounts to a “good jobs” agenda dedicated to transforming today’s low-skilled jobs into tomorrow’s mid-skilled occupations by pulling low-skilled workers up the skills ladder through education, training, and productivity-enhancing investments. The key point here is that a new generation of good jobs will ultimately derive from a mix of public and private investments in human and technological capital rather than state-led redistribution. 

The second takeaway is that policymakers should be more cognizant of the anti-inequality role played by resource-based employment in Canada’s labour market. This of course doesn’t mean that we shouldn’t pursue ambitious climate policies including possibly imposing high emissions standards on resource-based companies. But it does mean that we ought to be more cognizant of the employment effects of climate policy and the extent to which it may lead to greater job polarization and in turn contribute to more inequality. 

This reckoning seems particularly important for progressives who often demand both more stringent climate policies and greater action on inequality. As Milligan has argued: “For Canadians concerned with inequality, the equalizing effect of resource development on our economy is too strong to ignore.”

The main point though is that understanding the current state of inequality through the lens of job polarization should shift the focus of our policy debates from taxing the rich to creating the next generation of good, middle-class jobs. That would be a healthy development for our economy and politics. 

Every election cycle in Quebec tends to bring about debates about linguistic laws and their necessity. Given that francophones comprise less than two percent of North America, fear of cultural assimilation helps drive these debates. However, Quebec history suggests that the economic vitality of the francophone community—not legislation and regulation—is the key to cultural persistence. 

Advocates for language legislation often point to the strong linguistic laws (mandatory French schooling, for example) introduced in the late-1970s^{1Quebec Language Policy https://www.thecanadianencyclopedia.ca/en/article/quebec-language-policy#:~:text=(courtesy%20CP)-,Official%20Language%20Act%20(1974),both%20remain%20the%20national%20languages.} yet ignore the rising vitality of the French language in the mid-20^th century when rates of French-English bilingualism among allophones (those who have neither French nor English as their first language) and anglophones substantially increased. Specifically, in 1951, among allophones and anglophones, 28 percent of women and 36 percent of men could speak French compared to 37 percent and 43 percent in 1971. There were even modest signs of a rising propensity among immigrants to send their children to French schools before the strict linguistic laws of the 1970s. 

This is not to say that the laws had no effect. But the improvements were not due solely to legislation in the ’70s but also to prior factors—including economic growth. 

Back in the late-19^th and early-20^th centuries, French-speaking Quebecers had wages well below those of English speakers.^{2Québec Since Confederation https://www.thecanadianencyclopedia.ca/en/article/quebec-since-confederation} This disparity started to dissipate in the 1940s as the linguistic wage gap began disappearing. In 1941, wages for French speakers were 27 percent below those for English speakers compared to 15 percent in 1971. And by 2001, no significant differences in wages existed. In fact, among younger workers (those born after 1940), the wage gap had nearly disappeared by the 1970s. In other words, during the latter half of the 20^th century, economic growth was simply faster for francophones than for anglophones. 

Why?

One reason is that an increased proportion of francophones finished high school and went on to college and university. The gap in educational achievements between anglophones and francophones fell considerably, which helped close the wage gap. 

In the same vein, language is like an extra year of schooling. We expect schooling to increase income because of the skills and knowledge acquired. Language is also a skill and form of acquired knowledge, which is why economists find that the effect on the income of learning another language is roughly the same as an extra year of formal schooling.^{3Speaking more than one language can boost economic growth https://www.weforum.org/agenda/2018/02/speaking-more-languages-boost-economic-growth/#:~:text=Several%20studies%20show%20that%20languages,than%20their%20English%2Donly%20peers.} 

Immigrants who arrived in Quebec after the 1940s had to pick one of the official languages to speak and the choice of language to learn would have been in great part dictated by the extra income they expected to earn. As the incomes of francophones were increasing relative to anglophones, the profitability of learning and speaking French was increasing as well. This explains the rising proportion post-1940 (but pre-1970s) of immigrants who knew and spoke French.

The rising vitality of the French language was due in large part to the rising economic vitality of francophones. French-language advocates and policymakers should learn this lesson from the past, as it’s key to any future improvements in the vitality of French in Quebec. Policies that improve economic growth among francophones in Quebec will likely invite non-francophones to converse in Molière’s language.