Income inequality across Canadian provinces in an era of globalization: explaining recent trends

In this article, I use panel data methods to investigate possible factors influencing recent trends in income inequality across Canadian provinces. The ratio of the income share of the highest-to-lowest quintiles and the Gini coefficient of total income are used as measures of inequality. Both point to rising levels of inequality from 1981 to 1999, especially during the 1990s, and the estimation results suggest that several factors have had significant effects on such an increase. In particular, an increase in international trade, technological change, educational heterogeneity, and the unemployment rate are found to contribute to greater inequality. Deindustrialization and declining government transfer payments to persons are also factors explaining the rise in inequality. In contrast, an increase in the female labour force participation rate appears to have dampened inequality. There is also some evidence of a negative association between de-unionization and inequality while no significant association is found between inequality and other demographic shifts, such as immigration and the share of the population over the age of 65.