In this paper we analyse the gaps in economic welfare that exist between skilled and unskilled labor in Canada. Following the work of Chardon [1] [2] and Amossé and Chardon [3], we use compe- tency levels as defined in the National Classification of Occupations to distinguish these two groups and then analyse the income disparities that exist between them. Our main findings show that unskilled workers are worse off economically than their skilled counterparts and that the Canadian workforce seems to be more bipolarized than the Canadian population as a whole. We also find strong intra-categorical inequalities within unskilled labor, workers from the sales and services occupational domain being at a disadvantage relative to their peers in other occupational groups. Finally, we show that state intervention, through taxation and social transfers, plays an important role in tightening the inter-categorical and intra-categorical income gaps.
If there has always been an ethical case for the reduction income of inequalities, the economic case for such action has not been convincing [
The core interest of this paper is to analyze the recent evolution of the economic situation of unskilled workers in Canada. To our knowledge, very few studies have compared the economic welfare of skilled labor with that of unskilled labor in Canada. The limited studies have completely relied on a definition of unskilled labor that is solely based on the formal educational attainment of individuals (see Massé, Roy and Gingras, 1998). We examined this issue with an approach more in line with previous work by Chardon [
The rest of this paper is divided as follows. Firstly, we focus on methodology and present in greater detail our empirical definition of unskilled labor. In this section, we also provide additional information on the source and type of data used in this study, and the statistical tools used to assess income disparities between the skilled and unskilled. Secondly, we draw a statistical portrait of the evolution of the income gap between skilled and unskilled labor in Canada. Finally, we conclude with our main findings.
Our empirical distinction between skilled and unskilled work resembles that of Amossé and Chardon [
In order to differentiate skilled work from unskilled work we use the 2011 National Classification of Occupation (NCO). More specifically, using competency levels as they are described in the NCO, we define skilled workers as those who are in occupations that require higher competencies (levels A or B in the NCO) and unskilled workers as those who are in occupations that generally demand lower competencies(levels C or D in the NCO).
The NCO bases its ranking of competency levels on an assessment of the typical level of training or education that different occupations necessitate. According to our definition, the threshold between unskilled and skilled labour is located between competency levels B and C. Concretely, this means that occupations that require higher or more specific training than a high school diploma are associated to jobs held by skilled workers. Inversely, unskilled workers are defined as individuals who are in occupations that necessitate a high school diploma or under. In essence, the main difference between skilled and unskilled labour is the level of training or education initially required (at the time of hiring) for the jobs that workers effectively hold.
The data used in this analysis comes from two sources. Information relative to demographics was sourced from Statistics Canada’s online CANSIM database that compiles data from the Labour Force Survey (LFS). Information that was unavailable through the CANSIM database was completed with the LFS microdata files. Income data was collected using the microdata files from Statistics Canada’s Survey of Labour and Income Dynamics (SLID).
Although these surveys offer important longitudinal data on working conditions and income, they offer limited information on the specific occupation of individuals. In fact, in order to maintain coherence between the two surveys, we were obliged to use an occupational variable in which respondents are classified in one of 25 occupational categories as defined by the National Occupation Classification for Statistics (NOC-S). This sort of aggregation obviously has its drawbacks. To begin, we lose valuable and in-depth information relative to the evolution of unskilled work in some sub-categories. In addition, some of the 25 categories are problematic in the sense that they encompass more than one occupational group, some of them being skilled and others being unskilled according to our definition based on competency levels. For example, one category covers the following professions: chefs and cooks, supervisors and other personnel in the food and drink industry. This means that individuals with competency levels B, C or D are bunched up in the same category which is problematic when trying to compare the evolution of skilled work to unskilled work.
To resolve issues regarding occupational categories that could not be clearly classified as skilled or unskilled using the NCO, we used a similar approach to that of Chardon [
For those groups with a mix of skilled and unskilled workers, we then verify if one skill group dominated the other in each problematic occupational branch, that is to say, if one skill group holds a proportion of individuals that is significantly higher than 50%. In the end, five out of the 25 occupational categories were found to be problematic. Within these five problematic categories, four of them had a dominating skill group that held approximately 65% of group population. The fifth occupational category was not as strongly dominated byone skill group, but level 3 and under individuals still held a significant majority (60%) of the total occupational population.
Having shown how we have delineated skilled and unskilled work, we now turn the definition of the analytical tools used to grasp the economic inequalities between the two groups. The better part of our analysis relies on standard descriptive statistics, leaning mostly on the evolution of median incomes. A more sophisticated bipolarisation index is also applied in order to measure the extent to which the labor market is polarized into two income groups. This measure is the
where
income of individuals situated above the median and
Polarization measures are becoming more and more popular than traditional inequality measures in income inequality research as they are said to be a more valid assessment of group dynamic and social unrest [
Before we turn to the results, a few additional comments are necessary regarding the types of income data used in this study. In essence, we analyze two types of income: “market income” (MI); “after taxes and transfers income” (ATTI). On the one side, market incomes represent the income level that an individual attains by interacting freely with the market before government intervention. The way “market incomes” are allocated in a society is said to represent the “natural” distribution of income because it is the result of market forces alone. On the other side, “after taxes and transfers income” is said to measure the “real” distribution and is defined as follows: (market income + government transfers − taxes). The advantage of using both these types of income is that together they offer an indication of the extent of government intervention in the reduction of income inequality and polarization. This way of analyzing government intervention has become common practice and is used in recent inequality studies [
We present our statistical portrait of the evolution of unskilled workers in Canada in three steps. First, we estimate the weight of unskilled labor in the total Canadian workforce. Next, we compare the inter-categorical income disparities between skilled and unskilled workers in order to assess the strength of this line of division in the labor market. Lastly, we evaluate intra-categorical disparities by comparing the economic welfare between unskilled labor occupational groups.
According to our estimates, there were just over 7.7 million unskilled workers in Canada in 2012. In relative terms, this represented a little less than half (44.11%) of the Canadian Workforce. As shown in
Nonetheless, what these figures show is a near 50/50 split between skilled and unskilled workers on the Canadian labor market. This demonstrates that unskilled workers are not a small and isolated group, but rather a significant portion of the Canadian workforce. This group is particularly vulnerable to environmental forces (technological change, globalization, and economic downturns) and to more precarious working conditions (part-time work, temporary employment, seasonal work, etc.). Now that we have assessed the size of the interest groups, we now turn to the income disparities that exist between them.
To determine inter-categorical inequalities, we examine the income gap that exists between both main groups (skilled and unskilled). As
increase in their nominal incomes since the mid-1990s. Indeed, since 1996, the median market income (MI) and median after taxes and transfers income (ATTI) of unskilled workers has risen by 38.90% and 39.87% respectively. The same figures for skilled labor are 37.78% and 38.38%. Income growth seems then fairly balanced between the two groups.
Having said this, as it is apparent in
To determine if the labor market is truly divided along the lines of two income groups, we now turn to our bipolarization measure. As mentioned above, the
The trends in
As for the relative intensity of the bipolarization shown by our results, we find that our estimates indicate a slightly higher bipolarization level than Goyette’s [
population. Furthermore, the skilled-unskilled division may be an important determinant of income disparities in the Canadian society as a whole.
The previous two subsections of this paper have focused on the skilled-unskilled distinction. We now turn our focus to intra-categorical inequalities and analyze the income disparities that exist within the unskilled labor group.
More specifically, the largest market income gaps between occupational groups are observed towards the end of the 2000s. Looking at extreme cases, we notice at the end of the studied period that the median worker in sales and services received an income equal to 47.65% of his homologue in the processing, manufacturing and public utility services occupational group. This ratio has grown approximately 3.49 percentage points since 1996, when it was equal to 44.17%.
The findings in
all unskilled workers were part of the sales and services occupational group. In addition, workers occupied in this group are much more likely than their peers from other occupational domains to work part-time jobs and more prone to having precarious employment contracts.
In sum, we observe that unskilled workers are themselves a fragmented group, with some occupational subgroups enjoying significantly higher medians incomes. Intra-categorical inequalities among the unskilled then seem to explain an appreciable amount of inequalities between members of the Canadian workforce.
In this paper we have analysed the gaps in economic welfare that exist between skilled and unskilled labor in Canada. Using a method similar to Chardon [
1) The proportion of unskilled workers is slowly reducing, but still represents almost half of the workforce in Canada in 2012;
2) Income gaps between the skilled and unskilled remain constant and appreciable;
3) Income bipolarization has lightly decreased since the mid-1990s, but, comparing our estimates with other studies, we find that the Canadian workforce seems to be more bipolarized than the Canadian population as a whole;
4) Intra-categorical inequalities within unskilled labor seem to be increasingly important among occupational subgroups, mainly workers in sales and services being at a great disadvantage compared with their peers in other unskilled occupational domains;
5) In every case, state intervention considerably diminishes inter-categorical and intra-categorical income gaps and has maintained its effectiveness over the observed period.