Explanations for the 1995-2000 surge in inequality

In my last post, I was happy to come across my first unexpected result: that the vast majority of the rise in income inequality in Canada from 1976-2011 occurred within the 5 year span of 1995-2000.  I was looking for some possible explanations to why this occurred when I came across this interesting paper by Emmanuel Saez and Michael Veall.  They also remark on the 1995 surge in inequality and offer some explanations – I will summarize two which I found to be the most relevant and interesting:

1. NAFTA, which was ratified in 1994 allowed Canadian workers to more easily obtain work visas for the US. This created a ‘brain-drain’ to the US and consequently, Canadian employers had to increase wages for certain jobs (mostly higher wage jobs) to keep employees from leaving.

2. Stock options and stock compensation become much more popular between 1990 and 2000.  These programs were more common for higher wage earners.

It’s a lengthy paper and it contains many other insights on incomes in Canada.

I believe that neither of the above factors is necessarily a bad thing, but it does make me wonder if there will be another surge in inequality when CETA takes effect.  I welcome any thoughts on the matter.

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