The average Canadian is better off than he or she was a generation ago, but the gap between the rich and the poor continues to widen, a report Wednesday from the Conference Board of Canada says.
“The rich are getting richer, but another way to put it is that the rising tide of prosperity is not lifting all boats,” said Anne Golden, board president and chief executive.
The average income of the poorest group in Canada did increase marginally between 1976 and 2009 (to $14,500 from $12,400, after taxes and transfers and adjusting for inflation).
But the gap between the average income of the poorest group and that of the richest group of Canadians grew to $117,500 in 2009, up almost $30,000 from 1976, when the gap was $92,300.
As for average income, in 2009 it was $59,700, up from $51,000 in 1976 — a 17% increase after adjusting for inflation.
But median income, which better reflects how the majority of people are doing without the top earners throwing it off, grew by just 5.5% to $48,300 in 2009 from $45,800 in 1976. That means that half of Canadians make less than $48,300 and half make more.
“Of all the income wealth being generated in Canada, virtually all of it is going to the top 20%,” Ms. Golden said.
That’s not necessarily a bad thing, said Finn Poschmann, vice-president of research at the C.D. Howe Institute.
He said it is true the incomes of top Canadian earners have jumped over the past decade or so, in line with a rise in demand for highly skilled workers due to the technology boom.
“It’s important to point out that while income inequality is socially problematic, the fact that people at the high end are doing well doesn’t harm anyone else,” Mr. Poschmann said.
“A crisis in inequality is like the relentless march north of the killer bees. People worry about it but it never seems to arrive.”
He said the numbers actually show stability, noting that while there has been some increase in the average relative to median income, over a long-term perspective, “there are no big shocks there.”
“More than anything else, what it points out is that while there might be pockets of problems, income inequality is not a flashing red light on the Canadian economic scene,” he said.
“We have a tax and transfer system that ensures people in the low end receive top-ups and it’s funded by people in the high end.”
Using the Gini index, a measure of income inequality, the Conference Board report also found that in 2009, 32% of Canada’s income would have to be redistributed for the country to be completely equal in terms of income.
Canada fared better on the Gini index in the 1980s and hit its lowest level ever in 1989, when redistributing just 28% of income would have achieved the same result.
The Conference Board noted that most of Canada’s peer countries also grapple with rising income inequality, but it’s not inevitable. For instance, in Austria and Denmark,
countries with per capita incomes roughly equivalent to Canada’s, the numbers are 26.5% and 23.2% respectively. Those two countries came out on top in a survey of 17 peer countries where Canada ranked 12th. The United States came last with redistribution of 38.1% of income necessary for equality.
In addition to creating social tensions and potentially alienating the middle class, income inequality matters from an economic perspective if it means Canada is not best using the talents of its population, Ms. Golden said. “You have to put this against the fact that we are now in a labour shortage economy, so we need to be maximizing the skills and talents of the population.”
Investing in education and skills training is one step provincial governments could take to help those who are falling behind, she said.
Sonya Gulati, regional and government finances economist with TD Economics, agrees that lack of training or even awareness of job opportunities could be holding some back.
However, Ms. Gulati also pointed out that the country is not alone when it comes to income inequality.
“It’s not necessarily just concentrated in Canada; it’s more of a global issue,” she said.
Source: National Post
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