blog post 3
Canada’s middle class feels the brunt of the income inequality squeeze
After Canadian income inequality getting worse in the 1980s and 1990s, it remained stuck at a relatively high level during the 2000s. Median family income has increased since 1998, leading some commentators to reach the conclusion that the middle class is doing better now than in the late 1990s. However, that is only part of the story. The increase in median income masks the shifts occurring in and among different income ranges. Dividing the population into five income groups, real average after-tax income grew most strongly in the top group – those with the highest income levels. The bottom group grew second fastest, while the middle group – the true “middle class” in statistical terms – grew the most slowly. In fact, this middle 20 per cent of Canadians receive less of the total income pie today than it did in the late 1990s. In the 1980s and 1990s, the gap between the top and the bottom income groups increased the most. The top 20 per cent got relatively richer, and the bottom 20 per cent got relatively poorer. The gap between richest and poorest groups grew more slowly in the 2000s, but it clearly did not shrink. The top income group increased its share of total after-tax income from 43.4 per cent in 1998 to 44.3 per cent in 2010. The share going to the bottom income group remained the same (4.8 per cent), while the share going to the three groups in between (which could be broadly defined as the middle class) fell. It is statistically accurate to say that the middle class – at least as defined by having a mid-range income – is being squeezed in Canada.
There is no easy solution to income inequality. Investment in education – from early childhood through postsecondary – offers the greatest potential payback. Increasing access to the labour market also needs consideration. Both measures would also bolster Canada’s already good record on income mobility – the ease at which people can move among income groups. However, a good record on income mobility does not override the social issues associated with high income inequality. Thus, measures to reform the tax system should focus on improving the incentives to work for people trying to get off social welfare support – by lowering the “welfare wall” currently preventing entry into the work force. A guaranteed annual income system merits examination as a way to meet these goals.
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