Canada’s middle class is doing well? It’s not so simple.

TheStar.com – Business – High-profile study puts us ahead of U.S., but earnings are still rising slowly as confidence wanes.
Apr 23 2014.   By: Madhavi Acharya-Tom Yew Business Reporter

A high-profile study that finds Canada’s median income has likely surpassed that of the U.S. offers a few brush strokes, but doesn’t paint a complete picture of the middle class, economists and experts say.

“It’s good that we are better than the U.S. but I don’t think it’s a reason for celebration,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “It’s not that the middle class is booming here.”

The study, based on 35 years’ worth of income data, was compiled by LIS, a data centre based in Luxembourg, and analyzed by The Upshot, a New York Times website that focuses on data, politics and policy.

It found that median per capita income in Canada and the U.S. was tied at $18,700 (U.S.) in 2010, the highest in the world. That’s about $75,000 for a family of four after taxes.

Canada’s median has likely climbed higher in the last four years, putting it ahead of the U.S., the study note.

“After-tax middle incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States,” reporters David Leonhardt and Kevin Quealy wrote on The Upshot.

The study compared median per capita income in Canada, Norway, Netherlands, Britain, Germany, Sweden, France, Ireland and Spain against the U.S.

It noted that Canada’s median income grew by 19.7 per cent from 2000 to 2010, far outpacing the 0.3 per cent gain in the U.S.

“In 1980, the American rich and middle class and most of the poor had higher incomes than their counterparts almost anywhere in the world. But incomes for the middle class and poor in the U.S. have since been growing more slowly than elsewhere.”

Three factors drove the weak income performance by the U.S., the study said: lagging education and skills training, minimal redistribution of wealth by government, and a large income gap.

After the recession of the early 1990s, Canada had a jobless recovery that lasted nearly a decade, Tal said. “During this period, the labour market in the U.S. was much better and their median income per capita was 10 per cent higher than ours.”

However, since 2000, the U.S. economy has dealt with the aftermath of the technology bubble, the devastating global financial crisis, and the housing market meltdown.

While the U.S. has experienced a jobless recovery, Canada’s economy added jobs. “It’s a reversal,” Tal said. “That’s why our income is 10 per cent higher than theirs.”

The U.S. may very well make up the lost ground, Tal added. “If they’re able to create jobs and better quality jobs, they will be able to close the gap. The other factors are important, but secondary. Nothing can offset a bad or good economic cycle. What they went through was a very bad economic cycle.”

The manufacturing and construction sectors, which offered well-paying, traditional middle-class jobs, were particularly hard hit by the financial crisis and housing meltdown, said Doug Porter, chief economist at BMO Capital Markets.

Other economies in the study were hit hard by the European debt crisis, he added.

“We’re almost winning by subtraction,” Porter said. “Canada faired relatively well but that doesn’t mean it was all sweetness and light here.”

Canada’s economy is still feeling the effects of the recession, Porter added. Households have built up large debts and those who don’t own a home are likely frustrated by runaway prices in many parts of the country.

“The study itself is fine,” said Frank Graves, president and founder of polling and research firm Ekos Research Associates Inc. “It’s just not getting to the heart of the issue and ignores longer term trends.”

Data from the 2006 census shows that median real earnings of individuals working full-time from 1980 and 2005 increased to $41,401 from $41,348 — just $53 over 25 years, Graves said.

Canada’s middle class is shrinking and feeling more pessimistic about the future. Only 14 per cent of Canadians in this group feel their children will do better than them. That compares to 8 per cent in the U.S., Graves said.

Canadians in their 20s and 30s, in particular, are feeling less confident about the long-held notion that if they work hard they will get ahead, Graves said.

Their experience is different from Baby Boomers, who benefitted from a robust labour market and big gains in the stock market and housing market, Graves said. Those under 40 are struggling with skyrocketing house prices and debt, higher rents, and are having trouble gaining traction in the job market.

“As you move from older Canada down to middle age and younger Canada, people are seeing stagnation and in many cases decline,” Graves said. “Worse still, when they peer into the future, the gray outlook changes to almost black. People no longer necessarily believe their kids will have a better future.”

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