Our incomes may have grown, but lower earners are still losing

TheGlobeandMail.com – Opinion
September 13, 2017.   

Miles Corak is a professor in the Graduate School of Public and International Affairs at the University of Ottawa and, during 2017, the Economist in Residence at Employment and Social Development Canada.

Among the thousands of numbers released Wednesday by Statistics Canada from the 2016 census, one stands out: 14 per cent.

One in seven, that’s the fraction of Canadian households doing well enough to max out their contribution room to tax-free savings accounts, making contributions to RRSPs, RPPs and TFSAs. The census tells a tale of amazing prosperity for the already well-to-do, with individual incomes for those standing at the top one per cent growing by 48 per cent since 1985 to now reach $234,000.

One in seven, that’s also the fraction of Canadians living in what Statistics Canada carefully calls “low income.” They’re much less likely to be saving for the future, and certainly not maxing out the tax-subsidized options that are of disproportionate benefit to the rich. The census tells a tale of no progress in reducing inequality in the bottom half of the income distribution; one in seven is exactly the fraction of low-income Canadians recorded in the 2005 census.

But overall incomes have grown.

The census reports that typical individuals, those exactly halfway up the income ladder, earned just more than $34,000, growing at half the rate of top earners over the last 30 years. But growing nonetheless. And even if one in seven fell short of making half as much as this, their incomes also grew.

But this happened because of the resource boom associated with high commodity prices in the years before the census. Alberta, Saskatchewan and Newfoundland and Labrador picked up all the gains.

Canadians outside of these provinces benefited to the extent that they showed the initiative to pick up and move. And many did, being both pushed and pulled. The number of households in Alberta rose by more than 20 per cent. All the while Ontario stagnated, recording the slowest growth in incomes, not even 4 per cent over 10 years.

What the census shows is that growing middle-class and bottom incomes is fundamentally going to depend upon the nature of work, not on the tax system. And leave no doubt about it, the nature of work has changed.

At the root of these changes is the computer revolution and the amazing changes wrought to the production process by the dramatic decline in the cost of automating routine tasks, as well as to how consumers, firms and workers interact.

For many Canadians, the world of work is full of opportunity, reward and sufficient income to build assets and buy security; for many others it’s just the opposite as they face greater risks and limited opportunities to save for the future.

The census shows that manufacturing employment fell in Ontario by 22 per cent, while jobs in health-care and professional services increased. These kinds of fundamental changes have been unmasked with the bust in commodity prices.

All of this we already knew, but what this updated picture of Canada brings into focus is that trickle-down economics is dead as a metaphor for shared prosperity. At the same time, the numbers don’t show policy-makers the way forward.

Trickle-down has been replaced by “inclusive growth” in the storytelling of progressive politicians, but growth that benefits the broad majority, and particularly the relatively disadvantaged, is going to be a good deal more difficult to make a reality.

Some Canadians have seen a glimpse of it during the resource boom but we did not all benefit, provincial governments showed little capacity to save for the future, and the rear-view picture of the census shows the elusive nature of income growth for the relatively disadvantaged.

And other Canadians have and will continue to ride a wave of prosperity rooted in forces more than high commodity prices, that will grow their incomes faster, build their capital and ultimately put them in a position to give their children a secure head-start in life.

One in seven, those are your odds.

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