A tale of two Canadas: Where you grew up affects your income in adulthood

Posted on June 24, 2017 in Equality Policy Context

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TheGlobeandMail.com – THE CANADIAN DREAM – A big-data picture of Canada reveals that the place you grew up determines your financial future. An analysis of millions of Canadians’ income data shows a country of opportunity, with most children out-earning their parents – but also a country pocked with mobility traps, where moving up the income ladder is far from certain
June 23, 2017.   BY DOUG SAUNDERS AND TOM CARDOSO

In Canada, geography is destiny: Your financial future, to a surprisingly large degree, depends on the place in Canada where you happen to grow up.

That reality is revealed on this map and our accompanying set of interactive graphics, produced using a new analysis of millions of Canadians’ income data, the result of years of work by economist Miles Corak.

His study charts intergenerational economic mobility – that is, the chance that people who spent their childhood in that location ended up, as adults, higher on the income and economic-status ranking than their parents. If a region is bright green, there is a high chance that kids who grew up in that region will, by the time they’re in their 40s, be in a higher-income group than their parents were at the same age (wherever those offspring end up living). In the bright red areas, the majority of children grow up to have adult financial success levels similar to, or less than, their parents.

The most dramatic finding by Dr. Corak, a University of Ottawa economist and former economist with Statistics Canada, is that the place you come from is very likely to affect your odds of future success, perhaps as much or more than your family, your culture or anything else in your life. Those results are likely to surprise many Canadians and provoke serious debates about the policies and interventions that can help more people escape intergenerational poverty.

The “Canadian Dream” becomes a reality for a relatively large percentage of Canadians, especially when measured against the financial mobility of citizens of other places. If you are born in Canada to parents in the bottom fifth of the income scale (that is, your parents typically earned less than $23,000 a year in today’s dollars) you are twice as likely to grow up to earn at least a middle-class income than if you were born to the same parents in the United States or Britain.

That remains true for younger generations: A Statistics Canada study last month found that, nationally, Canadians who are in their 30s today (that is, those born in the 1980s) are still reaching a higher point on the income ladder than their parents did at the same age – in other words, the upward-mobility of Canada’s “millennial” generation is as strong as it was for previous generations. (In the United States, by comparison, this generation has seen declining incomes.)

But we can now see that the Canadian Dream is not evenly distributed. Far from it: While income mobility looks impressive as a national average, Dr. Corak’s data reveal that some parts of Canada – such as central Alberta and southern Saskatchewan, southwestern Ontario, the largest urban metropolitan areas such as Vancouver, Calgary and Toronto (and especially their suburbs) – stand out as “mobility springboards,” where people’s adult incomes easily exceed those of their parents.

Other places – most of Manitoba outside of Winnipeg, much of coastal British Columbia – are “mobility traps,” where people rarely move up the income ladder.

And some places, such as northern Quebec and parts of Newfoundland and the Maritimes, have surprisingly high levels of economic mobility given their low incomes. “I think these places indicate what ‘inclusive growth’ looks like – that is, growth that is of disproportionate benefit to people who are relatively less advantaged,” Dr. Corak says. “When labour demand outstrips supply, wages go up – and many Canadians are in a position to seize those possibilities.”

These variations in this mobility map are not simply the product of swings in the economy (though those can be a factor) – to some extent, high or low levels of mobility are tied to places on a long-term basis.

Dr. Corak looked at the annual-income data from tax filings of all three million Canadians born between 1963 and 1970, measured over a five-year period when those Canadians were in their 40s (that is, in the years around 2008), and then examined the income data, adjusted for inflation, for their parents over a five-year period at roughly the same age (that is, over a similar period in the 1980s). This map plots the place those Canadians and their parents last lived together, when they were in their teens (that is, the 1980s). So the map indicates how much more children from each region ended up making than their parents did – wherever those children ended up living.

Economists have also examined similar data for Canadians born in later decades, and found that the income-mobility map looks more or less the same. For example, University of Quebec in Montreal economist Catherine Haeck is currently performing this sort of analysis on Canadians born in the 1980s, and says the map looks similar. There are some exceptions, though: It appears that parts of Newfoundland and Labrador are becoming more of an income-mobility springboard, thanks to the petroleum boom, and some of Alberta’s bright-green tint may have been the effect of rising commodity prices (in both petroleum and agriculture) over the 20-year period, and therefore would be less intense for later generations. Otherwise, however, it seems that the mobility level of a place is slow to change.

Explaining the map: the roots of mobility

What makes some places into income-mobility springboards and some into traps? One often-cited factor is that the “green” locations tend to offer easy opportunities to move to higher-income locations or situations – either physically, by offering easy access to nearby high-growth big cities and having few barriers to moving, or indirectly through postsecondary education institutions located in the region.

Mobility traps tend to be places where such opportunities are scarce. In other cases, there is only a single industry or income source, and its earnings have not grown.

Canada also contains areas that are not very wealthy, and not getting any better off, but which have very high rates of mobility: They are poor but they produce prosperity for the next generation.

See Chart: Rags-to-riches income mobility –  https://beta.theglobeandmail.com/files/graphics/0610-canadian-dream_rags-riches/images/desktop-xlarge.png?token=11

Look, for example, at southwestern Ontario. Around the time the generation charted here was entering working age, in the late 1980s, this region was beginning to suffer a large-scale decline, as its old manufacturing industries collapsed. The past three decades there have been a period of sinking incomes and rising poverty.

But those same places appear bright green on our “rags-to-riches” map, because a very high proportion of people who grew up there ended up far higher on the income scale than their parents.

“Southwest Ontario is captured in our imagination as an unfortunate situation reflecting the decline of manufacturing,” Dr. Corak says. “However, in this map, this is seen as a place of high mobility, because the kids from there had the opportunity to move on to the local pole of growth, which is greater Toronto. Whereas kids from northern Ontario, for example, have a bigger fixed cost involved in going there.”

Other economists point to another factor that distinguishes southwest Ontario: A large and easily accessible selection of universities and community colleges relatively nearby.

Nicole Fortin, an economist at the University of British Columbia who specializes in income inequality, says that in unveiling the mystery of southwest Ontario’s income-mobility miracle, “higher educational attainment is likely the key.” Despite a declining economy, children of low-income parents there were able to latch themselves onto a higher-growth economy by signing on to the many community colleges and universities in the region.

For similar reasons, the suburbs of some large cities – notably Vancouver and Toronto – have higher rates of intergenerational income mobility than the cities themselves. Of all the Canadian children who ended up following a rags-to-riches path between the 1980s and the 2010s, a surprisingly large proportion came from York Region, the sprawling suburban region north of Toronto that includes such suburbs as Markham and Vaughan.

See Chart: Child’s average income in adulthood compared to parents’ – https://www.theglobeandmail.com/news/national/a-tale-of-two-canadas-where-you-grow-up-affects-your-adult-income/article35444594/

“What you see in York Region is a good example of what inclusive growth is,” Dr. Corak says. “The city of Toronto is a pole of growth, and the costs of capturing or being part of that growth, of moving to it, are rather low for people who happen to be living in outlying areas.”

But not all cities appear as poles of growth on this map. Montreal and Hamilton stand out for their comparatively low levels of income mobility. Both cities went through difficult economic periods during the period this map examines. Montreal experienced post-referendum decline and population loss through the eighties and nineties, before recovering in the 2010s; Hamilton also slumped and lost population as its steel industry declined. This map suggests that the many people who left those cities were unable to latch on to economic growth elsewhere – perhaps because education levels were not high.

Stuck at the top, stuck at the bottom

Across Canada, there are two groups of people who are much more likely than others to stay in the same income category as their parents: The poor (typically earning individual incomes below $23,000 a year in today’s dollars) and the very wealthy (that is, with at least one parent who earns more than $220,000 a year).

As a result, Canadians who live in places where average incomes are in the bottom fifth are far more likely than others to end up making no more money than their parents.

It’s the majority of Canadians in the middle who are less predictable.

“If you’re a middle-income family,” Dr. Corak says, “you’re as likely to see your kids fall in the ranking as you are to see them rise. In spite of doing everything right, there’s still a big randomness in where your kids are going to end up, and you can’t be sure if they’re going to climb the ladder. That’s sort of the downside of Canada’s equality of opportunity.”

Low-income stickiness seems to provide one of the strongest explanations of Manitoba’s big patch of low income mobility: It’s a place with very low average incomes.

Indeed, when Dr. Corak analyzed the low-mobility areas of Canada, he found that provincial borders (and therefore provincial governments and policies) aren’t a cause – the low-mobility patch in Manitoba extends well into northern Ontario and parts of Saskatchewan; likewise, high-mobility and low-mobility areas in other provinces don’t seem to be caused by the provinces themselves.

“When we looked at Manitoba, what proved to be important was not the Manitoba border,” Dr. Corak says. “Manitoba really sticks out as a land of less equality of opportunity. The playing field is really tilted in Manitoba – and that seems to be mainly because there’s something going on in Manitoba that has to do with low income levels – whether that’s demand or supply side, or just demographics, we just don’t know.”

Indigenous immobility: deprivation or tradition?

Many of Canada’s low-income-mobility regions have comparatively large Indigenous populations – First Nations and Métis communities in Manitoba, coastal First Nations in British Columbia, Inuit in the north. While Indigenous incomes are not likely to be measured fully accurately (status-card-holding members of First Nations who live and work on reserves are not required to pay income tax), this map probably does reflect genuine low intergenerational economic-mobility rates among these communities.

This is far from universal, though. One of several high-mobility Indigenous areas is northern Quebec, on the east coast of James Bay. Unlike the west coast of James Bay, it has witnessed impressive levels of intergenerational income growth. This, economists say, is probably an effect of the James Bay and Northern Quebec Agreement of 1975, which led to the large-scale development of hydroelectric-power infrastructure in the region and the employment of thousands of First Nations people. It may show that a single economic intervention can have multigenerational effects on a community’s prosperity.

One unanswered question is to what extent low mobility rates are a measure of lack of opportunity and hope on some reserves (and in urban Indigenous communities) – or a measure of traditional ways of life and a greater value placed on continuity rather than change in Indigenous societies. For example, Ontario’s Manitoulin Island, home to a large Anishinaabe population, has one of the lowest rates of income mobility. It is also home to half a dozen First Nations communities who place great value on traditional livelihoods and living close to the land. The fact that Manitoulin residents don’t make more money than their parents, would, for many there, be seen not as an indicator of trouble but a matter of pride. “Income mobility should not always be seen as a positive or desirable thing – there are many people who don’t seek it, and it’s not necessarily a good measure of their well-being,” says Dr. Corak.

It is also abundantly clear, however, that many people on reserves don’t have the resources they need to rise above the poverty rates of their parents, and struggle against a legacy of deprivation and neglect. A key factor causing low income mobility among many Indigenous communities, economists say, is the lack of high-quality educational opportunities in reserves and northern communities. “The areas on the map where Canada does worse than or as badly as the United States are those, which appear large on a map but would shrink in size if weighted by population, with a high concentration of Indigenous people, whose levels of educational attainment remain lower,” says Dr. Fortin at UBC.

The newcomer effect

Many parts of Canada’s income-mobility map are shaped by immigration: People who’ve arrived in Canada in the past 10 to 15 years tend to have lower incomes and higher poverty rates than average Canadians. But what this map shows – and other studies verify – is that their children are rising from the lowest to the highest fifth of the income scale at very high rates.

“It is well established that it is the first generation in Canada – those born abroad – that takes the hit and has the hardest time in establishing themselves in the labour force,” says Don Kerr, a sociologist at King’s University College at the University of Western Ontario. “But clearly we see that their children are eventually doing much better than they did, armed with a Canadian education and Canadian credentials.” This is especially true in southern Ontario, which receive the largest share of Canada’s immigration, and whose very high mobility levels, Dr. Kerr says, can be attributed in good part to the fast rise of newcomers: “Here we are seeing the success of the second generation in Canada.”

Is moving the answer?

This sort of map – one that tracks income mobility by specific location – was pioneered in the United States in 2014 by the Stanford University economist Raj Chetty and his colleagues, after they found a way to combine U.S. tax and census data for multiple generations. It found similar large place-by-place disparities in economic mobility rates. And the U.S. “mobility traps” were more numerous, populous and significant than we see in Canada.

The conclusion American scholars and policy makers drew from this was, overwhelmingly, that people needed to move. There have been a number of significant studies in the United States which show that families who move out of low-mobility neighbourhoods and regions – such as those who left New Orleans after Hurricane Katrina, or those who left central Los Angeles after the 1994 riots – tend to adopt the economic-mobility rates of their new neighbourhoods relatively quickly (that is, by the time the next generation reaches adulthood). As a result, Dr. Chetty’s research has led to a number of policy proposals that would offer families incentives and subsidies to move out of low-mobility regions.

For a number of reasons, this is unlikely to be the political conclusion in Canada. The idea of enticing people to move away from home, often against their will, has a troubled Canadian political legacy – from forcing First Nations bands onto reserves to the forced relocation of Inuit communities in the 1950s and 1960s to the mandatory resettlement of Newfoundland outport populations between the 1950s and 1970s, the use of mass relocation has a dark, and very recent, history in Canada. Telling people to move is not going to work here.

That said, there are reasons why it’s worth helping people remove barriers and costs to moving in search of work, temporarily or otherwise. Whether the large-scale shift of Newfoundlanders to Fort McMurray for the oil boom, the move of rural Albertans to more growth-driven cities, or the shift of southern Ontario immigrants to the Toronto area, much of Canada’s story of income mobility is rooted in real-life physical mobility – what Dr. Corak calls “moving to capture opportunity.” As Andrew Sharpe of the Ottawa-based Centre for the Study of Living Standards notes, a good part of Canada’s positive income-mobility picture has to do with rising rates of interprovincial movement among Canadians, who are now almost as likely to move between regions as Americans are.

Releasing the traps

When you visit the low-mobility regions of Canada, you are often struck by the lack of easy opportunities for young people to get a better education, find better employment or gain more favourable life experiences than their parents had.

Catherine Haeck, the University of Quebec in Montreal economist, has devoted her career to examining the effects of early-education experiences on future financial outcomes. “From my other research, I would argue that over the long run, investing in early childhood including, but not limited to, high-quality childcare and prenatal programs for disadvantaged mothers will help provide more equal opportunities and in this sense promote mobility.”

Dr. Sharpe notes that a good part of Canada’s positive income-mobility picture has to do with rising rates of interprovincial movement among Canadians, who are now almost as likely to move between regions as Americans are.

“Human capital is the key,” he says. “If you have lousy schools on reserves, then the chances of the young people there moving ahead is much more limited. We know from studies that if you have a university or a community college in your town or small city, you’re more likely to go to get more education because the cost factor is lower. In every city above maybe 15,000 or so, you should have some opportunities for postsecondary. And we should identify those places that are large enough to support postsecondary but don’t have it – that would be a really good idea.”

A map five decades in the making

The maps and graphics in this project were produced using a set of very large databases of Canadians’ income compiled by economist Miles Corak. Starting in the 1990s, when he worked at Statistics Canada, Dr. Corak used access to Canadian Revenue Agency tax-return data to compile the income data for 3 million Canadians and for their parents, and to map that data onto places of residence using census maps. He has published his findings in a paper titled “Divided Landscapes of Economic Opportunity: The Canadian Geography of Intergenerational Income Mobility.”

This project began more than a year ago, when Dr. Corak was assembling his “Divided Landscapes” research. Journalist Tom Cardoso and I worked closely with him to turn his findings into a set of interactive online data visualizations, backed with observations and analyses from scholars and experts in economic mobility, Canadian society and social policy.

For the online version of this project, Cardoso has interpolated census data on such factors as post-secondary education rates, single-parent families and foreign-born populations.

These maps chart a specific generation of Canadians: Those born between 1963 and 1970. This choice of cohort is not coincidental: Because full income data became available electronically in the early 1980s, this is the first group of Canadians whose adult-income data can be charted across two generations.

Over the coming days and months, we will be drawing further on this big-data resource to report on the places and communities in Canada that find themselves in mobility traps, on the factors that turn some places from traps into springboards, on the effects of Canada’s highly varied social-progress map on groups and populations, and on the politics and policies that leave many Canadians trapped in intergenerational poverty, and the interventions that can restore economic progress.

– Doug Saunders

Tags: economy, featured, standard of living

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