Yes, our middle class has done better (asterisk)

Posted on April 24, 2014 in Equality Debates – Globe Debate
Apr. 24 2014.   Konrad Yakabuski

So, it turns out you really are richer than you thought. In fact, Canada may just be the best place in the world to be middle-class, a delicious irony for Conservatives that could force Liberal and New Democratic strategists to scrap their entire 2015 campaign strategies.

What’s ironic is that a new ranking putting Canada’s middle class on top comes from the liberal New York Times, which, in its quest to expand the American welfare state, has become the unwitting pin enabling Stephen Harper to prick the balloons of Justin Trudeau and Thomas Mulcair.

Contrary to the Liberal and NDP narrative of a Canadian middle class falling behind under the Conservatives, the Times (using data from the Luxembourg Income Study) found that median income, after taxes and inflation, rose 20 per cent in Canada in the decade to 2010. Middle-class Canadians thus closed the gap with their U.S. cousins, who saw no income growth at all.

The Times makes a series of assumptions to conclude that Canada’s middle class has “most likely” pulled ahead of its American counterpart since 2010. The last recession was worse there, and recent U.S. income growth has gone almost entirely to the rich, while a more redistributive tax system in Canada ensures that income gains at the top get shared more with those below.

Still, Conservative Employment Minister Jason Kenney should temper his triumphalism before he tries to rub the Liberal Leader’s face in it any more on Twitter. The Times report was the inaugural feature of the newspaper’s new data-driven journalism initiative called The Upshot. But the reams of data the report relied on come with many caveats. Hence, their findings should be considered approximate rather than definitive.

First, you cannot make perfect comparisons when you’re relying on income data collected over three decades by more than 20 national statistics agencies, while trying to control for different inflation rates and currency fluctuations. It is the epitome of geek hubris to suggest otherwise.

Second, the Times study left out a major component of U.S. compensation: health benefits. That’s astonishing considering how rising health premiums have squeezed wage growth among middle-class Americans in recent years. According to the Kaiser Family Foundation, employer health insurance costs have risen 80 per cent since 2003 – almost three times the rate of inflation.

Health insurance is a non-taxable benefit south of the border, and workers there have swapped wage increases for cushier employer-provided health plans. Canadians don’t make near the same trade-off, since most of our health care is provided by the state. Tack on the amount U.S. employers paid for health insurance for their workers – $11,786 (U.S.) in 2013 for a family plan, according to Kaiser – and the American middle-class looks somewhat less hard up.

The Times report also neglected to mention that the United States just had the worst housing crash in living memory, while Canada continues to tiptoe miraculously through a housing boom that the rest of the world considers a bubble.

When the U.S. housing bubble burst in 2007, it unleashed a catastrophic series of events. The construction sector, which had absorbed countless displaced manufacturing workers, ground to a halt. Millions of middle-class Americans found themselves with mortgages that exceeded the value of their homes. They felt poorer, spent less and drove the economy into recession. It only followed that middle-class income gains were non-existent between 2006 and 2010.

The U.S. housing sector is now coming back strongly. The U.S. economy has finally recovered the jobs lost during the recession and is poised to grow faster than Canada’s in the next few years. If our housing bubble bursts, our middle class is likely to fall behind its U.S. counterpart once again.

Still, the Times gets the overarching story right. Canada’s middle class has done better. Liberal and NDP attempts to create an aggrieved class of voters are purely opportunistic and could lead to more bad policy choices (lawn-care tax credits, anyone?) just to win votes in suburbia.

This does not mean the Conservatives deserve a free ride. They, too, have focused myopically on middle-class pocketbooks, arguably neglecting policies needed to ensure that our economy adjusts to a technology-driven world in which Canadians need new skills, and industries to employ them.

All three major federal parties assume that middle-class voters are just rent-seekers wanting more of a fixed pie for themselves, instead of Canadians concerned for the future of their country and their fellow citizens. Class warfare works in U.S. politics. But middle-class Canadians shouldn’t take the bait.

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