The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
At the beginning of May, Statistics Canada, with the aid of the media, perpetuated the old clich that the rich are getting richer and the poor are getting poorer. It reported that individual earnings between 1980 and 2005 Òrose for those at the top of the earnings distribution, stagnated for those in the middle, and declined for those at the bottom.Ó Spinning this report, The Globe and Mail stated, ÒThose at the top end got a lot richer É and those at the bottom got much poorer.Ó Meanwhile, the Canadian Press headline simply declared, ÒRich get richer, poor get poorer.Ó ItÕs a good media story to be sure, but itÕs simply not true. In reality, those who were considered ÒpoorÓ are in fact better off today than they were in 1980. And even more significant, individuals and families who were considered ÒpoorÓ in 1980 are not the same ones who are ÒpoorÓ today. The reality for most Canadians is that where we are now is not where we were then, nor are we where we will be in the future. A failure to incorporate CanadiansÕ income mobility into an analysis of income inequality results in a misleading depiction of reality. First, letÕs look at what Statistics Canada actually measures. It divides Canadians into five income groups based on their employment income levels; each group represents one-fifth of the total number of workers. Then it examines changes in median earnings for the five income groups over time. Statistics Canada found that, between 1980 and 2005, median earnings among the top 20 per cent of earners increased by 16.4 per cent, while the median earnings among those in the bottom 20 per cent decreased by 20.6 per cent. In dollars, the median income among the bottom 20 per cent was $19,367 (in 2005 dollars) in 1980, and a mere $15,375 in 2005. In other words, the median ÒincomeÓ of the bottom 20 per cent decreased by almost $4,000. But before we hit the streets in protest, a closer look is warranted. First, Statistics Canada only examines ÒearningsÓ or employment income. It does not consider all other forms of income, including retirement income, investment income, and government transfer payments. Naturally, individuals and families in the bottom income group receive significantly more of their total income from government transfer payments. These include old age pensions, Employment Insurance, child benefits, and GST credits. In fact, $52 out of every $100 received by families in the lowest income group comes from government sources. Clearly, therefore, the Statistics Canada measure has the potential for grossly understating real income at the bottom end. When we examine income inequality using total income, the conclusion that the poor are getting poorer disappears. Specifically, the median total income of those in the bottom 20 per cent actually increased from $21,134 in 1980 (in 2005 dollars) to $24,379 in 2005, an increase of $3,245. More significantly, Statistics Canada failed to examine income mobility in its report. Most young Canadians, given their inexperience, start out in the low income group and work their way up to the middle or high income group. Their incomes peak when they hit middle age and then begin to fall as they approach retirement. The result is that there is less inequality over time because many families will initially have low incomes but will later have middle incomes and possibly high incomes as they move through life. Consider evidence from another Statistics Canada report, which shows that 13 per cent of Canadians were in the low income group in 1999, but most moved out of that group within six years. From 1999 to 2004, only 2.2 per cent of Canadians remained in the low income group for all six years. Climbing the income ladder in Canada is not a fantasy. Indeed, the fantasy is that there is a large and permanent underclass that is getting poorer.
