This story is part of The Globe's Wealth Paradox series, a two-week examination into how the income divide is shaping Canada.
A solid and optimistic middle class is what historically underpinned Canada’s economy. It has propelled consumer spending, the housing market and economic growth, distinguishing this country from many others in the world.
But shifts in the labour market and economic composition of the country are creating new pressures for many in the middle. Years of tepid wage growth is chipping away at the sense that, with hard work, people can advance.
The middle class is a subjective notion, but it’s also where the majority of Canadians typically see themselves. A wilting middle class carries a myriad of long-run implications, from dented aspirations to shakier economic growth and diminishing social cohesion.
“I’m worried. If the person at the median doesn’t see themselves getting ahead, that has some pretty profound implications, both economically and I would argue democratically. That’s where increasingly we should start to give some real thought,” said Jamison Steeve, executive director at the Institute for Competitiveness and Prosperity.
It’s easy to blur trends in the United States with what’s happening in Canada. Some parallels exist, but the two countries have two distinct stories. Here are some myths, dispelled, about what’s happening to Canada’s middle-income earners:
1) The middle class is in decline
It’s a common refrain south of the border, but trends are different in Canada. A construction boom and growth in services have helped mitigate manufacturing-sector losses. While wage gains have been sluggish, they’re not in decline. Rather than shrinking wages, there is evidence to suggest the middle itself is being hollowed out. The proportion of people in middle-income families has shrunk since the mid-1990s, while a share of those at the lower and higher ends rose, Statistics Canada data show.
Even through the recession, people who held on to their jobs didn’t see their wages cut, although median incomes didn’t rise much either in the 2007-2011 period. In the longer run, median incomes in Canada rose for much of the past 15 years and declined in the 15 years before that, resulting in a 5.2-per-cent increase over the past three decades. Thus median after-tax income for all family units was $50,700 in 2011 compared with $48,200 in 1981 – an increase of $2,500 in constant dollars, according to Statscan. That’s better than a drop – but the increase isn’t nearly as large as for top earners.
2) Men are doing better than women
Actually, men in the middle class have seen their incomes decline, while women posted gains, closing the gender gap somewhat. Median earnings for men fell 11.2 per cent between 1981 and 2011 (to $36,600) while for women they rose 21.5 per cent (to $24,300). That suggests polarization may be happening more to men, due partly to job losses in the factory sector.
3) If you’re middle class, you know it
Most Canadians tend to see themselves as middle class – even if their incomes put them in the high-earner category. Nearly 60 per cent of people in British Columbia, for example, categorized themselves as being in the middle 20 per cent of earners, according to a 2012 Environics poll. But the proportion of people who feel they’re part of the middle class is ebbing. A decade ago, two thirds of Canadians described themselves as middle class; now it’s just under half, an Ekos survey showed earlier this year. A dwindling portion of Canadians think they’re better off than the previous generation.
4) It’s easy to achieve a middle-class lifestyle
It’s getting harder to reach the middle. The typical 25-to-34 year old is now making wages that are 11 per cent lower than they were for the same aged person in 1976 – even though their education levels are higher, notes Paul Kershaw, policy professor at the University of British Columbia. The typical older worker is making wages that are 3- to 7-per-cent higher than a similar person did three decades ago. House prices have nearly doubled in that time, meaning more wealth for the older person and more debt for the younger person.
“It takes much longer now to achieve anything that looks like a middle-class lifestyle,” says John Myles, professor emeritus of sociology at University of Toronto, as young people stay in school longer than in generations past, get more credentials, start careers later, get married later and buy homes later.
Jordan Hill feels stuck. The 23-year-old stresses he’s luckier than most – landing a permanent job in a Toronto accounting firm that pays $54,000 per year, before tax. But lingering student debt and high costs for rent and groceries in the city mean he’s unable to save. He believes his generation’s living standards have fallen below that of his parents. “The cost of living is going up, and wages after adjusting for inflation are not at all,” says Mr. Hill, adding that starting salary levels at many banks and accounting firms have gone down since the recession. He won’t be ready to buy a house until he’s at least 30. “It’s frustrating. We’re all working harder but getting less.”
5) Falling wages are causing the middle-class squeeze
The sense of a squeeze stems from slow-growth wages, rising debt loads and shakier household finances. Higher inequality may be playing a role, as households with lower incomes borrow to keep up with the Joneses.
For Auli Parvianen, a business consultant in Squamish, B.C., the squeeze reflects wage growth that has failed to keep up with costs. In theory, her household income of about $120,000 a year, before tax, puts her above the average. In reality, her family’s not getting ahead. Her income hasn’t budged in two decades, while costs for food, housing and gasoline are gobbling up more of the monthly budget. Mortgage debt amounts to about $370,000. The scramble to pay the bills means she no longer feels very middle class. “I’m not looking to get rich, that’s not important to me,” she says. “But like most Canadians, I just want to be able to thrive and live, and have some safety net.”