Statistics Canada reported recently that the earned income of the "average" Canadian -- the so-called median income -- was the same in 2004 as in 1982. After we subtract inflation to keep the purchasing power of a dollar roughly constant, it turns out that median income, before taxes, did not rise at all over those 22 years. Yet during that same time the Canadian economy grew, in real per capita terms, by more than half. But only the very well-paid - those above the 90th percentile of the income distribution - saw any significant increase in earned income; and the higher up the earnings ladder, the greater the growth. What has been going on?
Canada's experience is not unique. We are following the same pattern as the United States - as usual, a bit more mutedly and a few steps behind. In the 30 years after the Second World War, the U.S. income distribution did not vary much, as the average American worker's earnings grew in tandem with a robustly expanding economy.
Things changed abruptly starting about 1973; productivity growth collapsed, and the economy lapsed into a long inflationary stagnation. Eventually, North America recovered, but the fruits of growth no longer flowed in the same proportion to the average worker. Between 1975 and 2005, median family income in the U.S. increased by only 28% (with most of that coming in 1993-2000) while the economy overall grew by 86% in per capita terms. Between 2000 and 2005, median U.S. family income actually fell slightly.
Meanwhile, those at the top of the heap have been doing better than ever. The average earnings of the highest 1 per cent of the U.S. income pyramid rose a very healthy 160% between 1975 and 2005, while the income of the rarefied top 10th of 1 per cent soared 350%, in real terms, from $800,000 (U.S.) in 1975 to some $3.6-million by 2005.
These figures challenge the central faith that has guided economic policy in the U.S., Canada and other market economies for more than half a century: the assumption that economic growth can be harnessed for the benefit of all citizens, not just the rich.
The U.S. picture - in pattern, if not quite in degree - is mirrored in Canada. While Canadians have experienced some real growth at the low end of the income spectrum since the early 1980s - and incomes of families have generally increased a bit more than those of individuals - essentially all of the action has been at the very top. (The income measure is before taxes and government transfer payments. Those offsets mitigate inequalities in market-derived income - more so here than in the U.S. - but my focus here is on the outcomes being generated in the market economy.)
THE GREAT U-TURN
A fascinating study by Professors Michael Veall of McMaster University and Emmanuel Saez of the University of California used income tax statistics to trace the proportion of total income going to top earners from 1920 through 2000 in Canada and the U.S., as the accompanying graph shows. The shares of the top 1 per cent have taken remarkably similar U-shaped paths in the two countries. Those at the top, as compared to everyone else, are pretty much back to where they were in the Roaring Twenties.
The share of the merely very well-paid - say, those between the 90th and 95th percentiles of income - waned sharply in the 1930s and '40s, but, unlike the top 1 per cent, their share of the pie has increased only very little in the U.S. and not at all in Canada.
