Canada has made huge strides narrowing the pay gap between men and women, but the big challenge now will be to fix a rapidly growing generational divide.
It’s a chasm that risks hobbling the economy and sowing social strife as the population ages.
A sobering new report being released Tuesday by the Conference Board of Canada says the income gap between older and younger workers has expanded massively since 1980s, leaving today’s twentysomethings the first generation of Canadians to be worse off than their parents.
The income gap between older and younger workers has jumped substantially over the past three decades, according to the report, which is based on an analysis of 27 years of income tax data. The average disposable income of today’s 50- to 54-year-olds is now 64 per cent higher than 25 to 29-year-olds, compared with a gap of 47 per cent in the mid-1980s. The trend holds true for both men and women, single workers and couples, as well as before and after tax.
The most tangible manifestation of this inequality is found in two-tier workplaces, where many employers offer new hires less pay and reduced pensions for the same job.
“Our generation fought for the principle of equal pay for work of equal value, and yet young people are coming into workplaces today and are being paid less for the same work,” David Stewart-Patterson, the report’s co-author and a Conference Board vice-president, said in an interview.
“Age, rather than gender, is becoming the new divide in our society.”
Ariadna Cornei, 29, learned that having an undergraduate degree wasn’t going to get her fast enough up the income ladder at the bank where she landed her first job. So she went back to school.
“I thought that once I had my degree, all these doors would open for me,” lamented Ms. Cornei, who is now taking her PhD in economics at the University of Ottawa. “Very fast I learned that it would take a very long time to move up.”
Ms. Cornei said she’s a victim of “education inflation,” which has devalued her undergraduate degree. “Three decades ago you would get your undergrad degree and it meant something,” she said.
Danielle Hodgson, 24, a recent economics graduate, knows she is facing a much tougher job market than previous generations did.
“It’s frustrating when I hear my parents talking how they got jobs coming out of university compared to the struggles I’m having,” said Ms. Hodgson, who is working part-time at a technology company as she hunts for a full-time work. “But I can’t blame them for the fact that the economy has changed. It’s not like someone planned it that way.”
Canada’s rapidly aging population is turning the widening income gap into a serious economic problem as the working-age population begins to shrink, Mr. Stewart-Patterson warned.
“We are going to be counting on every working-age Canadian to earn more money in real terms than they have in the past,” he said. “Yet, what we are seeing in these numbers is that younger people are starting further behind, rather than getting ahead, which is where we need them to be.”
There are also worrying social implications of the findings. Younger workers are facing a host of financial challenges that could mean they will be worse off in retirement than today’s older workers. Soaring house prices are putting home ownership increasingly out of reach. They’re also unlikely to have a defined benefit pension plan and rising health-care costs could mean they’ll face a heftier tax burden in the future.
“It is not clear that younger workers will be in a healthy financial position at retirement, even if their incomes do rise rapidly over time,” according to the 45-page report. “They should be expecting to work longer and retire at an older age.”
Mr. Stewart-Patterson said this risks making today’s twentysomethings feeling aggrieved, just when society needs them the most. “At what point does lack of opportunity start to trigger a backlash in terms of social attitudes and willingness to support high taxes to pay for social and health services?” he asked.
Governments and employers alike should worry less about how to get people into the workplace and start focusing on how to keep them there, Mr. Stewart-Patterson said.
Economic logic would suggest that as labour becomes scarcer, employers should have to pay more. But that isn’t what’s been happening. The level of permanent unemployment has come down since the 1980s, but entry-level workers still aren’t getting ahead, he added.Report Typo/Error
Average annual employment income employee,
by age groups and gender
Constant 2010 $
Relative pre-tax employment income per employee, between age groups
50-54 vs 25-29
55-59 vs 25-29
50-54 vs 30-34
55-59 vs 30-34