Income inequality has not worsened in Canada over the past decade -- contrary to popular perception, a new paper argues.
While the country’s income gap grew significantly through the 1990s, it has remained “surprisingly unchanged” since 1998, a study by Toronto-Dominion Bank out Tuesday contends.
Its main focus differs from those of the Conference Board of Canada and the OECD, which have both warned income inequality has been growing, though those reports used different timelines in their analyses.
The sense of a growing gap in Canada, TD argues, may stem from other factors: the low absolute level of income among poorer Canadians, the growing share of income going to the top 1 per cent of earners, and the weak growth of incomes among middle-earner families.
Thus the “policy focus should not be on income inequality in-and-of itself, but rather to ensure equality of opportunity and how to improve the prospects for low and middle-income earners,” said the bank’s chief economist Craig Alexander.
The differing conclusions about trends in income inequality may stem from the dates used to measure them. In separate reports last year, the OECD said the income gap in Canada is well above the 34-country average, while the Conference Board argued that income inequality has been rising more rapidly in Canada than in the U.S. Both of those studies used the mid-1990s as a starting point of comparison. TD’s paper, however, examined changes in inequality between 1998 and 2010.
Income inequality has been a big focus of debate, especially in the United States where U.S. President Barack Obama has called it the “defining issue of our time.”
However, “Canada’s story is much less clear cut,” Mr. Alexander says, adding that he hopes this research adds nuance to the debate.
His findings shows the income gap, as tracked by the traditional measure of the Gini coefficient, shows a widening in the 1990s – when the government was battling the deficit and cutting transfers – while since 1998 that gap has remained “essentially flat.”
It also looked at income gains in recent years – and found faster increases among lower-income households.
Families in the top quintile of the income scale saw after-inflation income gains of 18 per cent since 1998, while those in the bottom fifth recorded gains of 20 per cent.
The lagging performance, the bank says, is among middle-income households which saw gains of 14 per cent. That equates to “weak” growth of 1.1 per cent per year.
But this is only one metric. Lower-income families may have seen increases, but their absolute level of income “is often not sufficient to meet a family’s basic needs.”
Consider this: even with the gains in the past 12 years, the actual level of income among the bottom quintile amounted to just $15,200 in 2010.
Meantime, the top 1 per cent – the target of much of the Occupy movement’s criticism last year – is indeed taking a greater share of the income pie.
The top 1 per cent of earners in Canada accounted for 14 per cent of total income in 2010 – up from 8 per cent in 1982.
“While this may not be significant enough to skew the Gini coefficient, it is likely a key contributing factor to the sense that income inequality has intensified,” Mr. Alexander noted.
The picture changes further when the definition of inequality is broadened to include personal wealth.
The data show that about 70 per cent of the nation’s net worth is concentrated among the richest 20 per cent of Canadians.
This might represent a “more tangible notion of inequality” since stronger net worth often translates into more expensive homes, luxury cars and other high-end goods “beyond the reach of the majority of Canadians.”
The Conference Board’s study, released last year, looked at trends in income inequality since 1976 using the Gini index. It found income equality has increased over the past two decades, with the gap climbing through the 1990s and holding steady in the 2000s.
Editor's Note: The online version of this story contains a clarification of the Conference Board's study.