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The gap between the rich and the rest may have hit record levels in the United States, but new data for Canada show top earners have seen a shrinking share of total income.
The share held by Canadian top earners remains higher than in previous decades. But a first glimpse of 2012 data shows Canada has not followed the U.S. in recent income trends.
In fact, Canada's top 1 per cent of earners saw their share of total income fall to a six-year low in the same year that the top 1 per cent shot to century-high levels in the United States. Canada's richest 1 per cent held 10.3 per cent of total income in 2012, down from 10.6 per cent a year earlier, Statistics Canada said Tuesday. Their share peaked in 2006 at 12.1 per cent.
That doesn't mean Canada has licked challenges around income inequality. The top-earner share remains higher than it was three decades ago, when it was 7.1 per cent, and it is unclear how lower commodity prices, stock market shifts and sluggish overall wage growth this year have affected incomes since 2012. Growing income inequality in most developed nations has sparked concern from the International Monetary Fund and the Organization for Economic Co-operation and Development over the impact on long-term economic health and social cohesion.
When it comes to income concentration of the rich in Canada in this decade, "we're plateauing at a very high level, relative to anything we've seen since the 1930s," said Kevin Milligan, an associate professor of economics at the University of British Columbia who has studied income trends. "Maybe that's a good thing that things haven't been continuing to grow, but we're plateauing at a very high level. So we haven't totally undone the big income concentration that happened in the eighties and nineties. The difference is in the U.S., they haven't plateaued, it's gone up."
Number of tax filers in the 1% bracket
It's important to take a longer view, over decades, than focus on year-to-year changes, said Craig Alexander, chief economist at Toronto-Dominion Bank. "The share going to the top 1 per cent declined a little [in 2012], but the first two digits haven't shifted. It's still 10 per cent of income."
Still, the report highlights key differences in Canada, where the remaining 99 per cent of the population has fared better than the 99 per cent south of the border. One factor is that a construction and natural resources boom and their spinoffs have supported middle incomes in Canada, Mr. Alexander noted.
Another possible reason for the dip in 2012 top-earner shares may be linked to the stock market. Canada's benchmark stock index barely budged in 2012, which may have affected returns to the rich.
"The very highest income group [or the top 0.01 per cent of earners] seems to have taken a larger hit in 2012," said Brian Murphy, Statscan income analyst. Further research is needed to explain the drop, but "high-end tax filers could be deciding not to declare their capital gains, delaying their stock dividends to later on when stocks are going to be higher, or it could be lower compensation or bankruptcies."
The recent drop stands in stark contrast to the United States, where the share held by top earners has been climbing. In the U.S., the income share of the top 1 per cent hit 19.3 per cent in 2012 – the largest share in a century of record-keeping and up from 18 per cent in 2006.
In the U.S., since hitting a low of 16.7 per cent in 2009, "the total income share for the top 1 per cent had grown by 2.6 percentage points by 2012, while, in Canada, it had declined by 0.4 percentage points during the same period," the government agency said.
The six years between 2006 and 2012 also marked, for the first time since 1982, "a prolonged period in which the total income shares of the bottom 90 per cent, 95 per cent and 99 per cent of Canadian tax filers rose or stabilized," Statscan noted.
Canada's top earners tend to live in Ontario and increasingly Alberta, with a median age of 52. They tend to get more of their incomes from their earnings – wages and salaries – than in the past. A 2012 UBC study on top earners shows they're not just bankers and executives; they're also professionals such as doctors, lawyers, dentists, engineers and accountants.
They are also, increasingly, women. The number and share of women in the top-earners group hit its highest level on record in 2012. More than one in five of top 1-per-cent earners in 2012 were women, almost twice the proportion in 1982. This may be due to growing numbers of women in boardrooms and management positions – but also more women graduating in medicine and other professions, Prof. Milligan noted.
"The enduring strength of that trend – not abating and going through recessions – is noteworthy," Mr. Murphy said.
There are a total of 261,365 top 1-per-cent tax filers.
The bar to qualify as a top 1-per-center is rising. The threshold rose to $215,700 in 2012, a $3,000 increase from a year earlier, expressed in constant dollars. That compares with a threshold of $154,100 in 1982.
And once people join the top-earner group, they are more likely than in the past to stay there. The portion of top 1-per-centers who were in the same group a year ago is 72.4 per cent, little changed in recent years and compared with 66.8 per cent in 1983. (The portion of top earners always in the top five percentiles in the preceding five-year period has risen to 80 per cent from 67.3 per cent).
"There is a good deal of stickiness in who is a top-1-per-center, at least between successive years and this has not changed much since the early 1990s," said Miles Corak, professor of economics at the University of Ottawa's Graduate School of Public and International Affairs.
If people do fall out of this high-income group, they don't fall far, he added, noting that the portion of top 1-per-centers who stayed in the top 5 per cent in each of the past five years has been steadily increasing. That stickiness is even more prevalent for the very rich, or those in the top 0.1 per cent, who tend more now to stay on top.
"If there is a downward escalator from the top, it is pretty slow moving and doesn't go very far."
This data encompasses income – not wealth – trends. Wealth is a broader measure that includes assets such as real estate. A separate Statscan report this year on wealth distribution showed the wealthiest 20 per cent of families in Canada possessed 67.4 per cent of the country's net worth in 2012., although that's a decline from 69.2 per cent in 2005.
The release is based on administrative tax data, while the analysis is based on total, or before-tax income.
There was considerable variation among provinces. Ontario still has the largest portion of Canada's top 1 per cent of tax filers, but that share ebbed to 41.5 per cent in 2012 from 51.7 per cent in 2000.
In 2005, "Alberta surpassed Quebec as the province with the second-largest proportion of Canadians in the top 1 per cent, and has remained there since," the agency said, noting that Alberta's share rose to 22.8 per cent of Canadian tax filers in 2012 from 12.7 per cent in 2000.
Steve Letwin, chief executive officer of Canadian-based gold miner Iamgold Corp., says the key responsibility for those in the 1 per cent is to make sure that other people – especially the young – have the chance to work and advance themselves.
"I am not a big believer in giving money to people to create equality," Mr. Letwin said. "I am a big believer in helping create opportunity for people. So I think the wealthy would be much better off trying to help create opportunity, rather than being forced to redistribute their wealth, in a manner that doesn't improve the odds of people becoming self-sustaining over time."
Essentially, wealthy people need to reinvest their money in a way that will create jobs for young people, he said. "If we don't do that, we are going to have more and more challenges going forward as a society, because the number of [young] people without work is shocking. I don't think there is anything worse on the face of the earth than being young, wanting to work and not having the opportunity to work. That is horrific."
Mr. Letwin said he frequently travels to West Africa and sees "absolute destitute poverty" there, but "probably the most disturbing thing I see is a lot of young people who don't have a hope of getting a job."
Mr. Letwin, 58, is firmly in the 1 per cent, having earned a base salary of $881,000 in 2013. His total compensation was $2.87-million.
But he hasn't always been among the financial elite. He said he grew up in a family of six children on a farm in Southern Ontario, where "we didn't have two nickels to rub together." However, "what we did have was the opportunity to go to school, get educated, and when we graduated we got good jobs."
Now, young people in Canada – particularly recent grads – don't have those same job opportunities, "and they deserve better," he said.
An OECD paper, released last spring, found Canada's top earners have seen one of the biggest increases in income shares of any industrialized country. Top earners have seen their share of total income grow faster in English-speaking countries, according to an OECD analysis that examines changes in income concentration at the top of the distribution. It found Canada's top earners saw the second-highest rate of growth, after the United States, among 18 countries measured between 1990 and 2010.
Tavia Grant