Munir Sheikh is a former chief statistician of Canada; Philip Cross is the former chief economic analyst at Statistics Canada. The authors are affiliated with the School of Public Policy, University of Calgary. This article provides highlights of their paper on the middle class recently published by the School.
If you ask Canadians which economic class they belong to, 80 per cent would respond middle class. And, there isn't a politician who does not worry about the middle class and their purportedly deteriorating well-being. Unfortunately, despite all this good will, it is not possible to discern precisely who are they worrying about. There is no consensus among economists on where the upper and lower boundaries of the middle class lie, with disagreement on the income levels and brackets that should guide its definition. Many even argue that income itself is not adequate, preferring instead measures of consumption, wealth and lifestyle, such as home ownership.
After examining all of the conflicting approaches to measuring the middle class, what emerges from our review is that politicians and voters can at least partly justify their angst. The range of definitions of the middle class shows one thing in common: while this group has seen its income grow, it has not kept pace with income gains of higher-earning people. But not all members of the so-called middle class face the same plight. The workers who have lost the most ground relative to higher-income groups are those with below-average human capital (that is, lower skill and education) who are at the lower end of the middle-income bracket.
The largest source of downward pressure on middle-class incomes has been the decline of Canada's manufacturing industry. Beginning in the postwar years, factory jobs developed a misplaced reputation for being well-paying middle-class work. In fact, the work provided generous pay and benefits only relative to the low human capital that was necessary to find employment in manufacturing. As manufacturing has declined across all industrialized countries, lower-skilled workers have often lost ground.
Meanwhile, gains have been made by those with higher levels of human capital. Public-sector professionals in particular have come to share the human-capital and income characteristics of Canada's highest-paid managers and professionals, often enjoying greater job security as well. In reality, anxiety over the state of the middle class and its future is actually about the working class. Lumping middle-class factory workers and clerical assistants in with higher income teachers and nurses – as current political discussion tends to do – obscures the truth about which members of the middle class are genuinely struggling to keep up.
As long as politicians continue to promote policies aimed at helping everyone within such a vague and broad target group as the middle class, they can only end up misdirecting resources by enriching those who are already doing reasonably well rather than focusing on those working-class Canadians who truly are not. We urge them to be more precise in telling us which group they worry about, what challenges it faces, and exactly what they propose should be done to help it out.
Already, net transfers through the tax system to middle-income groups have grown markedly. These transfers have managed to offset about half the erosion of the share of middle-class incomes in the marketplace over the past three decades. Those transfers have been financed through increased tax payments from high-income groups, but also through shrinking transfers to low-income groups. These developments raise serious policy issues for which there are no simple answers. Should transfers to the middle-income group rise even more, since they are still behind where they used to be relatively speaking? Who should pay for that and is it appropriate that low–income groups should help out the middle-income group?
The breadth of Canada's middle class obviously means that it encompasses the largest proportion of families, by far. Any further policies aimed at transferring wealth from other income groups to appease middle-class voters will be costly.
Given that the main cause for concern is the worsening situation of lower-skilled workers, politicians who truly want to help those struggling in the "middle class," should focus their efforts on helping disadvantaged groups of Canadians acquire more education and more skills.
The authors are affiliated with the School of Public Policy, University of Calgary. This article provides highlights of their paper on the middle class recently published by the School.