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Business Commentary Canada’s big cities are feeling the pressure of income inequality

Francis Fong is chief economist with Chartered Professional Accountants of Canada

Rising inequality continues to be an economic, social and political concern around the world. But the conversation here in Canada largely ignores a key fact: Increasing inequality is not something evenly felt across the country. Our research shows that rising inequality is actually an urban phenomenon, primarily affecting our largest cities. And this has implications for how we should tackle it.

That inequality pressures are concentrated in our cities is a serious issue given that Canada has one of the highest rates of urbanization in the advanced world. More than four out of five Canadians live in urban areas. Population growth in our largest cities has also been more than four times that in the rest of the country since the turn of the millennium.

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But with all of its benefits, the rapid pace of urban growth has led to concerns that it is also unsustainable. Signs of income stratification and inequality are everywhere, whether it be sky-high home prices in certain cities or in the persistent fraction of Canadians living in a quasi-permanent state of low income. By far, the biggest increases in inequality have occurred in our four largest metro areas: Toronto, Montreal, Vancouver and Calgary. After-tax inequality in Calgary has risen four times more than the national average since 1982. Vancouver and Toronto follow closely behind with increases two-and-a-half and three times larger, respectively.

These are only the starkest examples. The reality is that major cities across the country have seen similar dynamics, which serves as an important counterpoint to the national inequality story. By most measures, inequality in Canada has risen only moderately over time. But if those increases are so disproportionately located in our biggest cities, this raises the question, what's happening outside of our cities?

Indeed, our research shows that if you exclude each province's largest cities and recalculate those same inequality measures, you get a completely different story. For the rest of Canada, after-tax inequality as measured by the Gini coefficient actually improves over time and there is next to no increase in the share of income going to the top 1 per cent.

Rising inequality is not just pervasive in our cities; it is almost exclusive to our cities.

Yet, municipalities cannot address this challenge on their own – very few of the tools that can have an impact on inequality lie with city councils.

At the federal and provincial levels, the inequality conversation is almost entirely focused on helping "middle class" Canadians. Rightly so, to a degree – the increase in the share of income going to the richest Canadians has largely come at the expense of those in the middle-income brackets.

But middle class and middle income are not necessarily one and the same. Ask yourself who you think personifies the struggling middle class of Canadians we are trying to help. Does that person live in a big city such as Montreal or Calgary? The reality is that middle-income Canadians living in cities such as those are likely the ones feeling the effects of rising inequality the most.

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The bigger question is, what does a middle-income family even look like today in a city like Calgary? Or Waterloo? Or Victoria? And how does that differ from middle-income families in less-populated communities? These distinctions are crucial, so that when we leverage the tools that we do have, be it tax policy, an affordable housing strategy, or skills training programs, we actually know who it is we are trying to help.

Ultimately, what our inequality debate demands is more precision. If we truly want to make a difference on this front, we have to recognize that, just like congestion or affordable housing, rising inequality is primarily an urban problem. If we can achieve that, we take one step closer to real solutions.

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