In Canada, the ‘poor’ are getting richer faster than the ‘rich’

Printer-friendly version
Appeared in the Toronto Sun, April 30, 2016

Only the “rich” are getting richer and advancing economically. Everyone else, well, they aren’t enjoying any economic gains. It’s a common refrain in the media and certainly a story that the federal government tells in its recent budget. As the budget states: “the benefits [of economic growth] have been felt only by already wealthy Canadians.”

We’ve heard this story from Prime Minister Justin Trudeau before. For example, a few years ago in a newspaper editorial, he wrote: “unlike times before, virtually all of the benefit of [economic] growth has accrued to a small number of wealthy Canadians.”

Fortunately, this story is of the fictional variety.

In reality, the “rich” are far from the only ones enjoying economic gains. Individual Canadians across the income distribution, especially those with initially low income, have enjoyed dramatic increases in their incomes over the course of the past two decades.

That is the finding from a recent study that used Statistics Canada data to see how the incomes of nearly one million Canadians changed from 1993 to 2012.

The study first divided Canadians into five income groups (from lowest to highest) based on what they earned through wages and salaries in 1993, with each group comprising 20 per cent of the total. It then measured how the average income of the same individuals in each income group changed after 19 years.

For those initially in the lowest income group—the so-called “poor”—their average income increased by a whopping 781 per cent after accounting for inflation (from $5,800 to $51,100). By comparison, the average income of those initially in the highest income group increased much more modestly, by just 28 per cent (from $82,600 to $106,100).

So the “poor” not only got significantly richer, they got richer faster than the “rich.”

Perhaps the most powerful result is with respect to income inequality. In 1993, the average income of the highest group was 14 times the average income of the lowest group. Nineteen years later, the average income of those Canadians initially in the highest group was only twice as high as those Canadians initially in the lowest group. Put simply, income inequality for the same people decreased over the period.

These results counter the narrative that inequality is increasing and that the rich are getting richer while the poor remain poor. That narrative is based on the faulty assumption that the people who were rich and poor 20 years ago are the same people today. They are not.

Thanks to Canada’s high level of economic mobility, people do not stay at a single income level their entire lives. The overwhelming majority who start with low income rise up the income ladder over time, and many reach the top income group. And those who start with high income do not stay at that level forever, as many move down the income ladder. Comparing snapshots of the income distribution at certain points in time completely misses the life experience of most Canadians.

Most Canadians start off with a relatively low income because they are young, new to the workforce, and lack work and life experience. Once they acquire education and job-related skills, their income typically increases until it peaks in middle age and then drops again as they prepare for retirement.

We should celebrate the fact that we live in a society where the vast majority of us experience significant upward income mobility over the course of our lives—not spread false stories about how only the “rich” get richer.

Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.