Income mobility—public policy in Canada can’t ignore the facts of life

It may be hard for Canadians to believe, but a key feature of our society is regularly ignored in the discussion and setting of public policies. Whether we’re talking about taxes, income inequality, poverty, or the minimum wage, policy often ignores the obvious yet important fact that where people are today isn’t where they’ll be in five, 10, or 20 years from now.

We cannot have meaningful policy debates about these and other issues without understanding how the incomes of individuals naturally change over time.

Most Canadians have life experiences along the following lines.

In our youth, we experience work in mostly informal settings such as cutting a neighbour’s lawn, selling lemonade, or delivering newspapers. As we enter our teen years, this informal work progresses to formal part-time work, often at restaurants or retail stores. For many of us, this is our first experience at not only getting a paycheque, but having formal responsibilities to show up on time, do reasonable work, be a good employee, etc.

That basic work experience is extended when we attend college or university, and then augmented as we complete our formal education and enter the work force on a full-time basis.

Almost all of us (including the authors of this op-ed) start out at the bottom when we first enter the full-time labour force. However, as we gain real-world experience and put our education to use, we move up in our organizations, or perhaps vault to the next step by leaving one company for another.

With each step our responsibilities increase based on our greater experience, knowledge and productivity, which is rewarded with higher compensation. This period extends for decades as we work through our prime earning years. Eventually we start scaling back our work time as we approach retirement.

This experience, to varying degrees and depending on one’s age, is familiar to the vast majority of Canadians. And critically, it’s supported by the data.

In a recent study, we used Statistics Canada data to follow a sample of a million Canadians to see how their incomes change over time. The study put individual Canadians into five income groups (from lowest to highest) with each group comprising 20 per cent of the total. It then tracked the movement of people between income groups over time. The results are striking, especially when it comes to those who start out in the lowest income group.

For instance, from 1993 to 2003, nine of every 10 Canadians (88 per cent) who started out in the lowest income group moved up to higher income groups.

Upward mobility is even more pronounced over a longer time period. Notably, one of every four Canadians (24 per cent) who began in the lowest income group in 1993 reached the very top income group by 2012.

Again, these results demonstrate the natural progression experienced by most Canadians over the course of their lives. People can and do better themselves by completing (and continuing) their education, acquiring job skills, and gaining work and life experience. They naturally move up the income ladder over time as their circumstances change.

Ignoring the natural progression of people’s lives risks producing public policies based on a static and inaccurate view of our society. Indeed, there is a real threat that by ignoring mobility, policies may worsen or even limit the degree of mobility in Canada, which won’t help anyone.