The gap is growing! The gap is growing! The rich are getting richer. And the poor, well, they just remain poor. At least that’s what one would gather from the hysteria reported in the media on the latest Conference Board of Canada report on income inequality.
With headlines screaming ‘Canada becoming a nation of haves and have-nots’ and ‘The Canadian dream is out of reach for an increasing number,’ it’s plain to see why young Canadians might be filled with angst at the prospects that they can no longer shape their economic future.
Nothing, however, is further from the truth. Despite the old cliché about the rich and poor, the Canadian dream of climbing the income ladder is not a fantasy.
By examining the share of national income going to the ‘richest 20%’ and ‘poorest 20%’ of Canadians, the Conference Board continues to perpetuate the myth that most Canadians are born into, live, and die within certain income groups. But in reality, with some hard work, young Canadians can and will live better than their parents.
Most young people start out in the low-income group and work up to the middle or high-income group over time. Given their initial lack of experience, education, and/or training, their incomes start out low but peak when they hit middle age (the prime earning years) and then taper off as they approach retirement.
Consider the experience of the authors of this piece, experience to which many Canadians can relate. We come from hard working immigrant families. Not long ago, we both were low-income earners working part-time jobs to support ourselves through school. After completing our education and gaining skills and experience, we moved up the income ladder (although admittedly, we are still far from the highest earners in the population).
The reason why so many Canadians can relate is because our experience is actually the norm. Over the past 15 years, more than a dozen Canadian studies have examined changes in income using data that tracks people’s income over time. These studies have found that, except for a very few cases (about 2% of the population), most Canadians transition from low income into higher income groups in a relatively short period of time.
For example, a 2001 Statistics Canada study examined data on low-income earners over a six-year period (1993 to1998). It found that 67% of low-income earners moved into a higher income group in a year’s time and 80% did so in two.
A more recent 2010 Statistics Canada study found the same results. It tracked low-income earners between 2002 and 2007, and found 60% moved into a higher income group after one year, 79% did so after two, and nearly 90% after six.
These findings are critical because they show that being a low-income earner is generally a temporary experience and stepping stone to better paid employment. They also suggest the ability to move up the income ladder hasn’t decelerated over the past two decades.
While individual Canadians are financially mobile over their own lifetimes, a growing body of research shows that Canadian families are also financially mobile over generations.
Several studies, most of which are published by Statistics Canada, have uncovered a surprisingly high level of what’s known as ‘intergenerational mobility’ – the finding that a Canadian child’s future economic success is not strongly linked to the financial position of his or her parents.
In 2006, Miles Corak, an economics professor at the University of Ottawa, measured intergenerational mobility in nine highly developed countries and found that Canada is one of the most intergenerationally mobile societies in the developed world, a conclusion that is consistent with research by the Organization for Economic Co-operation and Development (OECD).
We are lucky to live in a dynamic society where the ability to move up the income ranks is a reality for many Canadians. The Conference Board’s failure to incorporate this reality into the discussion of income inequality gives Canadians the impression that the opportunities available for them to advance economically are limited. But as the evidence shows, that’s simply not true.
Amela Karabegovic and Charles Lammam are economists with the Vancouver-based Fraser Institute