THE RICH AND
THE REST OF US
The changing face
of Canada’s growing gap
By Armine Yalnizyan
March 2007
i sbn 978-0-88627-531-0
Canadian Centre for Policy Alternatives
2 Carlton Street, Suite 1001
Toronto, Ontario
(416) 263-9896
www.GrowingGap.ca
ackn owledgements
The author would like to thank the following for their painstaking work
to provide the data, without whom this analysis would have not been
possible: Brian Murphy of Statistics Canada and Richard Shillington of
Tristat Resources.
Thanks also to the following for their input on issues and analysis:
Garnett Picot, René Morissette, and Andrew Heisz, Statistics Canada.
The author would also like to thank the following for their input on
early drafts of the report: John Myles (Statistics Canada and University
of Toronto); Marc Lee (Canadian Centre for Policy Alternatives–BC
ofce); Hugh Mackenzie (research associate, Canadian Centre for Policy
Alternatives); Seth Klein (Canadian Centre for Policy Alternatives–BC
ofce); Brian Murphy; and Richard Shillington.
This paper was ably prepared with the assistance of Trish Hennessy,
Project Director of the Inequality Project, Canadian Centre for Policy
Alternatives.
The conception of the Inequality Project and its research is a
collaborative reection of the CCPA (regional ofces) and the project
team — Trish Hennessy, Hugh Mackenzie, and Armine Yalnizyan.
greater inequality and greater polarization of incomes compared to families
raising children a generation ago. Only the richest are experiencing gains
4 gr ow in g ga p pr oj ec t
from Canada’s economic growth, and most of those gains are concentrated
in the top . e share of income going to the bottom of Canadian
families is smaller today than it was a generation ago, in both earnings and
after-tax terms.
The rich are getting richer e richest of Canadian families are getting
richer. ey enjoyed a earnings increase compared to a generation ago,
the only group to experience such gains. is is creating a new phenomenon
in income distribution in Canada: the rich are breaking away from the rest of
society, in a way we have not seen since these data began to be collected, in
.
Bottom half shut out of economic gains e differences become stark when
we compare the top half of families with the bottom half: Between –,
the bottom half of Canada’s families earned of total earnings. Between
–, their share dropped to . of total earnings, even though they
were working more.
Contrasting fortunes e poorest of Canadian families saw their share of
the earnings pie drop from . from the late s, to . in the early s.
In sharp contrast, the top half of Canadian families saw their share of total
earnings grow, from to . during that same time period. Most of the
increase went to the very richest of families. eir share of earnings grew
from to . of all earnings by Canadian families.
Work is not enough Everybody but the richest of families are working
more weeks and hours in the paid workforce. e average Canadian household
with children is clocking in almost hours more compared to just nine
years ago. Only one group of families didn’t clock in more hours: the richest
, on average, didn’t increase their work hours between and . Yet
only the richest saw major increases in their earnings.
distribution by examining what happened to this population by deciles — equiva-
lently sized slices of the population, ranked by income that is adjusted for inflation.
at permits us to look at where real change is occurring — at the bottom, top, or
middle of the distribution of incomes.
is study reveals Canadian families are experiencing greater inequality and
greater polarization of incomes compared to families raising children a generation
ago. e share of income going to the bottom of Canadian families is smaller
today than it was a generation ago, whether measured by earnings or after-tax in-
comes.
2
is story is troubling for a number of reasons, including: who it is happening to,
when it is happening, how we measure its scale, and what may be driving it.
6 gr owi ng g ap p ro je ct
is particular group of Canadian households — families raising children — tra-
ditionally display the most stable income trends and lower disparities across the
income spectrum than, for example, people living on their own, couples without
children, or the elderly. For of the past years, after-tax incomes of families
raising children tended to go through similar changes, through recessions and re-
coveries, over the decades. e breaking point in this pattern seems to be exactly
when economic conditions became the best they’ve been in decades — beginning in
the late s and continuing today.
Given the strength of Canada’s economy, it would be natural to assume that
things are finally better for most Canadians, after decades of turbulence in the labour
market. Not so. While there have been gains in earnings for most income classess
in the past eight years, many families have barely recaptured the income levels of
a generation ago (and this with more time spent in the labour market). Even more
problematic is the fact that income inequality is growing rapidly at a time when it
should be shrinking, as it did during previous periods of strong economic growth.
How do we know the gap is growing? ere are three data sources we can look at
If a family’s earnings exceeded ,, they were among the elite in , the
richest of households raising children under in Canada. Families earning
more than , made more than of families raising children.
e poorest of families earned less than ,. Five percent of families
ch ar t 1 Where Do You Belong?
Distribution of earned incomes for 3.8 million families raising children under 18, 2004
$ 0
$ 20,000
$ 40,000
$ 60,000
$ 80,000
$ 100,000
$ 120,000
$ 140,000
$ 160,000
$ 180,000
Median Average Decile 1
Up to
$9,380
Decile 2
$9,381
to $23,450
Decile 3
$23,451
to $36,000
Decile 4
$36,001
to $48,600
Decile 5
$48,600
average or the median.
e average (at over ,) has been rising much faster than the median since
. e median is the mark at which half the families earn more, and half earn
less. In , median family earnings were , in Canada.
e middle earned between , and ,. e middle earned
between , and , — a span that renders “middle class” almost meaning-
less, since the spread between upper and lower middle class is so great.
In after-tax terms, the distributions are more concentrated, and the definitions
of rich and poor may be surprising.
In , a family with after-tax income of above , in Canada was rich. If
that doesn’t sound rich to you, of families raising children lived on less. Ninety-
five percent of Canadian families with children lived on after-tax incomes of less
than , — a figure that many believe is middle class.
e poorest of families raising children — more than , households
in Canada — lived on less than ,, after taxes, in . Half of these families
lived on less than , a year.
e middle class as defined by the middle of the distribution fell into an after-tax
income bracket of between , and ,. Defined by the middle , the middle
class saw after-tax incomes ranging between , and , in , a tighter span
than in earnings, but clearly not a solid block of households with similar experiences.
Average after-tax incomes were just over , in , but rising much more
rapidly than the median over the past few years.
e dead centre of the after-tax income distribution for families raising children in
was ,. Median incomes have been hovering around , for most of the
period between and . It has only been since that they started to rise.
ch ar t 2 Where Do You Belong? Distribution of after-tax incomes for 3.8 million
families raising children under 18, 2004
$ 0
$ 20,000
$ 40,000
Decile 8
$75,901
to $89,700
Decile 9
$89,701
to $110,200
Decile 10
Over $110,200
$ 17,574
$ 66,249
$ 29,221
$ 37,445
$ 45,454
$ 53,814
$ 61,955
$ 70,997
$ 81,765
$ 98,101
$ 135,810
9t he r ich a nd t he r es t of u s
se c ti on thr ee
Canada’s Economy in Context
we have been told for decades that a rising tide will lift all boats — that
economic growth will pave the way for greater equality.
In Canada, this is the best of economic times. Over the past decade, Canada’s
economy has consistently been firing on all cylinders.
Canadians are producing about trillion more in goods and services a year than
they did in . To put this feat in context, a trillion dollars is roughly equivalent
to the combined economies of all low-income nations in the world, which repre-
sent a total population of about . billion people.
world’s most established, richest market systems) can boast.
Unemployment is at a -year low. More Canadians are working and they’re
working harder. Productivity rates keep improving.
is is exactly the kind of situation that has, in our economic past, created the
conditions for the gap between rich and poor to get smaller.
ere is more economic and fiscal capacity to address just about any social, eco-
nomic or environmental ill we could name than at any point in our history.
Yet the income gap between Canada’s rich and poor families grew. It grew faster
than at any point since we have been measuring it. And it grew for categorically dif-
ferent reasons.
e gap used to be driven by more people falling into the bottom ranks of the
poor. Since the gap has grown because of two new trends: e extraordinary
income rise of the richest of families, who are earning more than ever and lit-
erally breaking away from the pack; and the fact that there are more rich families
compared to a generation ago (using the top of as the reference point). at
should be good news, but it comes with a twist.
Canada very much sees itself as a middle class nation, but the share of income
going to the middle class has been shrinking — slowly and steadily. As we shall see,
it’s not just the middle that is getting less out of Canada’s growing economy. A fortu-
nate few are indeed rising up, but in the absence of widespread gains from prosperity,
there is greater polarity in Canadian society than there was a generation ago.
Canadians sense that economic prosperity is largely accruing to the rich
8
, leav-
ing the rest behind. at perception is borne out by these statistics. ough the pie
is much bigger, it is not even getting divided into the same (unequal) pieces as a
generation ago. e pieces are getting more unequal, with those at the top getting
an ever-bigger share of the pie — at the expense of those at the bottom, but, more
surprisingly, also at the expense of the majority of Canadian families.
11t he r ich a nd t he r es t of u s
2001–04
73.3%
79.5%
23.2%
29.5%
Top Half Top 10%
12 gr ow in g ga p pr oj ec t
Average earnings of families raising children were about , in the late
s (in inflation adjusted terms). By the early s average earnings had risen
to about ,. But averages are not what happen to everyone; in fact, they can
mask what’s really going on.
Here’s what’s going on: Between –, the bottom half of Canada’s families
earned of total earnings. Between –, the bottom half’s share dropped to
. of total earnings, even though they were working more.
e poorest of Canadian families saw their share of the earnings pie drop
from . from the late s, to . in the early s. In sharp contrast, the top
half of Canadian families saw their share of total earnings grow, from to .
during that same time period.
On the surface, it looks like half of Canadian families are doing better and half
are doing worse. Not so. Only the richest of Canadian families saw their share
of the economic pie increase. In fact, it was the richest of these families who
drove all the change. e richest of Canadian families saw their share of total
earnings rise from less than a quarter of the earnings pie () in the late s to
almost (.), on average, between –.
Over the course of almost three decades, the bottom of Canadian families
raising children lost ground.
10
ey had a smaller share of the economy they helped
generate — the gains went to the richest of families, mostly to the richest .
(See Table in Appendix Two). Are the majority shareholders of the economy get-
2.3
4.3
6.0
7.7
9.4
11.1
13.2
16.3
29.5
13t he r ich a nd t he r es t of u s
Canadian families raising children in the past few years, compared to their pred-
ecessors of the late s.
In after-tax terms, average incomes rose for families raising children, from
, in the late s to , between –.
Against this backdrop, the bottom half of families raising children saw their
share of after-tax income fall from to . e top half went from to ,
but, again, the story is really driven by what happened at the top.
Families in the poorest decile and the eighth decile (almost the top) saw virtually
no change in their share of the pie. Families from the second to the seventh decile
got a smaller share, in after-tax terms, compared to their predecessors in the late
s. e ninth decile saw only a slightly larger share (from . to .).
In after-tax terms, only the richest of families saw any significant gain in
their share of total after-tax income — their piece of the action going from just over
a fifth () to almost a quarter (.) of the pie.
ough the economy is larger than ever before, and strong economic growth
has been more sustained than it has been in decades, the middle class complaint of
getting squeezed is more than “just their perception”, and more than just a middle
class phenomenon. It is reality for of the population of families raising children.
eir piece of the pie is smaller than it was in the late s, though the pie to be
divvied up is twice as large.
12.5
14.9
24.5
15t he r ich a nd t he r es t of u s
se c ti on fi ve
Growing Gap At a 30-Year High
there are many ways to measure inequality, but the chart below — tracking the
ratio of average incomes of the top and bottom of families raising children — is
one of the most common and straightforward measures. It shows that the after-tax
income gap has never before been this high during the years during which these
data have been collected.
e gap between rich and poor families is larger today, under robust economic
conditions, than it has been during recessionary periods. e gap between rich and
poor families has risen in recent years at a rate not previously recorded; and this is
occurring during a period of unprecedented economic prosperity, a time when the
gap should be shrinking, not growing.
ch ar t 6 After-Tax Income Gap Bigger than Ever
Ratio of Richest and Poorest Deciles, Families Raising Children, Canada, 1976–2004
7.0
7.5
8.0
8.5
9.0
9.5
10.0
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
16 g ro wi ng g ap p ro je ct
e fact that the after-tax income gap is growing should be of concern. Strong
economic conditions and rising employment rates of the working-age population
$ 120,000
$ 140,000
$ 160,000
$ 180,000
17t he r ich a nd t he r es t of u s
e gains in earned incomes experienced by the richest of families raising
children have created a breakout phenomenon in income distribution in Canada:
the rich are breaking away from the rest of society, in a way we have not seen since
these data began to be collected in .
In , the average earnings of the richest of Canada’s families raising
children was times that earned by the poorest of Canada’s families. at is
approaching triple the ratio of , around times. Both years were characterized
by strong economic conditions.
e majority in the poorest decile (the poorest of families) was locked out of
the labour market for most of the s and s. ey bounced back since the late
s and their earnings are on the rise but those earnings are far lower for Canada’s
poorest families than they were in the late s. (See Tables in Appendix Two.)
In inflation-adjusted terms, the bottom half of Canadian families raising children
either earned less or just the same as their predecessors almost years ago. As we
shall see in the next section, they are working more — but that is not translating to
higher incomes compared to a generation ago.
Families in the top part of the income scale are more likely to have benefited
from Canada’s expanding economy. e richest — the group already most bu-
oyed by the phase of economic recovery in the s — have seen a dramatic rise in
incomes since .
Chart compares the earnings of this generation of families raising children (all
deciles) to the earnings of those in the late s, a period when the economy was
similarly strong. e relative change by income class is striking.
ose already at the top saw the biggest gain — a increase for those in the rich-
est decile today, compared to the earnings of the richest group in the late s.
economic times return, and more opportunities to work are available, more people
in the poorest find work and, typically, the gap narrows.
is pattern changed dramatically after the mid-s.
ese days, during the best of economic times, the gap is being driven by the ex-
treme gains the market is delivering to the richest in what appears to be a self-
perpetuating cycle. e richer the family, the richer that family is becoming.
It is tempting to think they are doing something different — working harder, do-
ing more to earn more. Indeed, traditionally the richest of Canadian families
with children have put in the highest number of work weeks. Not so today. As Chart
shows, while everyone else is pouring more of their time into the labour market,
the richest of Canadian families are actually contributing less time in the labour
market than they were a generation ago. And families in the ninth and eighth deciles
are converging with the tenth decile with respect to how much time the average fam-
ily in these income groupings are putting into the labour market.
11
It could be argued that more weeks worked does not necessarily mean more hours
worked, given the rise in part-time and contingent work in the past three decades.
e data source for hours of work only goes back to , but the trend lines are
similar: people are spending more time at their paid jobs, including families raising
children. e average Canadian household with children is clocking in almost
hours more compared to just nine years ago.
12
e overall trend is that most families are putting in more work weeks, and most
families are putting in longer hours. Almost all Canadian families are putting more
time into the labour market than they did in , with one notable exception: the
richest of families.
20 gr ow in g ga p pr oj ec t
Chart shows that the average annual hours worked for those in the poorest
of families has risen to about , hours a year, higher in than in any oth-
21t he r ich a nd t he r es t of u s
are families ec on om ic ally b et t er off fo r working m or e?
Despite the fact that families in every income category but the richest are putting
more time into the labour market than a generation before — more than even a dec-
ade ago — the only real income gains have accrued to those who have not worked
more: the richest of Canadian families.
ch ar t 10 Canadian Families Working Longer Since 1996
Average Annual Hours Worked, Families Raising Children, Canada, 1996–2004
3,000
3,050
3,100
3,150
3,200
3,250
3,300
1996 19981997 1999 2000 2001 2002 2003 2004
ta bl e 2 Canadian Families Working Longer Since 1996 Average Annual Hours
Worked, Families Raising Children, by Decile, Canada, 1996–2004
Decile 1996
1997
1998 1999 2000 2001 2002 2003 2004
1 1,439 948 1,075 996 1,121 1,365 1,315 1,265 1,529
2 1,478 1,470 1,725 1,820 2,106 2,151 1,981 2,119 2,322
3 2,522 2,445 2,398 2,468 2,629 2,678 2,610 2,532 2,535
4 2,732 2,833 2,862 2,897 2,915 2,951 2,842 2,902 2,941
5 2,955 2,946 3,118 2,998 3,175 3,229 3,192 3,133 3,162
6 3,158 3,166 3,216 3,241 3,230 3,535 3,266 3,370 3,400
7 3,298 3,467 3,494 3,459 3,569 3,605 3,534 3,568 3,548
8 3,580 3,642 3,676 3,562 3,804 3,829 3,748 3,809 3,782
9 3,896 3,786 3,946 3,898 3,883 4,032 3,908 3,911 4,049
Decile
1976–1979 2001–2004
Average
Difference % Change
% Change in
Annual Earnings
1 39 45 6 15% -85%
2 60 64 4 7% -31%
3 66 74 9 14% -17%
4 69 82 12 18% -8%
5 75 90 15 20% 2%
6 79 96 17 21% 8%
7 85 100 14 17% 13%
8 94 108 14 15% 17%
9 103 113 9 9% 22%
10 120 114 -6 -5% 30%
Average
81 91 11 13% 5%
23t he r ich a nd t he r es t of u s
e data in the above chart suggest rates of pay may play an important role in
this story but the / data source does not provide that kind of detail. It could
be that the work of some occupations simply commands higher wages today than a
generation ago, while other work has been devalued. It could also be a shift in the
way the labour market values younger workers (and older) workers, with younger
workers being offered lower rates of pay than their counterparts in the late s,
in inflation adjusted terms.
Whatever the case, the majority of Canadian families raising children have had
to invest more of their most precious resource — time — into the labour market sim-
2001–2004
Dollar change from
boom to boom
% Change from
boom to boom
1 $15,979 $17,222 $1,244 8%
2 $29,289 $29,095 $(194) -1%
3 $37,973 $37,275 $(698) -2%
4 $44,272 $44,927 $655 1%
5 $49,665 $53,006 $3,340 7%
6 $55,529 $60,921 $5,392 10%
7 $62,082 $69,390 $7,308 12%
8 $70,496 $80,179 $9,683 14%
9 $82,114 $95,456 $13,342 16%
10 $108,446 $131,082 $22,636 21%
Median
$52,554 $56,976 $4,422 8%
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