Is growth a yesterday thing? Are we really living through the slow collapse of the middle class?

For those convinced that all is well with the economy — and that Canadians are still more likely to be moving forward than standing still or sliding backward — we have some new numbers which burst the bubble.

While the data aren’t perfect and the analysis is pretty much a first cut, we think the evidence is pretty overwhelming that the middle class is indeed shrinking and that, for the first concerted period in our history, we are no longer seeing income progress from one generation to the next.

A comparison of poll tracking in Canada and the United States shows just how recent and clear this decline has been. This tracking covers a little over a decade and corresponds with one of the longest periods of tepid growth in Canadian and American economic history. What Tyler Cowan called the ‘Age of the Great Stagnation’ is working in depressing lockstep in Canada and the United States. And while the U.S. is more advanced on the inequality curve, both economies are seeing a much larger share of a much smaller pie go to a very small portion of the über-wealthy.

This has made the issue of income inequality a pinnacle political concern for the Canadian public. This isn’t about the perennial divide between rich and poor — this is a political split between those at the very top of the pyramid and everyone else.

It is an odd, slow-building sort of crisis. Labour market confidence is stronger than it was in the 1990s and most citizens are still faring pretty well. But the trendlines are disturbing and describe deepening public pessimism: Only around 10 per cent of Canadians and Americans think the next generation will enjoy a better quality of life. Once we disentangle the issue of intergenerational mobility by generational cohort, we see that this gloomy long-term outlook may be unfolding now.

First, let’s look at how many Canadians and Americans still describe themselves as ‘middle class’. Many claim such assessments should be based on income dynamics alone; we strenuously disagree. Obviously, income is critical to the question — but ‘middle class’ is a state of mind, not an income category. It summarizes one’s sense of place in both economy and society. It conveys a sense of optimism, security and progress — a belief in the ‘good life’ and in the likelihood of passing that life on to one’s children. We’ve been hearing about the ‘hollowing-out’ of the middle for years now — but the data of the past decade show something new and disturbing.

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In terms of self-definition the middle class isn’t hollowing — it’s imploding. Huge numbers of Canadians and Americans are tumbling out of the middle class: The full categorization shows no upward mobility in aggregate. In total the movement trends downward to a burgeoning working class and poor. The upper class isn’t growing in size but its share of the pie is swelling. The promised fruits of monetarism and the bumper sticker mantra of lower-taxes-less-government have proved to be a cruel hoax. Rising tides haven’t lifted all boats — just a small flotilla of yachts, leaving everyone else beached.

The study of occupational and vertical mobility is an exceedingly complex area of inquiry. Normally we would have to await the assembly of carefully constructed longitudinal data linked to the census to come up with answers to whether people are moving forward or backward. But we’re impatient — and we suspect that the speed with which some of these forces are unfolding doesn’t afford us luxury of perfect data — so we’ve collected some serviceable interim data which should give a reasonable picture of vertical mobility.

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The numbers suggest that the incidence of those making more money than their fathers or mothers is slightly positive for men and decisively positive for women. Father-to-son comparisons are more informative for our purposes; female labour force participation has risen dramatically over the past fifty years, as has employment equity and pay across gender, and women are much more likely to have experienced upward vertical mobility than men.

Now, let’s unpack the data and look at it broken out into broad generational cohorts. We’ll focus on the father-to-offspring data today (we’ll be refining this analysis in the near future).

Suddenly, a dramatic pattern appears. In the previous chart we saw a mild tilt toward upward mobility overall; now that picture disappears almost entirely, to be replaced with its opposite as we move down the generational cohort.

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Seniors born before the end of the Second World War inherited a much more prosperous life than their fathers (over three-to-one upward mobility). The swollen baby boom cohort enjoyed a similar, if much less dramatic, pattern of upward mobility, with a plurality of 40 to 34 moving up versus down.

Now consider the plight of generations X and Y. They’re considerably less likely to be moving upward compared to their fathers and the incidence of upward mobility is literally three times lower than for the oldest senior cohort. This result for the millennial cohort is not conclusive — there are a lot of students in the mix, they belong to generations that enter the workforce relatively later — so it’s early days yet in terms of nailing down what all of this means.

But here’s what we can say: Vertical intergenerational mobility seems to be collapsing for young Canada (and in the U.S., we suspect). It looks an awful lot like the flattening and reversal of progress may already be well underway.

This is a simple analysis and there are, no doubt, distortions and vagaries in it. But the trendline is clear and very real. If progress is declining on this order of magnitude, or anything close to it, we’re in the midst of an economic transformation which threatens the future in ways we could not have imagined a decade ago.

One of the more insidious aspects of the end-of-progress problem is the despair it generates. Unlike spectacular events like a stock market crash or a terrorist attack, this is a problem which has built slowly and under the radar; its symptoms are now pervasive, entrenched and very difficult to confront. We find that many people are ‘hunkering down’ and hoping to wait this out. Many others are waking up and demanding forceful action.

So to conclude, let’s look at what Canadians believe are the key drivers behind our progress problem. The chart below shows that Canadians have a fairly clear sense of the hierarchy of forces driving this regression.

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Economic decline in the U.S. emerged as the top factor; this is an exaggerated belief but it’s rooted in reality. Canada and the U.S. are moving in economic lock-step and any solution to our progress dilemma must start with a reinvigorated North America (including young, fast-growing Mexico, which will surpass the German economy in size within a decade).

Look now at the second and fourth factors listed; people now believe that growth demands more fairness. Liberal capitalism is fueled by the belief that effort, skill and ingenuity will produce a better future. If that belief can’t be restored, the shift from an inclusive to extractive economy will end in the same dark place that economist Daron Acemoglu describes in his recent work.

The takeaway for politicians is this: Canadians are looking for a plan, a blueprint for success. They no longer want to hear that everything is okay and that we should be content. They don’t want empty bromides about the forces they can feel affecting their lives.

Finally, we note the jarring disconnect between the ‘low drivers’ listed on the chart and the economic trends and forces that tend to get a lot of press. Canadians don’t think the rise of China and other new powers is causing our failure. They don’t think that the much-talked-about skills mismatch in the labour market deserves the attention it’s getting from government and business leaders. They’re not convinced that a bloated state is the problem; in fact, they want a more activist government. And they discount the notion that young Canadians’ ‘sense of entitlement’ is to blame.

In short, what the numbers tell us is that there is a large body of opinion out there looking for nothing less than a reinvention of liberal capitalism for the 21st century. For politicians, the window of opportunity is closing fast.

Frank Graves is the founder and president of EKOS Research Associates, Ltd.

The field dates for this survey are December 12-20, 2013. In total, 1,531 Canadians aged 18 and over responded to the survey. Of these cases, 1,427 were collected online, while 104 were collected by computer assisted telephone interviews (CATI). The margin of error associated with the total sample is +/-2.5 percentage points, 19 times out of 20.

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