“How do Canadians manage with consumer prices so much higher than in the U. S.?”

The question was put to me at a reception in Vancouver recently by a former San Franciscan who had moved to Vancouver five years ago.

He raises a good point, especially since personal incomes here are significantly lower than in the U.S.

The Conference Board of Canada last week released a report highlighting the earnings dilemma. The report gives Canada a “C” on income per capita, compared to a U.S. “B” grade. That is, our income per capita is $36,138; it’s $43,025 south of the border — a difference of nearly $7,000.

Income was one of eight economic indicators studied by the Ottawa-based Conference Board as part of an annual exercise ranking Canada’s performance relative to 15 other advanced economies.

The 2013 report, released in advance of a federal budget due Thursday, says that except for low inflation and healthy job growth “Canada has been a chronic laggard.”

On labour productivity and attracting foreign investment, in particular, Canada is a dud.

The top four performers overall, are Norway, Australia, Belgium and the U.S. Canada ranks 6th, up from 11th back in 2008.

The income challenge is especially daunting for Canadians living in Vancouver where a lottery win or fairy godmother is often needed for home ownership.

The Illinois-based Demographia research group for years has been issuing a report card showing how badly Vancouver ranks on housing affordability. Its latest findings show, when 2012 home prices and household incomes are considered, after Hong Kong, Vancouver is the most unaffordable major metropolitan area in the world.

Demographia says homes should cost three times what people earn. In Vancouver, they cost 9.5 times what people earn.

And the situation here is getting worse. Back in 2008, Demographia ranked Vancouver 15th most unaffordable place to live.

No surprise then, many Lower Mainland homeowners are carrying debilitating mortgages, one component of personal debt loads that have become onerous.

A 2011 report by TD Economics documents B.C. residents’ vulnerability. Average per person debt load — comprised of mortgages, lines of credit and consumer loans — represents 160.5 per cent of personal income in B.C.; Canada-wide it’s 127 per cent.

Worryingly, B.C. residents are the only Canadians with a negative savings rate: -4.2 per cent, worse than the -3.7 per cent in 2008. Nationally, the average savings rate is 3.9 per cent.

The TD Economics report warns: “Higher interest rates over the next few years threaten to leave as many as one in 10 households in B.C. in a position of stress.”

Obviously, more plummy paycheques would help. But that won’t happen any time soon, explains Glen Hodgson, chief economist at the Conference Board.

“The income gap with the Americans has been building up over 25 to 30 years. It will take some time to address it.”

To grow incomes, Canadians need to boost their productivity. That requires businesses to invest in plant and equipment, especially in information technology, to enable more robust output.

Capital taxes have discouraged such investments and governments only lately are making necessary tax reform, he says.

Canada also needs to develop “a culture of innovation” in which business owners and employees constantly develop ideas to increase competitiveness.

Hodgson expects the budget to focus on skills development and apprenticeships. “Canada needs fewer Bachelor’s degrees and more machinists.”

Governments should be putting substantive effort into this area of outputs and incomes. While the situation is difficult in Canada, it’s dire in B.C.

byaffe@vancouversun.com