The fall and rise of Canada's top income earners

We can gain insights into our economy by looking at the top 1% of earners. Historical trends in the top 1% are affected by the boom and bust of the business cycle, and reflect demographic, economic, social and political change. Current trends show how the market is valuing certain occupations and certain industries, and how patterns differ across the country. Examination of the income of the top 1% also reveals changes in wealth and in returns on investments.

This month's issue of Canadian Megatrends describes the share of market income earned by the highest earners in society and how that portion has changed from 1920 to 2014. It also looks at the major sources of income for the top earners, and to what degree women are sharing these economic gains.

To be in the top 1% in 2014, a taxfiler needed to have a market income of at least $225,100. There were 268,500 taxfilers who earned this amount or more in 2014.

A century of change In the first decades of the 20th century, high income earners held a significant share of Canada's income. From 1920 to 1940, the top 1% of taxfilers received no less than 13% of all income, with this figure peaking at just over 18% in 1938. However, this share declined during the social and economic upheaval of the Second World War. By 1944, the top 1% of earners received 10% of all income, a drop of more than 8 percentage points in six years. Income concentration among top earners continued to fall—albeit less dramatically—until 1978. From 1944 to 1978, the share of income earned by the top 1% gradually declined from 10% to just under 8%. However, the trend began to reverse itself in 1978. The share of income earned by the top 1% edged up to just over 8%, remained steady until the mid-1980s, and then rose sharply from 1988 to 2007, with brief dips around economic downturns in 1991 and the early 2000s. At its peak in 2007, the share of income earned by the top 1% was almost 14%, still below levels seen in the 1920s, but representing an increase of 75% over 30 years. After 2007, the proportion of income earned by the top 1% (and higher brackets of earners) decreased somewhat to the levels of the late 1990s.

Description for Chart 1 Chart 1 Market income shares of top 1% taxfilers, 1920 to 2014 Year Top 1% (World Wealth and Income Database) Table note 1 Top 1% (Longitudinal Administrative Databank) Table note 2 % 1920 14.40 1921 17.60 1922 15.20 1923 14.40 1924 14.50 1925 13.20 1926 14.00 1927 14.70 1928 15.30 1929 15.60 1930 16.10 1931 16.60 1932 17.70 1933 18.00 1934 17.50 1935 17.00 1936 17.40 1937 16.30 1938 18.40 1939 16.90 1940 14.70 1941 13.30 1942 11.30 1943 10.70 1944 10.00 1945 10.10 1946 10.70 1947 11.00 1948 10.40 1949 10.70 1950 10.90 1951 10.00 1952 9.80 1953 9.90 1954 10.30 1955 10.20 1956 9.60 1957 9.60 1958 9.90 1959 9.70 1960 9.80 1961 9.90 1962 9.40 1963 9.10 1964 9.40 1965 9.20 1966 8.90 1967 9.00 1968 9.00 1969 9.00 1970 9.00 1971 8.90 1972 8.80 1973 8.80 1974 8.80 1975 8.70 1976 8.10 1977 7.70 1978 7.60 1979 7.70 1980 8.10 1981 7.80 1982 7.60 1983 7.40 1984 7.60 1985 7.60 1986 7.80 1987 8.00 1988 8.90 1989 9.60 1990 9.10 1991 9.10 1992 9.10 1993 9.40 1994 9.40 1995 9.80 1996 10.30 1997 11.10 1998 11.60 1999 11.80 2000 12.60 2001 12.50 2002 12.20 2003 12.20 2004 12.50 2005 13.00 2006 13.60 2007 13.50 2008 12.90 2009 12.20 2010 12.10 2011 12.00 2012 11.70 2013 11.70 2014 11.60

Differences between top and bottom earners As income became more concentrated among the top earners in Canada, the lower half of income earners saw their share of earnings decrease. From 1982 to 2014, the proportion of market income earned by the bottom half of earners fell by 28%. Meanwhile, the share earned by the top half increased by 5%. The largest gains were made in the highest earning brackets. The top 1% saw their share of income rise by 53%, the top 0.1% by 90% and the top 0.01% by 133%.

Description for Chart 2 Chart 2 Percentage change in market income shares of taxfilers by percentile income group, 1982 to 2014 Income groups Percentage change Bottom 50% -28.4 Top 50% 4.7 90% to 95% 7.6 95% to 99% 18.0 Top 1% 52.6 Top 0.1% 90.5 Top 0.01% 133.3

Income gaps in cities From 1982 to 2014, Canada's big cities were more likely than elsewhere to see an increase in the difference in income between the top 1% and the median taxfiler, as measured by the ratio of the threshold for entering the top 1% to the median income. In Toronto, this ratio roughly doubled from about 6:1 in 1982 to 12:1 in 2014. In Calgary, it rose from about 6:1 to about 11:1, and the increase was equally large in Vancouver. The increase was much smaller in regions outside census metropolitan areas and census agglomerations, where the ratio rose from about 6:1 to about 8:1.

Description for Chart 3 Ratio of top 1% local threshold to local median, market income, selected regions, 1982 and 2014 1982 2014 ratio Toronto 6.19 12.08 Calgary 6.08 11.38 Vancouver 5.50 9.46 All CMAs Table note 1 5.58 9.10 Montréal 5.71 8.94 Canada 5.81 8.79 Hamilton 5.26 8.65 St. John's 5.82 8.55 All CAs Table note 2 5.57 8.04 Other Table note 3 6.43 7.97 Windsor 5.35 7.93 London 5.43 7.75 Edmonton 5.02 7.22 Winnipeg 5.61 6.96 Halifax 5.18 6.92 Oshawa 4.03 6.70 Regina 4.60 6.18 Québec 5.30 6.08

Women one-percenters Women have made steady inroads into the top 1%. In 2014, women accounted for 22% of the top 1% of taxfilers, compared with 10% in the early 1980s. Fully 15% of taxfilers in the top 0.1% were women in 2014, compared with 10% in the early 1980s. Sources of income Compared with their high-earning counterparts from the 1980s, the top earners in the 21st century are much more likely to be wage earners—that is, their income is much more likely to come from working for other people than from owning capital or businesses. In 1982, just under 49% of all market income earned by the top 1% came from wages and salaries. By 2014, this proportion was 65%. Among women, the top 1% saw their share of wages and salaries rise from under 30% in the early 1980s to 50% in 2014.

Definitions Market income: Total income, excluding government transfer payments from government programs, such as workers' compensation, the Child Tax Benefit, Employment Insurance, and the Canada Pension Plan or Quebec Pension Plan. Market income share: The amount of money a group of people earns as a portion of all money that is earned (also referred to as the share of market income). LAD: Longitudinal Administrative Databank.

References Lemieux, T. and W. C. Riddell. 2015. “Who are Canada's Top 1 Percent.” In Income Inequality, the Canadian Story, ed. D.A. Green, W.C. Riddell and F. St-Hilaire. Institute for Research on Public Policy. Murphy, B. and M. Veall. 2014. “A tale of two cities? The surge of top incomes at the city level in Canada.” In Thinking Outside the Box: Innovation in Policy Ideas, ed. K. Banting, R. Chaykowski and S. Lehrer. McGill-Queen's University Press. Saez, E. and M. Veall. 2005. “The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence,” in American Economic Review. Vol. 95, p. 831–49. Veall, M. 2012. “Top income shares in Canada: Recent trends and policy implications,” in Canadian Journal of Economics. Vol. 45, no. 4. p. 1247–1272.