The gap between what Canadians in their peak earning years (50 to 54) are making compared to those in the early stages of their working lives (25 to 29) has widened significantly since the mid 1980s, according to new analysis from the Conference Board of Canada.

And they warn that, if the trend persists, “social stability as well as economic growth could be severely challenged.”

“A growing scarcity of labour should add upward pressure on wages, but in the meantime, a younger generation that feels left behind could lead to new social tensions,” says the report.

The think-tank’s latest contribution to the income inequality debate, which has taken prominence since Liberal leader Justin Trudeau made middle class struggles the party’s economic mantra, doesn’t look at common statistical measures such as the Gini coefficient, the low income cut-off (LICO), or low income measure (LIM).

They did that recently enough — in July 2011 — and determined conclusively that income inequality had “increased over the last 20 years”.

More recently, a New York Times piece from last April showed Canadian median income (the amount that comes right in the middle, as opposed to the average) had risen by almost 20 per cent from 2000 to 2010, challenging the accepted middle class plight narrative and fuelling the federal Tories’ pre-election claims that they’ve been competent economic stewards.

But the key takeaway from that analysis was how much better the Canadian, British, Irish, and Dutch middle class were doing than their American counterparts. Not that Canada didn’t have an inequality problem.

If you go back the Conference Board’s work from 2011, the contrast between Canadians’ median income and average income — the latter being easily distorted by the incomes of what Liberal author-turned-MP Chrystia Freeland calls the super-rich — they identified a strong signal “that income growth is distributed unequally”.

Taking that as established, then, their new report builds on those findings by combing through Canada Revenue Agency (CRA) tax return data from 1984 to 2010 and looking at intergenerational inequality: what younger workers are making now compared to older workers, and how that’s changed.

Since the CRA data on employment earnings is only broken down into a number of categories before-tax, and not after, the Conference Board analyzes both.

The former allowed for targeted analysis of significant changes — increased female labour force participation, for example — while the latter offered the bigger picture, showing whether Canada’s progressive taxation system was doing its job and mitigating inequality.

Though the new Conference Board report finds that the Canadian income tax system has helped dampen the employment gap between older and younger workers “to a small extent”, post-tax income from 2006 to 2010 was still 64 per cent higher for Canadians between the ages of 50 and 54 than those between the ages of 25 and 29.

For some, that might seem like a reasonable premium given their decades more of experience. But it was only 47 per cent higher in the mid-1980s.

David Stewart-Patterson, vice-President of corporate and public affairs at the Conference Board and one of the report’s authors, told iPolitics in an interview Monday that changes to the tax code have played a major role in that increase.

“The tax reforms since 2000 seem to have accrued mostly to older and better-paid workers rather than the younger workers. And the tax impact is actually a significant part of the growing inequality since 2000,” he said.

But Stewart-Patterson found the income gap among women in the same cohorts, which could only be measured pre-tax, to be equally interesting.

“For women, in the peak earning years, 50 to 54 — back in the 1980s — the average for the older cohort was barely more than it was for the younger workers. Now we’ve seen a much more significant gap. It’s gone from 9 per cent up to 43 per cent,” he said.

Given the demographic changes Canada is undergoing as baby boomers continue to retire, Stewart-Patterson acknowledged optimists might argue that future labour scarcity alone will put upward pressure on wages, and that the problem will solve itself in time.

But he doesn’t find that answer satisfying.

“If you look at where unemployment rates were in the mid 1980s and how they’ve trended down ever since, you would argue that we’ve seen, effectively, growing scarcity of labour for the last three decades,” he said.

“The conditions for workers have been getting better and better steadily over that time, and yet we haven’t seen that affect incomes at the younger end of the spectrum. Entry-level jobs are still paying roughly what they were 30 years ago, after you take out the impact of inflation, whereas jobs for older workers have clearly increased significantly.”

If that persists, he added, there could be a cap on future economic growth.

The paper doesn’t offer policy prescriptions, and Stewart-Patterson didn’t either. For now, it’s about bringing it to policy-makers attention.

“In terms of current politics, it’s really about being aware of the generational dimension that we’ve described here, and being aware how any policy prescription may affect people across age groups — not just across regional geographies or industry sectors and so on,” he said.

“I think what we’re suggesting is, given what’s happened over the last three decades, the real issue is how do we make sure that young people get ahead.”

Read the report in full



