Canada and the USA Wealth Analysis

After the global financial crisis of 2007–2009, the topic of inequality resurfaced as a focal point of public policy discussions, and interest has increased with the uneven economic impact of the COVID-19 outbreak among laborers. A deeper level of anxiety has been stoked by the combination of the devastating loss of livelihoods for many people around the world and the increasing wealth of a select few. This issue focuses on the detrimental impacts of inequality on social cohesiveness, faith in the institutions that support a nation's population, and individual well-being.

The information regarding income disparity in Canada

By breaking down the data according to wage and demographic categories, this section examines trends in several metrics of wealth and income inequality with the goal of identifying the primary drivers of change. We make use of a variety of Statistics Canada publically available data sets, with sample lengths typically spanning from 1976 to 2019. Every income metric has been updated for inflation.

The largest spikes in inequality occurred more than 25 years ago.

The Gini coefficient, which depicts the distribution of income throughout the population, is the most widely used indicator of inequality. It has a scale from 0 to 1, where rises indicate that fewer people own a larger portion of the economy's overall revenue. We provide the Canadian Gini coefficient for three distinct measures of household income: adjusted after-tax income, total income (including government transfers to households), and market income.

based on data from the Canadian Income Survey of Statistics Canada

The Gini coefficient in 2019 is more than 10% higher than in 2018 when market income is taken into account.

even though there had been a minor decrease in the previous few years of observations in 1976. The main effects of the recessions in the 1980s and the early 1990s are reflected in this. The Gini coefficient increased significantly during these recessions, did not go back to pre-recession levels, and even when the crisis ended, it stayed relatively close to the new, higher level. It has mostly stabilized at the high level since the late 1990s.

When total income—which includes government subsidies to households—is taken into account in the computations, the Gini coefficient decreases significantly. The progressive nature of Canada's income tax system is reflected in the even smaller level of measured income disparity when after-tax income is taken into account. Moreover, during recessions, the growth in Gini coefficients based on after-tax and total income is less pronounced. This highlights the role that discretionary fiscal measures and automatic stabilizers play.

Real income declines for those in the lower percentiles

What factors led to the rise in inequality during the early 1990s?

To shed light on these changes, Chart 3 presents the market income of individuals (rather than households) as a percentage of the total income since the early 1980s.8 The Longitudinal Administrative Databank of Statistics Canada, which makes its data publicly available, focuses on high-income groups; as a result, little information about the lower tail of the income distribution is available. This dataset suggests that the income growth of the highest earners may have contributed to some of the Gini coefficient's increase in the 1980s, albeit this increase only begins close to the end of the recession. On the other hand, the decline in income of the 25th percentile of the distribution was the primary cause of the widening in the first part of the 1990s.9. The incomes of those in this percentile have not yet recovered in real terms due to this ongoing decline. According to Bowlus et al. (2021), the early 1990s recession had a negative impact on the labor earnings of young people with low incomes in particular.

This observation aligns with the findings of Guvenen et al. (2021) regarding lifetime wages in the United States, which show a decline in the median male worker's earnings over time for the cohort that began working in 1983 compared to the 1967 cohort.

All of the Organization for Economic Cooperation and Development's member nations have reported stagnant middle-class income over the past few decades (OECD 2019).

The income of the 99.95th percentile has increased significantly during the mid-1990s, surpassing

that of the other bunches. It's interesting to note that increases in this and other higher-end income categories seem to occur before the global financial crisis of 2008–09 and the recession of the early 1990s. Although this group's income decreased during the 1990s recession, it recovered far more quickly than other categories.

This begs the question of why the Gini coefficients shown in the previous section do not reflect the diverse growth in earnings across income percentiles during the last few decades. Since the mid-1990s, the Gini coefficients have remained constant, although being at high levels. This is a result of the Gini coefficient measure's relative insensitivity to shifts at the highest and lowest ends of the income distribution.10

The median income for those under 44 has either

fallen or stalled

When examining trends in median total income by age group, the difference between individuals 65 and older and the rest of the population is the most noticeable finding. The age group of 65 and beyond has seen a considerably faster gain in income than other age groups (Chart 8). In the 1980s and first half of the 1990s, younger groups saw their salaries either stagnate or decline, coinciding with an increase in income disparity during that time. The 16–24 age group and, to a lesser extent, the 25–34 age group currently have lower real incomes than they had in 1976. It's possible that a greater number of young people are opting to delay entering the workforce by pursuing higher education, which is the reason for the slower growth in income among the younger generations (Galameau, Morissette and Usalcas 2013).12

Greater educational attainment acts as an equalizing factor against inequality, as was covered in section 4.