The Fraser Institute

The Fraser Institute

May 28, 2009 06:00 ET

The Fraser Institute: 'Growing Gap' Between Rich and Poor Overstated; Evidence Points To Improvements in Living Standards for Poorest Canadians

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 28, 2009) - The "gap" between the economic well-being of rich and poor Canadians may not be growing, says a new, peer-reviewed report from independent research organization the Fraser Institute.

Past attempts to measure economic inequality using only reported incomes have ignored other factors that contribute to the real standard of living, Professor Chris Sarlo writes in the report The Economic Well-Being of Canadians: Is there a Growing Gap? The full study is available at

"There is a commonly held notion that the rich are always getting richer and the poor poorer," said Sarlo, an associate professor of economics at Nipissing University and Fraser Institute senior fellow.

"However, most reports of a 'growing gap' in economic well-being between the rich and poor are based exclusively on reported incomes, ignoring other factors that help define one's standard of living."

While the study estimates that the so-called "gap" between the rich and poor, based on Statistics Canada survey and tax-filer data on reported incomes, rose about nine per cent from 1969 to 2004, Sarlo cautions that the magnitude of hidden and underreported income as represented by the so-called "underground economy" can distort the results, making the distribution of incomes appear more unequal than is actually the case.

The study quotes a 1999 report from the Auditor General of Canada suggesting that the Canadian underground economy could amount to $50 billion or more every year. The author also cites a 2002 study from researchers Giles and Tedds who estimate the size of the underground economy to be larger still, with Canadians concealing the equivalent of about 15 or 16 per cent of GDP through a variety of means every year.

"That number is likely to grow with increases in self-employment and the expansion of electronic commerce," said Sarlo, who points to the repair and renovation trade, auto repair business, and hospitality industry, as well as a range of illegal activities, as some of the key players in the underground economy.

The report also suggests that sociodemographic changes such as a greater proportion of seniors, more students in post-secondary institutions, more single parents, and more two-income families could also help explain the estimated eight or nine per cent rise in income inequality from 1969 to 2004.

In addition to questioning the reliability of reported incomes, the study notes that other factors which help define the living standards of Canadians have not grown significantly more unequal since 1969.

In terms of consumption, the study shows that the top 10 per cent of income earners enjoyed a standard of living about 3.85 times that of the bottom 10 per cent, and that this ratio was stable over the 35-year period studied.

Additionally, the study finds that ownership of appliances and electronics which enhance well-being does not the support the "growing gap" hypothesis.

Sarlo points out that, on average, Canada's lowest income earners are obtaining entertainment and labour-saving devices more rapidly than the wealthiest households.

"We're seeing the poorest Canadians acquire air conditioners, washing machines, computers, and other helpful products at faster rates than the wealthy," Sarlo said.

And the distribution of wealth in Canadian households has been quite stable since 1984, when Statistics Canada first conducted a survey of the net worth of Canadians.

Sarlo says the report offers a unique perspective by examining the issue of economic and material well-being more broadly than most research, which tends to focus almost entirely on income inequality.

The Fraser Institute is an independent research and educational organization with locations across North America and partnerships in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit

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