Fraser Institute News Release: Rich Not Gaining at the Expense of Low Income Canadians; Many Canadians Experience Rising Income Levels Resulting from Income Mobility

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Jan. 6, 2016) - The notion that the 'rich' are gaining at the expense of low income Canadians is false and contradicted by data on income mobility, finds a book released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

"Over the 19-year period examined, income levels rose for most Canadians with low income Canadians seeing their income levels rise faster than those at the top of the income ladder," said Herbert Grubel, professor emeritus of economics at Simon Fraser University, Fraser Institute senior fellow and author of Income Mobility, The Rich and Poor in Canada.

"When you account for income mobility, the fact that people's incomes change over time, it becomes readily apparent that the notion of the rich getting richer at the expense of the poor is simply not true."

In the book, Grubel critiques the most common ways of measuring income inequality, which look at average income levels of Canadians at a specific point in time and compare them to average income levels at a later point in time. The problem with this method, he writes, is that the people measured at the first point in time are not the same people being measured at the second point in time. That is, it assumes people's income remains stationary, that the people in the lowest and highest income groups are the same people at both points in time and fails to account for whether the number of people in each income group has changed.

But even using these methods, Grubel finds that income inequality in Canada was constant between 1976 and 1996 then increased slightly in the 1990s before leveling off in 2000.

He then looks at data that tracks the annual earnings of the same group of Canadians over a 19-year period (1990-2009). Using this method, the comparison is more accurate and takes into account income mobility.

This data shows that the group of people with lowest income levels in 1990 experienced the greatest gains in income, rising 180 per cent over the19-year period. Over the same time period, the income earners who would be termed "middle class" saw their income levels grow 52.7 per cent while those with the highest income only experienced income growth of 12.4 per cent.

"The argument that the middle class is hollowing out and that low income Canadians are trapped in poverty is not supported by the data. Income mobility shows that people move up and down through different income levels throughout their lives," Grubel said.

As for high-income earners, the realty is most of Canada's top one per cent of income earners are highly educated professionals and entrepreneurs who have invested heavily in their education. Their wealth is based on having achieved high incomes by providing people with goods and services they want.

For example, in 2012, it required an income of $215,700 or more to belong to the top one per cent in Canada. The average 'one-percenter' was male, 52 years, worked more than 50 hours per week and earned two-thirds of their income in the form of wages and salaries. This group of high income earners is also highly educated with 28.1 per cent holding a bachelor's degree and 21.7 per cent having post-graduate degrees.

"It's important to note that these people in the top one per cent were likely not at that income level 20 years ago. At that point the average one-percenter would have been 32 years old and likely just embarking on their career after having completed a postgraduate degree," Grubel said.

"Debates about taxing the rich and concern about income inequality in Canada ignore the actual data showing robust income mobility. Government policies should focus on assisting the working poor, not providing disincentives for entrepreneurs and professionals in business, sports, entertainment, and creative arts who earn high incomes as a result of their investments in education, training, and risky enterprises."

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org