Income distribution of 99% remarkably stable
Statistics Canada’s Monday release of a report on Canadian incomes, which focused on earnings among the well-to-do, attracted a predictable media response.
Seizing on a three-decade rise in the share of total income earned by Canadians occupying the top 1% of the income distribution, and its apparent persistence, news reports used words like “inequality,” “worrisome,” and the inevitable, “richest 1% rake in one-10th of country’s income.” Some writers, on the other hand, wondered why Statistics Canada might publish politically divisive analyses.
A good place to start a cooler analysis is to ask who are these people who seem different from the rest of us. That is a question with an answer, or that had an answer, when Statcan conducted its long-form census. Using census data, economist Nicole Fortin and her colleagues at the University of British Columbia in 2012 unveiled some little reported but captivating observations.
Among Canada’s 1%-ers, senior managers and CEOs, the ritual target of Occupy, are overrepresented relative to their share of the population at large — but account for only 14% of the group. Who else is there? Yes, other financial professionals and executives, for whom the 1990s and early 2000s were pretty good, but physicians, dentists and veterinarians accounted for a full tenth of the 1%-ers, and they represent rather less than 10% of the population. Taken together, those with medical, dental or veterinary or other post-grad degrees account for almost a third of the high earners.
And, from an industry perspective, Prof. Fortin and co-authors observe also that 16% of the top group are professional, scientific and technical employees. They rather dryly note, too, that recent policy measures, such as a targeted tax on the rich, “would mostly target people who are neither top executives nor financial professionals.”
Moreover, workers, or employees, much more than in earlier decades, are indeed those who arrive in the top 1%. Half of such males work 50 or more hours a week, as opposed to less than a fifth of the rest of us. Wages and salaries, again much more than in earlier decades, are the dominant drivers of high incomes. Few people among the rich remain rich by clipping bond coupons. And this could explain rising “persistence,” as discussed in the StatCan report, meaning that being in the top 1% one year seems to make it more likely that you will be so in the following years — as one might expect, if earnings tend to be driven by salaries as opposed to windfalls or inheritances.
Given some data about those who are not like you or me, the next question is what has been happening with the rest of us? The answer is — not much, or, more precisely, almost nothing. To see why I say this, consider the figure alongside, wherein I take the top 1% and statistically eliminate them. The reason for doing so is not that I dislike anaesthetists or vets, we know that some have done well, and we have some insight to why they have. Yet if we ignore them, and consider instead the pattern revealed by the StatCan data shown here, which illustrates the income distribution among 100% of us 99%, one might take a calmer view than have some press reports.
The income shares, over three decades (in fact, since the early 1950s) have hardly budged, and the figure could almost be drawn with a ruler. Because I have used a broad income measure — income after tax, including capital gains — we can see a pop in the 95-99% share reported in 1994. That is because the federal government of the day rolled back, except for farmers and some others — the lifetime capital gains exemption that had existed since the last half of the 1980s. Those who had gains reported them then, because it was their last chance to get a healthy break on taxes on the taxable share of their wealth.
Another factor pushing down the reported earnings among the bottom 50%, is a sharp rise, a 10-percentage point rise since the 1980s, in the portion of the population turning up on the tax-filer database. This is because of the growth in refundable federal and provincial tax credits, eligibility for which requires low-income earners to file returns.
That said, and bearing in mind that average and median income growth, in the past decades, have been quite modest, what might one draw from these observations? The main point is that the income distribution, at least in Canada, is surprisingly stable from year to year. The distribution of income among the 99% has barely wobbled in three decades.
What the income data also show is that the collapse of the middle class, like the oft-reported advance of the killer bees, seems always to threaten, but never to arrive. On this point, the StatsCan report’s emphasis on the top 1% and above might indeed be misplaced. But if the associated data help us to a calmer view of the world, then we, like the vets and anaesthetists, might sooner get back to work on important things.
Finn Poschmann is vice-president, research, at the C.D. Howe Institute.