The urban dilemma of Canada’s income inequality problem

A new report from CPA Canada shines a spotlight on the growing problem of income inequality in this country—a challenge felt most acutely in our biggest cities. Luckily, the news isn’t all bad.

Income inequality is one of the most controversial and vexing realities that our society faces. At its most basic level, it measures how income is distributed across the country—and in Canada, as with many western countries, inequality has been rising in recent decades. In the world’s largest economy, the United States, the share of national income realized by the richest one per cent of Americans has doubled since 1980—from 10 per cent to 20 per cent; the share going to the richest 0.01 per cent quadrupled, from one per cent to almost five per cent. In short: the rich are getting rich, while low- to medium-income earners are, at best, treading water.

Why is this important? If we’re all getting richer—and relative to decades past, we mostly are—it shouldn’t matter if some are doing relatively better than others. And yet many economists and social scientists make the case that equity in our economy does matter—particularly as a means of building prosperous, safe and cohesive communities.

Francis Fong, chief economist for CPA Canada, is the author of a recently released report on income inequality in Canada—and the results are not encouraging—especially if you live in one of Canada’s biggest cities. Calgary has seen an increase in after-tax inequality four times higher than the national average since 1982, according to Fong’s research, while Vancouver and Toronto both saw increases 2.5 and three times higher, respectively.

“There is just an enormous amount of demand for city living these days,” says Fong. And that’s where some of the tectonic shifts in Canada’s economy are most apparent. “We’ve lost hundreds of thousands of jobs in the manufacturing sector since the early 2000s that we’re never going to get back.” Meanwhile, as those jobs disappear and are replaced by lower-paying service jobs, the knowledge economy has also taken flight in Canada’s urban centres—exacerbating the inequality equation; those are jobs, notes Fong, that “require a high level of education and are based on tasks that aren’t replaceable.”

So what can—and should—be done to address income inequality? Fong thinks that clearly there need to be more robust tools to deal with some of the challenges facing Canada’s cities. The problem is that municipalities themselves can’t address some of the central issues, leaving it to provinces and the federal government to use a mix of taxation policy, new housing strategies and the loosely-defined concept of “inclusive growth” to bring more equity to our urban heartland. It’s notable that the time during which the income gap grew widest was during the 1990s, when governments everywhere tightened their fiscal belts (and on the federal level, got out of the affordable housing business entirely).

Beyond government intervention, one of the biggest determinants as to whether people can overcome a state of inequality is income mobility—specifically, the degree to which the gap between a parent’s income relative to the national average is passed on to their children. And on that front, Canada fares relatively well: of 13 countries measured in a recent OECD report, Canada ranked just behind Denmark, Norway and Finland on “intergenerational income elasticity,” and well ahead of the class-based U.S. and U.K. economies.

For Fong, Canada’s income mobility is an encouraging sign for the future. “Every society always needs some level of inequality,” he notes. “We all need motivation to work harder, invest, pursue higher education, improve ourselves, and do better. But if no matter how hard you work, you are always going to make the exact same amount of money as your neighbour, then you would have very little incentive to actually work a lot harder, which is not good for your economy. In general, I think we’re pretty blessed to live in a country like Canada.”


What are your thoughts on the income inequality report and Canada’s economic future? Post a comment below.

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CPA Canada