7 charts on why the middle class is doing so poorly

Incomes have been stagnant for most individuals. Here’s what to do about it.

My colleague Stephen Gordon has a fascinating piece on Justin Trudeau’s fictional “Nathalie,” and the increases in her family income. For family units such as this one, there have been significant income gains since 1995.  However,  I would advise against drawing too general a conclusion from this data. Individuals are getting married later and starting families later, which skews the family income growth data, as it reduces the proportion of persons under the age of 35. To avoid the bias this introduces, it is useful to look at the earnings of individuals rather than families. When we do so, we see that for many groups median incomes were stagnant, even at the best of times.

Data on individuals is easy enough to find; Statistics Canada’s Table 202-0102 gives median incomes for both men and women, for full-time full-year workers by province. There is broad acceptance of the idea that the period from 1980-1994 was a tough one for the middle class and incomes post-2007 were affected by a global recession, so I will restrict my analysis to the period 1995-2007. In three of Canada’s four largest provinces, wages were stagnant for male workers:

Median earnings of male full-time full-year workers

The story was not much different for women, with a median wage decline in British Columbia, slight increases in Quebec and Ontario and significant gains in Alberta.

Median earnings of female full-year full-time workers

 

One cause of the increase in family incomes in Quebec that Stephen Gordon found is that women joined the full-time labour force in increasing numbers:

Full-time employment-rate for females

Although the wages of median full-time female workers barely budged in three of our four provinces, the overall income of women rose as the proportion of full-time workers rose. This largely did not hold true for men; even the gains in Alberta were relatively modest:

Full-time-employment-rate-for-males-1995-100-Quebec-Ontario-Alberta-BC_chartbuilder

A large portion of middle-class gains weren’t from earning more per hour, but from women working more hours. Unlike in the United States, the number of hours worked per capita in Canada rose by 75 hours between 1995-2007:

Hours worked per-year per-capita

You would think that with a commodity boom and Canadians working longer hours than Americans, that our economy would have grown much faster than theirs. Surprisingly, it did not:

Real GDP Per Capita

To put it another way, our productivity, as measured by Real GDP per hour worked, simply did not keep up with our southern neighbour:

GDP per hour worked

By looking at individual rather than family income, we see that wage gains from this period were largely thanks to rising commodity prices and increasing number of women entering the labour force. These are not trends we can expect to continue indefinitely.  Furthermore, these trends served to mask slow Canadian productivity growth. If the middle-class is going to enjoy income growth in the future, boosting productivity growth must be our first task.




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7 charts on why the middle class is doing so poorly

  1. Eliminate the charts and tell Canadians exactly what productivity is, and how we’re supposed to achieve it.

  2. Is there a technical meaning for “fascinating” in economic theory?

  3. Correct grammar would enhance the quality of the article. For example, the author writes “Data on individuals is easy enough to find”. Data is plural of the noun Datum…so the correct wording should be “Data on individuals ARE easy enough to find’…

  4. So at least a good part of JT thesis is in fact correct then?

    Mr Moffat, i’m not a lefty, but can we deduce anything from these graphs about the effect of free trade on individual incomes? Real median family income was at or around the same level it is today in 1975. Many factors are probably at complex interplay here – from lower taxation levels to simply lower expectations, and i presume more asset wealth[ at least on paper] for m/c Canadians today at the price of far higher indebtedness. But the seventies were good times for working men particularly, with high paying jobs in the woods in BC and good mill and factory jobs across the country generally. How much has free trade[and now globalization] failed to deliver to the broad swath of m/c Canadians? It’s all very well to point to outliers like Fort Mac, and examples of those with higher education doing well.[ such as yourself] But it seems to me an awful lot of other Canadians have been left behind and are in fact worse off than in 1975. So, is the answer really more education and better skills training? I suppose it is. Although why we are only now coming to this realization in 2014 is for me a stunning indictment of our elites and policy makers. And the fact remains that some are doing very well in our present economy, others are really struggling to just get by, much less get ahead.

  5. The biggest problem in my view is the onslaught of high taxation by governments, and, the loss of good jobs at the manufacturing and industrial level.
    Canada needs to find new internal industries to focus on that can compete with the global markets. Solid education in both the trades, design and sciences should be encouraged and applied.
    It amazes me that we in Canada can not even build a simple thing like a led light bulb, or kitchen implements. The need for high quality products at reasonable prices is a area that should be emphasized as stuff coming from China and other countries is mostly crap with a life span unbelievably short.

    Governments need to focus on encouraging investors to invest in Canada, and provide an economic climate conducive to do so. Certainly we need to promote our agricultural and resource industries. We need to also promote in a much greater way scientific research through our Universities, and we need to provide greater medical/pharmaceutical research including production within our own border. We need to get the attention of the Canadian Banking system to focus more investment in Canada and not over seas.

    That is a tall order, one that certainly is possible given the proper political climate that none of the current political parties have even considered.

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