Business

To Justin Trudeau and Chrystia Freeland, RE: the middle class

Where's the 'devastating hollowing' out?

Re

Chrystia Freeland at the World Economic Forum in Davos on January 25, 2013. (Pascal Lauener/Reuters)

Justin Trudeau and the Liberal Party of Canada have been preparing the ground for a policy agenda focused on the problems of the middle class.

Read: Canada’s middle-class incomes are stuck: Why it matters and how to fix it – By Kevin Milligan

One of the themes is the stagnation of middle-class incomes, an issue I examined a few weeks ago in this post. It turns out that although real median incomes are only slightly higher than they were 30 years ago, this statistics masks a U-shaped trajectory in which incomes declined during the 1980s and 1990s and have since grown steadily:

Another theme is that of the “hollowing-out” of the middle class. Here’s how Chrystia Freeland — a candidate for the LPC nomination in Toronto Centre — put it:

When it comes to today’s economic revolution, a very small and very lucky and very smart group of people is already benefiting (…)

But the other side of the coin is the devastating hollowing out of the middle class in the western industrial democracies. Traditional middle class jobs are being made redundant by the technology revolution or outsourced to lower-wage economies.

These are valid concerns. If middle-income earners are in fact being hived off to the upper and lower ends of the income distribution, this polarisation could result in social tensions that would be difficult to resolve.

But is the Canadian middle class actually getting smaller? Answering this depends on how you measure who is in the middle class. Here’s a chart that uses two measures: the percentage of those with incomes within one-third that of the median and that of those with incomes within half that of the median:

I don’t see much of a trend. I certainly don’t see how Canadian data fit with a narrative in which the phrase “devastating hollowing out of the middle class” can be used.

To be fair, Ms Freeland was not referring specifically to Canada. Still, she does appear to be doing what others have done before her: Take data from other countries and use them as a basis for a Canadian policy agenda. (See, for example, here and here.) It may be an effective way to put together a winning electoral strategy, but it’s not how evidence-based policy-making works.