The true state of the middle class

Trudeau wants to make the next election about helping average folk, but some argue there’s nothing that needs fixing

Adam Scotti

To hear the talk about federal politics these days, one sad truth of economic life in Canada would seem beyond dispute: Times have never been so tough for the middle class. The Liberal party’s newly announced candidate for an upcoming Toronto by-election, Chrystia Freeland, award-winning author of Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else, bemoans the “relentless squeeze” on those average folks. Justin Trudeau, the Liberal leader who lured her home from a career as a New York business journalist to try her hand at politics, has gone so far as to declare that the woes of the middle class are so apparent that no disagreement is possible. “This is not a political argument,” he says, “but a fact.”

Trudeau relies on a 30-year view to back his claim that there’s no room for debating the middle-class malaise. Indeed, incomes of families in the middle of the pack—those earning the median, where half the population makes more and half less—grew by just 13 per cent over three decades. According to Statistics Canada, the after-tax median income for families of two or more, linked by blood, marriage or common law, was $65,500 in 2010, up from 1980’s $57,900, adjusted for inflation. Vowing to do something about that stagnation, although he hasn’t yet said exactly what, is the basis for Trudeau’s challenge to Prime Minister Stephen Harper’s dominance of middle-class, suburban votes over the past three federal elections.

Among economists who study incomes, though, the notion of a moribund middle in Canada is far from universally accepted. In fact, there’s sharp disagreement over what to make of those 30-year figures. Stephen Gordon, an economics professor at Quebec City’s Université Laval (and a blogger for Maclean’s), says simply comparing incomes now with those of the late 1970s misses everything that happened in between. “In the first half of that period, incomes weren’t stagnating, they were declining. In the 1980s and early 1990s, we had two recessions, public finances were out of control and we had high and variable inflation. These were not good times,” he says. “Sometime around the mid-1990s, things turned around. Public finances got under control, inflation got under control, we got lucky with oil prices and, since that time, incomes have increased.”

Gordon is far from alone in the way he interprets the decline and rise of the past few decades. In a study last year, TD Bank Group economists also emphasized the rebound in Canadian median incomes since the late 1990s. And they pointed out, in an analysis of income inequality, that just when Canada’s median incomes were recovering, America’s middle class hit two very rough patches—the 2001 technology stock bust and the 2008 financial crisis. Both hurt the U.S. worse than Canada, and so American median incomes deteriorated as Canada’s improved. Despite that clear contrast, the U.S. experience, amplified through American media, has spilled over and influenced Canadian politics.

Nowhere has the U.S. perspective more powerfully shaped Canadian debate than when it comes to the top strata of the income scale. Starting with protests in New York’s Zuccotti Park two years ago, what became known as the Occupy Movement spread internationally, pushing the issue of income inequality—cast as the one per cent versus the 99 per cent—onto political agendas everywhere. Again, though, the Canadian and American situations aren’t really the same. In the U.S., the top one per cent took home 17 per cent of all national income in 2010, compared to 10.6 per cent in Canada. And while inequality worsened in Canada through the 1990s, it stabilized after about 2000. And those who start out lower on the income ladder tend to climb more easily in Canada. In his widely cited studies of social mobility, University of Ottawa economics professor Miles Corak has shown that the link between what a son earns and how much his father made is about twice as strong in the U.S. as it is in Canada.

Still, Corak is far from complacent about the Canadian situation. In an interview, he said his upbeat findings on social mobility show how Canadians born in the late ’60s fared well, after being raised and educated in the ’70s and ’80s and settling into careers in the strong, late-’90s economy. But he worries their success will be hard to duplicate for the so-called “millennials,” those born after about 1980, who grew up in an era of greater family economic stress, took on higher student debt loads and are entering a tougher job market. Corak also argues against Gordon’s view that the rise of median incomes since the late 1990s is evidence of reassuring middle-class strength. Corak suspects high prices for Canadian natural resources have masked the underlying, downward pressures of globalization and technological change. “This commodity-price boom might go on forever, but I doubt it,” he says.

Economists will go on arguing about the true state of the middle class. Politicians are only competing to establish who’s got the better plan to help them. The Harper government’s playbook has always emphasized niche policies. For instance, a recent federal government “back to school” news release listed Tory measures such as tax credits that offset part of the costs of kids’ sports and arts activities, monthly public transit passes, tuition and textbooks, and the interest on student loans. Along with reminding Canadians about those targeted measures, the government’s “Canada’s Economic Action Plan” ad campaign continues to tout the strength of the recovery since the 2009 recession.

But Abacus Data pollster David Coletto says the Conservatives have lost some of their edge in selling that economic message. “Since 2006, they’ve been very effective at speaking to the aspirational values of the middle class,” he says. “But recently, all their talk about how Canada’s Economic Action Plan is continuing to improve prosperity is starting to fall on deaf ears.” A serious problem for Harper, Coletto says, is that middle-class voters now in their 50s might feel secure enough about their own jobs and savings, but worry about their children—a lot. “You’ve got a generation coming out of post-secondary education whose parents love them dearly, and realize these kids can’t find good work,” he says.

According to Statistics Canada, the unemployment rate among those 24 and younger was 14.3 per cent last year, or 2.4 times the rate among workers 25 and older—the biggest gap since 1977 between youth unemployment and joblessness for older Canadians. When young people find jobs, they often find their way deep into debt, partly because house prices have soared. Between 1999 and 2010, the average debt of Canadians aged 31 to 35 grew by more than 60 per cent—enough to make many younger people, at least, feel poorer.

Even teenagers seeking part-time work in restaurants and stores are struggling. A report earlier this month from CIBC World Markets said the number of 15- to 18-year-old students unable to find after-school jobs climbed to a record of over 20 per cent, as more older workers take even those relatively low-wage positions. “I don’t think the government cares about those millennials, and I don’t think most parties do, because they don’t vote,” says Coletto. “But it’s the parents of a 22-year-old coming out of university—that’s the key voter group the Conservatives are going after, and the Liberals and NDP, too.”

There’s nothing new about all parties seeking middle-class support, of course. Launching the NDP’s 2011 election campaign, Jack Layton, the party’s late leader, accused Harper of failing to “give middle-class families a break.” For his part, Michael Ignatieff, the Liberal leader during that election, tried to peddle what he called a “family pack” platform—including grants for students, funding for child care spaces, help for those who stay home to care for old or ill family members and a tax credit for energy-saving home renovations—meant to compete head-on with Harper’s precisely targeted policies. Layton scored a historic NDP breakthrough, but mainly in Quebec. Ignatieff failed miserably. Harper won his majority while expanding Conservative dominance of suburban, middle-class ridings, particularly around Toronto.

The next test of his ability to maintain that crucial advantage will come with the return of Parliament on Oct. 16 for a Throne Speech, a fresh government agenda that some Ottawa insiders expect will highlight pocketbook issues such as cellphone costs, airline services and perhaps financial-institution fees. Flagging such common areas of annoyance for middle-class consumers might well be smart politics. But Trudeau is betting that middle-class discontent runs deeper, and has appointed Freeland to co-chair his new economic advisory committee, which is tasked with coming up with ideas for, among other things, “how to raise incomes for the middle class.” Unless Freeland’s committee is converted to the view that those incomes are actually already rising, their answer could form the heart of the next Liberal platform, and maybe even the prime target for Harper in the 2015 federal election.