More economic sleight of hand from the socialist New Democratic Party (NDP), this time regarding the personal income of Canadians:
The gap has been steadily widening between well-off Canadians and modest-income earners over the past several years, say New Democrat MPs.
And last week's federal budget has done nothing to help narrow the difference, they add.
People in the top bracket, earning more than $85,700 a year, have seen their incomes rise 15 per cent between 1989 and 2004, MPs said Thursday, citing data from Statistics Canada.
Yet over the same period, people earning $20,400 or less saw their income actually shrink by nine per cent, says NDP finance Critic Judy Wasylycia-Leis.
Even middle-class Canadians, in the $56,600 to $85,700 income bracket, have barely kept up with inflation during that 15-year period, enjoying a mere two per cent increase.
"The rich are getting richer and most Canadian families have seen their real income decline since 1989,'' Wasylycia-Leis said.
The attack on the Conservative federal budget is coherent only if the composition of income classes in Canada does not change. The poor remain poor all their lives, and the rich likewise. In reality, however, nothing could be further from the truth.
The NDP’s fundamental misrepresentation is the presupposition that the "well-off" and "modest-income earners" form unchanging blocs comprised of the same people year after year—or, in this case, decade after decade. In actual fact, however, Canadians, like citizens of other Western countries, move up and down the income scale with alacrity. People in the lowest income quartile (a quartile contains one-fourth of the population) in one year are quite likely to move into a higher income group within even one or two years. Similarly, moving down the income scale is commonplace and quite unremarkable.
Many studies by economists throughout the developed world have documented this fact. A readily available example is "Income Inequality and Low Income in Canada: An International Perspective" by Garnett Picot and John Myles, published by Statistics Canada in February 2005. The pdf document can be downloaded here.
Authors Picot and Myles cite a study of Canada, the US, Germany, and the UK which found that between one-third and one-half of those with incomes less than one-half the median income (a typical measure of "low income") earned above that only one year later. And that study focused solely on a six-year period in the 1990s. Only 18 to 31 percent of those in low income were still there five years later—and the great majority of those earned above the low-income threshold at least one year in the interim.
As the table above shows, only a small minority remained below the low-income threshold throughout the six years under study. (Table found on p. 22 of paper by Picot and Myles.)
5.4 percent of the population was in low-income in all six years in the U.S., 4.4 percent in the U.K., 2.9 percent in Canada, and only 1.9 percent in Germany. (Picot and Myles, p. 23.)
The time period cited by the NDP MPs covers fifteen years. During that much longer time frame, the proportion of Canadians who consistently stayed at the bottom of the income scale would be well below 2.9%.
The Picot and Myles study also looked at inter-generational income mobility. How persistently does low income carry across generations? How likely are children of poor parents to experience low income themselves? Conversely, how likely are children of high-income parents to remain at the top end of the income scale? The answer on all counts is: Not very.
The authors cite an earlier Canadian study that compared a father's five-year average earnings when the son was aged 13 to 17 with the son's earnings as a young adult (aged 29 to 32) and found that one-third or less of the sons occupied the same income quartile as their fathers did.
The results highlight familiar patterns found in all mobility studies. First, the highest levels of intergenerational inheritance (about one third) are found at the extremes—the top and the bottom quartiles—in part, because such sons can only “move” in one direction. Second, short range mobility (to an adjacent quartile) is greater than long range mobility. For example, 28 percent of bottom quartile sons are in the second quartile by age 29-32, compared to 17 percent in the top quartile. (Picot and Myles, p. 24.)
Sons of fathers in the second and third quartiles were about equally likely to move up the income scale as to move down.
Other studies have found that Canada exhibits considerably more income mobility across generations than is observed in the US or the UK.
International comparisons indicate that the degree of intergenerational income mobility is relatively higher in Canada than in either the U.S or the U.K., and is roughly comparable to nations with a high degree of mobility, such as the Nordic countries. Children in low-income families in Canada are less likely to live in low income as young adults than their counterparts in the U.S. or the United Kingdom. (Picot and Myles, p. 24.)
In view of the very large degree of income mobility in Canada—both for individuals over time and between generations—the NDP's implication that Canada's income scale is made of blocks of people, called variously "the rich", "middle income", "well-off", "modest income earners", etc., is patently ridiculous. Canadians simply do not stay at or near the same income level year after year. To claim this over a fifteen-year period is nothing less than economic illiteracy.
Low income is, for the vast majority of Canadians who experience it, a temporary situation. As such, it is not best handled by adjusting overall levels of taxation or fiscal policy, as the NDP advocates.
That is certainly not to say that low income is not a problem for anyone in Canada. A relatively small number of people do remain at low income levels persistently over long periods of time. To assist those in that situation, the first thing needed is an accurate assessment of the extent and characteristics of chronic low income earners. With that in hand, a strong argument can be made that the best way to alleviate low income would be programs targeted to those in that particular small group.
But the NDP appears to have bigger political fish to fry.
MP Peter Julian said the budget — the first for Conservative Prime Minister Stephen Harper — won't help families at the modest end of the income scale.
"People are finding it more and more difficult to make ends meet and . . . governments are not responding to what is a growing income crisis,'' he said.
"Growing income crisis"? Rave on. Here's what Statistics Canada had to say in its most recent report on income of Canadians (released 30 March):
Median after-tax income rose for most Canadian families in 2004 as strong economic growth fostered gains in employment which in turn boosted market income, according to new data from the Survey of Labour and Income Dynamics (SLID).
Canadian families with two or more people had an estimated median income after taxes of $54,100, up about 2% from 2003 in real terms after adjusting for inflation. (Median is the point at which half of families had higher income and half less.)
The Canadian economy, as measured by real gross domestic product, grew 2.9% in 2004. According to the Labour Force Survey, this gain extended to the labour market as employment rose during the year, all in full-time jobs, and the unemployment rate declined.
. . .
SLID data also showed that the proportion of families living below Statistics Canada's low-income cutoff (LICO), declined in 2004, reflecting the strong economic conditions.
Showing that the NDP is wrong about the economy is like shooting fish in a barrel sometimes.
Previous related post: BC economy recovering from NDP 1990s slump
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