The "Occupy Wall Street" movement, which spread to many cities around the world last year, brought once again to the fore the never-ending question of income inequality. Concerns about this issue have also been fed by studies that have appeared over the past year, especially those from the Conference Board of Canada and the OECD.
However, even though these studies present data showing that income inequality in Canada has tended to increase, the interpretation of their conclusions is not as obvious as might appear at first glance. Like other studies carried out in the past, these bump up against the problem of collecting data in order to sketch a precise, unequivocal picture of the scope of inequality.
First and foremost, by using snapshots of different people's income at two points in time rather than the income data of the same people over time, these studies give us a distorted picture of the evolution of inequality. In other words, saying that the ratio of rich income to poor income was lower in 1990 than today does not necessarily mean that "the rich are becoming richer while the poor are getting poorer."
Fortunately, studies focusing on economic mobility in Canada tell a totally different and more accurate story. The Fraser Institute recently published an exhaustive study regarding the evolution of the incomes of specific individuals over a period of almost two decades. The researchers used a unique data set from Statistics Canada tracking the income of a million Canadians over a 19-year period (1990-2009).
By looking at these data, it becomes clear that it is the poorest 20 per cent who enjoy the highest upward economic mobility. Indeed, 87 per cent of people who made up the bottom income quintile in 1990 found themselves in a higher income quintile by 2009. Conversely, merely 36 per cent of individuals who were initially in the top income quintile in 1990 ended up in a lower income group by 2009.
So, far from being confined to a single income class their whole lives, the position of Canadians in terms of income level is continually evolving, and mostly upward.
As the report noted, the largest gains occurred for the individuals at the bottom fifth of the income ladder, contradicting the popular belief that the benefits of economic growth over the past few decades "have accrued to a small number of wealthy Canadians." The average income of Canadians who were in the lowest quintile in 1990 has risen dramatically by 2009, from $6,000 to $44,000, an impressive jump of 635 per cent!
When we look at the situation of the poorest in terms of consumption, the results are also quite remarkable. Indeed, many goods and services are becoming accessible to an increasing number of people. While not so long ago, a good number of consumption products were the privilege of a tiny, wealthy minority, these same products are now accessible to a majority of the population, including those of modest means.
For example, among the 20 per cent of the Canadian population with the lowest incomes, around half own a car, a cellphone, a personal computer and have an Internet connection at home, and more than three quarters have either cable or satellite television. These are goods and services to which even the wealthiest billionaire did not have access mere decades ago.
Inequality can certainly become a harmful phenomenon when a large number of people believe that their society is unfair and when economic mobility is so low that it becomes pointless to try to improve one's lot. But this is not the case. Economic mobility in Canada is much higher than frequently acknowledged.
Yanick Labrie is an Economist at the Montreal Economic Institute. The views reflected in this op-ed are his own.