Globe and Mail
May 2, 2008

Don Drummond
Senior vice-president and chief economist at TD Bank Financial Group

Most Canadians feel they have not been getting ahead economically. The 2006 census results released yesterday by Statistics Canada show this isn’t their imagination.

Median earnings (the level of earnings that divides the population in
half) of Canadians working full-time for a year have barely changed in after-inflation terms from 1980 to 2005. The earnings of those in the top 20 per cent rose 16.4 per cent. But the middle 20 per cent stayed flat, and the bottom 20 per cent had a 20.6-per-cent plunge in earnings.
The lack of overall gain, and, more particularly, the widening of the income distribution, should be a call to arms for Canadian governments and all stakeholders.

Weak overall incomes are a predictable result of Canada’s lacklustre productivity record in recent decades. The overall economic pie simply hasn’t grown much. Further, as in virtually every developed country, corporations have seen an increase in their share. That is reflected in individuals’ incomes through company ownership, capital gains and dividends. But these sources of income are disproportionately received by a fairly small number of the wealthiest.

Further, a good part of the overall growth since 1980 has come from a rising labour force participation rate. For the most part, this has been accounted for by the female partners in families. This is why median family income rose 8.6 per cent since 1980 while individual income didn’t change. The increased job opportunities for women are great.

But the income and output gains reflect greater work effort and don’t likely fully translate into sentiments of increased economic well-being.

The census reveals that the spoils of the weak productivity growth have gone to the best educated. The census reveals that almost all high-income earners have advanced education degrees. The poor tend to have much lower levels of formal education and many confront basic literacy challenges.

As we near the point where immigrants will account for all of Canada’s population growth, their income results are becoming a more important determinant of the Canadian totals. Here the census results are particularly depressing. Even after being in Canada for 20 years, recent immigrants are more than twice as likely as someone born in Canada to have a low income. Recent immigrants earn only about 60 per cent of what Canadian-born workers are paid.

Immigration is the area that breaks the link from education to earnings.
Education attainment of immigrants has been rising, yet a recent male immigrant with a university degree earns 48 per cent of what his Canadian-born counterpart gets.

The census also shows how rapidly changing labour markets can hurt immigrants. A disproportionate number of immigrants have degrees in computer science, but since 2000, earnings and employment have fallen sharply in this area, much more so for immigrants than people born in Canada.

The census results aren’t all bleak. The percentage of low-income seniors has fallen to 14.4 per cent from 29.9 per cent in 1980. Public pensions have helped, but recently, the maturation of private pensions and an uptick in employment earnings have lifted seniors’ incomes.

Due largely to increasing employment earnings, the median income of female lone-parent families has risen 26.4 per cent since 1980. But that group is still the lowest income family configuration.

Canadians should not face another 25 years of stagnant income with the poor falling further behind. Yet there is a grave danger of this.

Productivity growth has been getting even worse lately. Poverty creates vicious circles across generations that are hard to break. Children of low-income families get less education and have low incomes themselves.

Public and private action must be focused on a productivity agenda.

Education is a good place to start. All levels must be lifted from basic literacy through to graduate degrees. If we do not soon turn around the deteriorating economic fate of immigrants, the economic prospects of all Canadians will be the worse.


Reference: Globe and Mail