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Canada’s Middle Class: We’re Number Four

Canada’s Middle Class: We’re Number Four

Insightful, provocative commentary on political and economic issues is what Andrew Coyne delivers to Canadians across the country. With topical and timely presentations, the former national editor of Maclean’s magazine and current weekly columnist for the National Post ignites debate and discussion with every audience. Andrew weighs-in on the recent report that Canada’s middle class is “the richest on the planet”:

“The American middle class, long the most affluent in the world, has lost that distinction,” The New York Times reported Tuesday, citing groundbreaking new research tracking incomes in the developed economies. And who do you suppose might have stolen its crown?

The Times story never quite comes out and says it, but leaves readers in little doubt: “After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States.” A writer for The Atlantic magazine’s website was less hesitant. “Canada is officially home to the richest middle class on the planet,” he announced.

Not quite. The study on which the story is based is sound enough. Drawing on data compiled by the Luxembourg Income Study, an international research project, it is the first to compare living standards across different countries at various points on the income scale and at different points in time. Notably, it compares incomes for individuals at the median— half-way between the richest and the poorest — offering a truer indication of how the middle class has been faring in each country than average-based measures like per capita GDP, which can be pulled out of whack by very high incomes at the top.

But the study doesn’t quite say what the story claims it does. The United States hasn’t always had the world’s richest middle class — Switzerland had that honour in the 1980s, as Luxembourg has ever since — and Canada’s isn’t the richest now. We’re clearly behind Luxembourg (or were in 2010, the latest year covered by the study) and while figures for Norway and Switzerland aren’t available for 2010, both were ahead of us as of 2004.

Still, if “We’re Number 4” doesn’t quite have the same ring to it, the study is encouraging all the same. Not only are Canadian middle class incomes among the highest in the world, but so is their rate of growth: up 20%, after inflation, in the decade after 2000, allowing us to catch and pass first Germany and now the United States. This isn’t just a story of American decline, in other words. It is a story of Canadian success.

The study confirms previous data showing the middle class in this country has never been as well off in our history: Whether you look at median incomes, real wages or household net worth, the story is the same. (Again, for those in any doubt, these are all in constant, inflation-adjusted dollars.) The more the evidence piles up, the more it discredits the thesis, popular in certain quarters, of a “struggling middle class.” That is clearly an important issue in the United States. It is equally clearly not so here.

At this point you may be puzzled. How to square this with opposition claims that “the middle class hasn’t had a pay raise in 30 years”? Surely there must be some truth in there? Yes, there is. The key phrase is “in 30 years.” Median after-tax incomes are indeed only slightly higher now, after inflation, than they were in 1980; market incomes, before taxes and transfers, are actually several percentage points lower. But that broad thirty-odd-year comparison hides two distinct periods, with distinctly different trends. In the first, lasting until the mid-to-late 1990s, incomes fell sharply, then bottomed out. But since then they have been growing steadily; even the last recession only slightly dented this trend. The “struggling middle class” describes a period that ended nearly two decades ago.

In fact, pick any time frame except 30 years — 10, 20, 40, 50 — and the trend is up. The only one that produces relative stagnation is the one beginning in 1980. Why is that? Because it happens to start with the two worst recessions since World War II, in the early ’80s and early ’90s, periods of high and lasting unemployment.

With so many people out of work, incomes among those at the bottom of the distribution plummeted, pulling down both the average and the median (and pushing up the share going to those at the top)

With so many people out of work, incomes among those at the bottom of the distribution plummeted, pulling down both the average and the median (and pushing up the share going to those at the top). But a decade and more of steady growth has had the reverse effect. Today not only are median incomes at their highest point ever, but poverty (measured by Statistics Canada’s Low Income Cut-Off) is at an all-time low.

Yes, that’s after taxes and transfers, and as such reflects in part the redistributive powers of the state, but that surely is the point: The picture of the middle and lower classes being left to the mercy of the market, while the rich make out like bandits, is a false one. Indeed, for all the attention that has been paid to the top 1%, its share of income, before tax and after, has been falling since 2006, leaving it lower in 2011 than it was in 2000.

Does that mean all is well? If incomes have been rising steadily in the recent past, does that mean they will forever more? Of course not. Want something to worry about? Worry about productivity, where our performance has been anything but world-beating. Instead, we’ve relied on a growing labour force and soaring oil prices to deliver higher living standards, neither one of which can be expected to do the same in future. But that’s a very different story than “the rich have been taking all the middle class’s pay raises.”

Likewise, an overall picture of well-being can obscure pockets of trouble. Men’s wages, for example, have not grown as fast as women’s wages. Central Canada has not grown as fast as the oil-producing West. But these are problems of gender and region, not class. They do not support bald generalizations about a struggling middle class, and it is long since time that talking point was retired.

By Andrew Coyne/National Post/April, 2014