No income inequality crisis in Canada when it's properly measured: Study

Says using wages to define income leads to skewed results
||Last Updated: 08/05/2015

Canada has only seen modest increases in income inequality among families, finds a new study.

The study finds that among Canadian families between 1982 and 2010, the share of income received by the top 10 per cent of families increased by 12.9 per cent - a far more modest increase in inequality than other studies show.

The study, Income Inequality Measurement Sensitivities, is a part of a series of the studies examining different aspects of inequality.

"The nearly 13 per cent increase in income inequality since 1982 is much smaller than the often-quoted increases found in other studies, which ignore taxes and government transfers, and contradicts the popular narrative about an inequality crisis in Canada," said Christopher Sarlo, study co-author and economics professor at Nipissing University.

"Income inequality in Canada is often treated simplistically, is poorly defined, and presented without proper context, which can paint a flawed picture," said Jason Clemens, study co-author and Fraser Institute vice-president.

For example, earnings (wages, salaries) represent a narrow definition of income, yet many researchers use earnings to measure income inequality. Consequently, the results can be misleading because this measure of income ignores a number of critical factors including government transfers (welfare, old-age security, etc.) to low-income families.

Additionally, researchers who use earnings to measure income inequality ignore the effects of progressive taxation, which takes a larger percentage of income from high-income earners than it does from low-income earners.

"Ironically, some researchers use earnings as their sole measure of inequality, ignoring what government is already doing to close the inequality gap, then call on government to take action," said Sarlo.

Finally if you measure inequality using only the incomes of individual Canadians, you will find a higher (and potentially misleading) level of inequality than if you use family incomes.

"If measured in isolation, the income of some stay-at-home parents may appear relatively low, but when the incomes of the entire household are factored into the equation, that same parent likely moves up the income range," Clemens said.

Therefore, the most accurate measurement for income inequality is after-tax income (which includes government transfers) adjusted for family size.

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