How to truly boost middle class incomes: Mike Moffatt

Time to focus on productivity

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My colleague Stephen Gordon has a fascinating piece on Justin Trudeau’s fictional “Nathalie,” and the increases in her family income. For family units such as this one, there have been significant income gains since 1995.  However,  I would advise against drawing too general a conclusion from this data. Individuals are getting married later and starting families later, which skews the family income growth data, as it reduces the proportion of persons under the age of 35. To avoid the bias this introduces, it is useful to look at the earnings of individuals rather than families. When we do so, we see that for many groups median incomes were stagnant, even at the best of times.

Data on individuals is easy enough to find; Statistics Canada’s Table 202-0102 gives median incomes for both men and women, for full-time full-year workers by province. There is broad acceptance of the idea that the period from 1980-1994 was a tough one for the middle class and incomes post-2007 were affected by a global recession, so I will restrict my analysis to the period 1995-2007. In three of Canada’s four largest provinces, wages were stagnant for male workers:

Median earnings of male full-time full-year workers

The story was not much different for women, with a median wage decline in British Columbia, slight increases in Quebec and Ontario and significant gains in Alberta.

Median earnings of female full-year full-time workers

 

One cause of the increase in family incomes in Quebec that Stephen Gordon found is that women joined the full-time labour force in increasing numbers:

Full-time employment-rate for females

Although the wages of median full-time female workers barely budged in three of our four provinces, the overall income of women rose as the proportion of full-time workers rose. This largely did not hold true for men; even the gains in Alberta were relatively modest:

Full-time-employment-rate-for-males-1995-100-Quebec-Ontario-Alberta-BC_chartbuilder

A large portion of middle-class gains weren’t from earning more per hour, but from women working more hours. Unlike in the United States, the number of hours worked per capita in Canada rose by 75 hours between 1995-2007:

Hours worked per-year per-capita

You would think that with a commodity boom and Canadians working longer hours than Americans, that our economy would have grown much faster than theirs. Surprisingly, it did not:

Real GDP Per Capita

To put it another way, our productivity, as measured by Real GDP per hour worked, simply did not keep up with our southern neighbour:

GDP per hour worked

By looking at individual rather than family income, we see that wage gains from this period were largely thanks to rising commodity prices and increasing number of women entering the labour force. These are not trends we can expect to continue indefinitely.  Furthermore, these trends served to mask slow Canadian productivity growth. If the middle-class is going to enjoy income growth in the future, boosting productivity growth must be our first task.

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