Mind the income inequality gap, says study
Published Tuesday, September 13, 2011 5:15PM EDT
The old adage that the "rich get richer" seems to ring true in Canada, according to a new study that found the income gap in this country is growing faster than it is in the United States.
The study, conducted by the Conference Board of Canada, indicates that the differences between how much the richest and poorest make in this country has become especially significant since the 1990s.
"Canada had the fourth largest increase in income inequality among its peers," said Anne Golden, president of the Conference Board.
Between the mid-90s and the late 2000s, Canada's income gap grew faster than nearly every other so-called "peer country," the study states. Among other wealthy nations with advanced economies, Canada's income gap grew the fourth fastest, behind only Sweden, Finland and Denmark.
While Canada has enjoyed relatively robust economic growth in recent years, the study found that virtually all the wealth has been accrued among the wealthiest 20 per cent of the population.
"I would say that those numbers surprised those of us that did the study," Golden told CTV News Channel.
While Golden noted that some wages have risen with inflation, she said the increases pale in comparison to those the wealthy have enjoyed. And the higher one goes on the wealth hierarchy, the more stark the difference becomes.
In fact, roughly one third of all the new wealth created in Canada over the past two decades has gone to the top 1 per cent of the population, Golden said.
Overall, Canada remains a wealthy nation on the whole, but Golden warned the widening gap can have serious economic consequences in the long-term.
Recent studies have also found that household debt in Canada has spiked in recent years, with people carrying more credit than ever.
Compounding the economic problems, Golden noted that many people "don't feel better off" and could be less likely to both invest and spend money, leading to negative consumer spending patterns.
While the country's GDP may be rising, Golden said that most people don't feel like they're part of it.
"Even though the U.S. currently has the largest rich-poor income gap among these countries, the gap in Canada has been rising at a faster rate," she said.
How the numbers add up
The Conference Board used something called the Gini index to measure the income gaps of 17 developed countries between the mid-1990s and the late 2000s.
The Gini index is a complicated formula developed by an Italian statistician that measures how much incomes deviate from a perfectly equal distribution. A Gini index of 0 means every person in the society has the same income, while 1.0 would indicate that one person has all the income.
Canada's Gini index rose 9.2 per cent to 0.320, the Conference Board reports. That puts Canada in the medium range of income inequality.
By contrast, the U.S. had the highest income inequality of the 17 nations, with a Gini reading of 0.378.
A reading above 0.4 would designate high levels of income inequality. Countries like Mexico and Brazil, for example, have high Gini index scores.
Inequality remained unchanged in Japan and Norway, and declined in five countries.
Overall, the Conference Board says income inequality has increased for 71 per cent of the world's population.
On the same day the Conference Board released its report, Statistics Canada reported that the net worth of Canadian households fell last spring for the first time in a year, at the same time as average debt grew.
Household worth fell 0.3 per cent to $184,300 in the second quarter, the first reversal since the second quarter of 2010.
The agency says the retreat occurred because of a loss in the value of pension assets and equities as the Toronto Stock Exchange index pulled back 5.9 per cent. That offset any increase in home values.
The second quarter also saw the ratio of household credit market debt to disposable income rise to 149 per cent, from 147 per cent.
The Bank of Canada has often warned Canadians to be wary of taking on too much debt in the current low-interest rate environment.
But households may take some comfort in the latest forecasts that suggest the central bank is at least a year way from raising interest rates.
Meanwhile, national worth -- which includes corporations and governments -- increased 1.2 per cent to $6.4 trillion in the second quarter, the agency said.