Some insights into how Canada’s middle class is really faring

How is Canada’s middle class really faring?

In a new paper, Philip Cross and Munir Sheikh – former chief economic analyst and former chief statistician at Statistics Canada – explore this question.

It’s a topic of fiery political debate. Despite often conflicting approaches to measuring the middle class, “what emerges from a review of the array of definitions and data sources is that the politicians and voters can at least partly justify their angst,” they write in a study released Thursday through the University of Calgary.

“While the middle class has seen its income grow, it has not kept pace with the income growth rate of higher-earning groups.”

Not all members of the middle class, however, “face the same plight,” they say, noting that workers who have lost the most ground are those with lower skills and education, who are at the lower end of the middle-income bracket. Thus part of the writers’ conclusion lies in the study’s title – “Caught in the Middle: Some in Canada’s middle class are doing well; others have good reason to worry.”

Some of the paper’s findings:

Defining the middle class

There are many ways to define middle class, and the authors don’t settle on one definition. One common approach is to tally the median income, and then choose a range around that – though there is no clear consensus of what the upper and lower brackets are of the middle class. (They cite one study with a range of between $14,500 and $43,500 in constant 2005 dollars, and another, for families, with a range of between $40,000 to $125,000).

Another approach is to divide the population into quintiles and see what incomes are doing in the middle. By that measure, one study has found “a squeeze on members of the middle class with below-average incomes” as their after-tax income fell 8.7 per cent between 1980 and 2000.

Some say the definition should include consumption, self-identification and broader measures of lifestyle. Sifting through these different approaches, one overarching conclusion is that middle-class income growth hasn’t kept pace with higher-income growth in the past three decades.

Inequality

Inequality, as measured by the Gini coefficient for earned income, rose 13.5 per cent between 1976 and 2011. That’s before transfers and taxes, however. Once they are factored in, inequality still grew, but by a lower 4.3 per cent in those years. The income gap peaked in 2004 “and then fell steadily, except for a slight uptick during the recession.”

The trend is clear: All three measures of inequality show increases over time, with much of the widening gap occurring in the 1980s and 1990s.

Job polarization

The authors looked at earnings and occupations to assess whether the labour market is becoming more polarized. Data show there is “some polarization of earnings” with growth among the highest-paid and lowest-paid occupations, though the total increases were relatively small. Their findings coincide with other studies showing a “slight shrinkage” of the middle class – with almost equal numbers of people moving up the income ladder as moving down.

Manufacturing

The biggest source of downward pressure on middle-class incomes has been the decline of the country’s manufacturing industry, the authors say.

Factory jobs have long been a key source of employment, particularly for people with lesser education.

The authors refute the notion that these jobs have been a source of above-average pay, saying instead their importance, in the postwar era, was in providing middle-class jobs to large numbers of people with low skills.

Within manufacturing, they find the number of low-paying jobs has plunged in the past decade, while high-paying jobs – ones that pay $30 or more an hour – within the sector have quadrupled. The shift in manufacturing jobs, they say, is from jobs that are plentiful but low-paying to scarce but high-paying.

The ‘working class’

It might be time to resurrect the traditional distinction between the middle class and the working class, Mr. Cross and Mr. Sheikh say. Those at the upper end of the middle class – such as public-service professionals – are typically better paid and share characteristics with top-earning professionals, such as valuable pension plans. The working class, however, such as support staff, share characteristics with lower-income earners, including “higher job insecurity and the threat of automation.”

The concerns “commonly expressed about the future of the middle class are really concerns about the working class,” they say.

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