Questioning the so-called “Canadian Dream”

This well-known story of declining real earnings of younger workers is seemingly inconsistent with a story of increasing family incomes of children relative to their parents.

A Canadian child stands in a field draped in the Canadian flag.
Photo by Ksenia Makagonova on Unsplash.

On May 23, Statistics Canada released an interesting and widely reported study by Yuri Ostrovsky, entitled Doing as Well as One’s Parents? Tracking Recent Changes in Absolute Income Mobility in Canada. It showed that some two-thirds of Canadian children born between 1970 and 1984 (broadly speaking, the children of baby-boomers) had, at age 30,  family incomes at least as high as their parents at the same age, and that this proportion has been stable.

The author contrasts his findings to a similar, but not directly comparable, study in the United States which found that absolute income mobility between generations has been declining and that about one-half of thirty-year-old American are now worse off than their parents were at the same age.

So, is the “Canadian Dream” alive and well by contrast to the situation south of the border?

The basis for the Statistics Canada study is an ingenious matching of the tax records of children born between 1970 and 1984 and those of their parents. To give one snapshot, a thirty-year-old person born in 1979 had an average family income of $46,835 in 2009 at age thirty. This compares to a family income of $34,720 for his or her parents at the same age (the numbers are inflation-adjusted to 2014 dollars.)

The finding that two-thirds of children have moved up the income scale is not especially impressive in that one would expect about one-half to be better off, and one-half worse off even in a no growth environment. In fact, average incomes have grown over a generation.

One important caveat could have been reported. Since the study required that the tax records of baby boomers at age 30 be available, the study as a whole necessarily excludes many second generation as well as first generation immigrants to Canada. Many studies have shown that these later immigrants have fared much worse economically than those who arrived in the 1960s and 1970s.

Further, it is hard to square the data from the tax filer sample with individual earnings data for the entire population. These show that there has been a very marked fall in the real earnings of young adults since the mid 1970s (Statistics Canada, CANSIM Table 206-0052).

In 1976, Canadians age 25 to 34 had annual average earnings of $43,800 (in 2014 dollars). By 2014, that had fallen to $40,500, a decline of 7.5%. The fall in median or mid-point earnings was even steeper, falling from $41,600 to $34,600 or by 16.8%, showing that earnings fell the most among lower income workers.

The real average annual earnings of younger women age 25 to 34 increased (from ($27,200 to $34,500 or by 27%) over this same time period, but fell sharply for young men (from $55,500 to $46,500 or by 19%.)

This well-known story of declining real earnings of younger workers is seemingly inconsistent with a story of increasing family incomes of children relative to their parents. Family incomes at age thirty are made up mainly of earnings.

Part of the answer is probably a big increase in hours worked by women, contributing to rising family earnings and incomes.  Another likely part of the story may be that recent immigrants and racialized workers have borne the brunt of the real earnings decline for younger adults, especially among men.

It is important to note that the new Statistics Canada study is of incomes and not wealth. As such, it does not capture the fact that baby boomer parents parents are far more likely to have benefited from rising house prices than their children, and far less likely to have incurred high student debt as younger adults.

Statistics Canada is to be commended for publishing interesting research from a novel source of data, but count me unconvinced that the Canadian Dream is indeed alive and well.

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