Wealth gap not worsening in Canada, TD says

Income inequality has remained relatively flat in Canada for more than a decade, contrary to conventional wisdom, TD Bank argues in a report released today.

The report says income inequality, also known as the income gap — a country's broadest measure of what rich people earn versus what poor people make — was escalating rapidly until about 1998, but has remained "surprisingly unchanged" since then.

The report bases much of its findings by looking at the "Gini coefficient," a mathematical figure devised by an Italian statistician that economists often use to compare incomes across a broad spectrum.

A country with perfect income equality (one in which every citizen earns the same amount) would have a Gini coefficient of 0. Conversely, a country in which one person earns all the country's money would have a Gini figure of 1.

It's not perfect, but by giving countries a ranking on the Gini scale, economists say they are able to compare them fairly.

In 1998, Canada's Gini coefficient was 0.43. It is still at that level today, the bank says.

That's in part because the bank says the poorest 20 per cent of Canadians have seen their income increase by 20 per cent since the late 1990s. That's actually a higher growth rate than those in the top 20 per cent, who have seen their incomes increase by 18 per cent during that period.

The laggards, the bank says, are members of the middle class, who have only seen their income increase by 14 per cent.

The bank is quick to acknowledge that a proportionate increase in wealth does not imply that those on the bottom of the scale are gaining any ground, or indeed have enough to meet their needs.

That 20 per cent gain for poor people, for example, works out to just $2,500 more in real terms — moving their annual income from $12,700 to $15,200 in about a decade and a half.

Those on the higher end of the scale saw a 18 per cent gain, but in reality, that works out to more than 10 times more money in absolute terms, pushing their income up by $26,700 a year, from $145,200 to $171,900.

"While the Gini coefficient has remained relatively flat, it belies the challenges facing low-income Canadians," said the report's author, Craig Alexander.

On another measure of inequality, Canada does not fare very well, however, as the richest 20 per cent of Canadians now own roughly 70 per cent of the nation's wealth. And the top one per cent of wealthy Canadians have seen their share of the wealth expand from 8.2 per cent to almost 15.6 per cent between the early 1980s and 2007.

"While this may not be significant enough to skew the Gini coefficient, it is likely a key contributing factor to the sense that income inequality has intensified," Alexander said.

Still, compared to other countries, Canada's income inequality comes off comparatively well.

The gap between rich and poor is widening much faster in the United States, for example.

The report notes that America's Gini coefficient has been higher than Canada's for the past 35 years and that shows no sign of stopping.

The bank notes that median household income has been higher in Canada than in the U.S. since 2006, and the gap between the two is at its highest point since the 1980s.