The Rich Stay Rich

By David Macdonald Created: November 27, 2012 Last Updated: December 3, 2012
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The Fraser Institute recently published a report entitled “Measuring Income Mobility in Canada.” It certainly doesn’t intend to make this conclusion, but a thorough look at their data shows that the rich stay rich as everyone else fights for entrance to this exclusive club.

Plenty has already been written about growing income inequality in Canada. These examinations show how the top 10 percent and top 1 percent of Canadians are running away with all income gains. Each year the average Canadians’ raises barely match inflation with the top 10 percent giving themselves much more substantial increases.

The rich get more raises over time and gain a bigger portion of the economic pie.

Income mobility is a slightly different issue. Instead of looking at who gets the raises in a given year, it tracks individual people to see how they fared over a longer period. So if someone was in the top 10 percent of earners in 1990, how likely are we to still find them there in 2009? Those were the types of questions that the Fraser Institute report examined.

There are some interesting results in it, although not the ones they highlight.

The report makes much about the fact that people who were in the bottom 20 percent in 1990 ended up seeing a 635 percent increase in income by 2009. Wow, if only we could all be poor!

Unfortunately this increase misunderstands the data. The bottom 20 percent and to some degree the bottom 40 percent of the distribution represent people who are unemployed either forcibly (because they were laid off), voluntarily (students or parents home with children), or people working part time. If you take a look at the average income of the bottom 20 percent it was $6,000 in 1990. These aren’t people who are working full-time or even at minimum wage. Try living on $6,000 in Toronto for a year, you’d be homeless by June. Seniors are mostly excluded because they likely didn’t “survive” the period (you have to be alive both in 1990 and 2009 to be included). It shouldn’t come as a big surprise that someone who was working part-time while in university in 1990 is making more, sometimes much more 20 years later.

If anything, what this examination of the bottom end shows us is that a lot of Canadians are poor at some point. Not permanently mind you, but temporarily, and while they’re down it makes sense to help them get back on their feet through more generous EI programs for instance.

While the study focuses on the low end, there are some very interesting things going on at the upper end. The report also inadvertently examines the richest 20 percent and asks “For people that were in the top 20 percent in 1990, how many are still in the top 20 percent in 2009?” The answer is a whopping 64 percent! Six out of 10 people that were in the top 20 percent in 1990 are still there today, two decades later. It’s even worse over a 10 year period between 1990 and 2000 where almost 80 percent of the wealthy stayed at the top.

This is the opposite of income mobility, if you manage to slip into the exclusive club of wealthy Canadians it looks like you get a 10 or 20 year membership. None of the other income groups have anywhere near that level of exclusivity.

So it’s not only that the rich get more raises over time and gain a bigger portion of the economic pie (income inequality), but once you get into that top bracket, you’ve got an incredible 79 percent chance of being there a decade from now.

Although this isn’t the report’s conclusion, my conclusion from the same data is that rich stay rich and everyone else churns around in the bottom.

David Macdonald is a senior economist with the Canadian Centre for Policy Alternatives.

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