Canada’s income gap is growing — not just between rich and poor, but between young and old, a report by the Conference Board of Canada has found.
Older Canadians now earn 64 per cent more after tax than younger workers. That’s up from a 47 per cent gap nearly three decades ago, the study released Tuesday found.
The report, called The Bucks Stop Here: Trends in Income Inequality between Generations, confirms what author David Stewart-Patterson says he suspected.
“My gut feel was that young people were falling behind,” he said, referring to frequent stories about young adults still living in their parents’ basement, saddled with student debt and stuck in low-paying jobs. “I think what the report does is confirm the plight of younger adults today is not just anecdotal. There really is a significant pattern here.”
The study compares the pre- and post-tax incomes of Canadians age 50 to 54 years with those between 25 and 29 years of age. The data is based on tax records from the years 1984 to 2010.
There is a natural gap in income between older and younger workers. As individuals gain experience in any field, they tend to earn more money, the report notes.
But that gap has been widening over the last 27 years, the study found. That’s true even when changes in tax policy, longer lifespans and rising women’s participation rates are taken into account, Stewart-Patterson noted.
The gap could shrink as the baby boom generation retires, leaving a smaller generation of younger workers to fill more jobs, he said. That should lead to higher wages and productivity and stronger economic growth.
But three decades of improving labour conditions have so far led to lower wages and a higher income gap. If that continues unabated, it could mean slower economic growth and less support for social programs, such as health care, he warned.
“We’re clearly entering an era where we’ll have fewer people of working age available to work,” Stewart-Patterson said. “As an economy, we’re going to be relying on fewer people to earn all the money that will create demand and provide tax revenue. We need workers to be earning more in the years ahead. And yet young people are starting behind.
“If you look back at the last 30 years, we’ve already seen significant decreases in typical unemployment rates. We used to think double- digit unemployment was normal in the 1980s.
“It’s easier to find a job (now) than it used to be. Yet wages at the bottom of the age scale have barely budged,” he said. Will these younger workers ever catch up? “That’s the big unknown.”
Is the gap widening because older workers are being paid more for their knowledge and experience, or is it because younger workers are being asked to accept lower wages and fewer benefits?
Policy-makers and employers need to look beyond investing in higher education and creating entry-level jobs, the report advises.
“The old economic policy mantra of jobs, jobs, jobs is out of date. What we really need to focus on is how to ensure every person in the labour force is able to earn to their potential,” Stewart-Patterson said. “It’s not about creating more jobs but about creating better jobs.”
The report found average income per employee, when adjusted for inflation, had risen to more than $40,000 from $34,000 over the three-decade period.
Older women made the biggest gains. As more women entered the labour force and also became better educated, their earning power increased. Older women earned 43 per cent more than younger women by 2010, up from just 9 per cent in 1984.
However, the income gap remains largest among men, with older men earning 71 per cent more than younger men in 2010, up from 53 per cent in 1984.