IRPP-CLSRN Conference: Inequality in Canada: Driving Forces,

Outcomes and Policy, Ottawa, Feb. 24, 2014

Andrew Heisz
Income Statistics Division, Statistics Canada
Trends in Income Inequality
Overview of Canadian Trends Relative to Other OECD
Countries
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How we measure income inequality
! Concentration of income between particular quantiles of the income distribution
Strengths easy to communicate
Weaknesses do not respond to changes in inequalities at all points of the
income distribution
! GINI coefficients: a widely used index that ranges between 0 and 1, with 0 indicating
complete equality, and 1 indicating complete inequality
Strengths responds to all changes in the distribution of income
Weaknesses tends to respond more to changes in the middle of the income
distribution, so may miss emerging trends in high or low incomes. (Trends in the
top 1% of earners are not well captured by the GINI.)
! Low income statistics: measure the concentration of the population in the bottom of
the income distribution.

! Best approach is to examine inequality using several indicators
2/24/2014 Statistics Canada Statistique Canada
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The share of income held by the top quintile rose from 36.7% in the
1980s and 1990s to 39.0% in the 2000s*
35
36
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**income is measured on an after-tax, adult equivalent adjusted basis
Source: Statistics Canada (CANSIM table 202-0707)
average, 1976-1995= 36.7%
average, 2000-2011= 39.0%
2/24/2014 Statistics Canada Statistique Canada
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LowesL
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of lncome
held ln Lhe Lop
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Lconomlc famlly,
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lncome ($2011)*
1989 $14,300 $31,700 $63,400 36.3
2011 $13,400 $37,300 $83,300 38.8
!"#$%& () *() +,)
*Source: SLausucs Canada (CAnSlM Lable 202-0707)

After-tax income rose both at the bottom and top of the income
distribution; more at the middle and top
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Income inequality rose in most OECD countries
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0.400
0.450
0.500
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2008
1985
Based on adult equivalent adjusted household after-tax income
Source: OECD Database on Household Income Distribution and Poverty.
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Income inequality also grew in provinces*
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
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average, 2007-11
average, 1985-89
*Income is measured on a household after-tax, adult equivalent adjusted basis, data is averaged over 5 years to reduce noise in the estimates
due to sampling error introduced by the smaller provincial samples
Source: Statistics Canada (CANSIM table 202-0709)
2/24/2014 Statistics Canada Statistique Canada
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The share of personal income held by the top 1% of income earners
grew to more than 10% in the 2000s*
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1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Income share for top 1% of total income
* Income is measured on a personal pre-tax basis
Note: The income threshold to enter the top 1% was $209,600 in 2011.
Source: Statistics Canada, Longitudinal Administrative Databank
2/24/2014 Statistics Canada Statistique Canada
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Canada and the US had fairly similar concentrations of personal
income in the top 1% up to around 1980. After 1980, both countries saw
an increase in the concentration of income in the top 1%, but the
increase was faster in the US *
0
5
10
15
20
25
1900 1920 1940 1960 1980 2000 2020
Canada-Top 1% income share
Canada-Top 1% income share-LAD
United States-Top 1% income share
*Source, The World Top Incomes Database, http://g-mond.parisschoolofeconomics.eu/topincomes/
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(
%
)

2/24/2014 Statistics Canada Statistique Canada
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The rise in after-tax inequality is underpinned by a rise in market
income inequality. Income redistribution from government transfers and
taxes reduces income inequality*
0.200
0.250
0.300
0.350
0.400
0.450
0.500
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Year
Market income
After-tax income
*income is measured on a household after-tax, adult equivalent basis
Source: Statistics Canada (CANSIM table 202-0709)

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Low income trends
! Low income is not the same as inequality it is possible to have rising
inequality in times of falling low-income rates.
! We use two types of low income measures.
! LICO measures tell us what share of the population falls below a fixed
threshold (updated only for changes in the CPI). It tells us how population
groups are doing in an absolute sense.
! LIM measures are most closely related to the inequality measure they
measure what share of the population falls below 50% of the median of any
income measure for any given year. It tells how population groups are doing
in a relative sense.
Relative low income will rise when income growth at the bottom of the income
distribution is less than income growth at the median. This is consistent with
rising inequality.
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Source: CANSIM 202-0802
1. Low income measured against a fixed threshold (LICO) fell, indicating a rise in
income at the bottom of the distribution. However, relative low income (LIM) remained
steady, reflecting no gains relative to the median.
2. These results are consistent with those that showed an increase in income in the
lowest quintile, but these increases were slower than at the middle of the distribution.
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%

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Low income cut-offs after tax, 1992 base
Low income measure after tax
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Source: Statistics Canada, CANSIM table 202-0806
1. Under either measure, about a third of those in low income in one year have exited
by the next.
2. Comparing two years in sequence, the share of persons exiting absolute low-income
rose over the period, but the share of those exiting relative low income remained
steady.
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LICO
LIM
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Dynamics of income inequality
With longitudinal data we can also describe how inequalities change over time.

Income mobility
Describes the extent to which a persons relative income standing changes over
time
Intergenerational Income mobility
Describes the extent to which a persons relative income standing differs from
their parents
A number of studies in recent years have shown that
income mobility has declined in Canada and the US
! Beach (Canada-2006)
! Bradbury (US-2011)
! Zhang et al (Canada-2014)


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*Source: Xuelin Zhang, Jackson Chung and Habib Saani, 2014, The
Evolution of Income Mobility in Canada, 1982 to 2010, Statistics Canada,
forthcoming.
0%
10%
20%
30%
40%
50%
60%
70%
80%
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Measured over a 5-year period, the share of
taxfilers who moved up from the lower deciles
has fallen, indicating less upward income
mobility
Bottom decile
Second decile
Third decile
Fourth decile
2/24/2014 Statistics Canada Statistique Canada
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Intergenerational income mobility is higher in Canada
than the United States*
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
bottom 2 3 top
earnings quartile of son (about two decades
later)
Father had bottom quartile earnings
(in about 1980)
Canada
US
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
bottom 2 3 top
earnings quartile of son (about two decades
later)
Father had top quartile earnings
(in about 1980)
Canada
US
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Sources: Canada: Miles Corak and Andrew Heisz, 1999, The Intergenerational Earnings and Income Mobility of Canadian Men,
Evidence from Longitudinal Income Tax Data, The Journal of Human Resources, Vol. 34, no. 3.
Unites States: David J. Zimmerman, 1992, Regression towards Mediocrity in Economic Stature, American Economic Review, Vol. 82,
No. 3.
2/24/2014 Statistics Canada Statistique Canada
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Conclusion
! Income inequality has risen in Canada. A similar increase was seen in most OECD
countries and in provinces.
! Underlying the rise in income inequality is an increase in family market income
inequality. Income inequality is reduced through the tax and transfer system.
! Studying low income statistics shows that while fewer people fall below the absolute
LICO cut-off in recent years, relative low income has not declined. A significant
fraction of low-income persons exit low income from one year to the next.
! Income mobility in Canada has fallen over time.
! Intergenerational income mobility is higher in Canada than the US.