The recent sparring between Justin Trudeau and Jason Kenney about the plight of the middle class in Canada is a rare instance of an evidence-based conversation, albeit in the now customary highly confrontational and hyper partisan style of modern politics in Canada.
Trudeau initiated the conversation by stating that “Canadians are worried that for the first time, they are not going to be offering to their kids greater opportunities than they had.” Kenney was quick to respond by accusing Trudeau of “making things up” and then taking credit for “the very significant increase” in family wealth due to 162 tax cuts introduced by the Harper government.
Not surprisingly, much of the media coverage has concentrated on the nastiness of the exchanges among the political parties as each tries to capture the support of this large core group of potential voters who could determine the outcome of future elections in many ridings across the country.
However, this issue is much more important than a spat among political parties. In fact, anyone who is interested in Canada’s economic well-being should be concerned about the plight of the middle class. There are many definitions of the “middle class” but, in the simplest terms, it represents approximately 25 percent of the adult population in Canada whose family earnings are between $35,000 and $70,000 a year. In other words, the middle class represents families that are not particularly well off with limited savings and non-professional jobs.
The middle class is important to policymakers for three reasons. First, a growing middle class increases consumer spending in the course of its day-to-day activities. It also creates more demand in the vital housing sector either through the purchase of new homes or by renovating previously owned homes. Third, the middle class provides the scarce and essential labour for many new business ventures.
Earlier this year, Statistics Canada issued a report that said the middle class is much better off than previously with their median net worth rising by almost 80 percent since 1999. While net worth is a valuable measure, other analyses conducted by Employment and Social Development Canada (ESDC) painted a very different picture. In their assessment of the current situation ESDC officials concluded that “middle income earners saw their wages stagnate and debts mount between 1993 and 2007 and that they are unlikely to move into higher income brackets.” In a sweeping summary, the analysts concluded: “the Canadian dream is a myth more than a reality.”
To buttress their conclusions, the ESDC authors pointed out that the “income of Canadian middle class families did not grow as fast as other income groups over the last 35 years, with male workers in middle class families having seen ‘little wage increases’ since the mid 1990s. Moreover, the rise in income for middle class families has been fuelled by higher female employment rates, and to a lesser extent by higher wages and tax reductions.” While they acknowledged that net worth has increased over the past few years, they attributed it particularly to the spike in housing prices (especially in Vancouver and Toronto). More important, 90 percent of the improvement in net worth went to the top 40 percent of the income earners. The bottom 60 percent accounted for only 11.1 percent of the wealth.
The relative stagnation in the incomes of the middle class has not been lost on the general population who are also beginning to sense that their own future economic well-being is not guaranteed. For example, in a recent survey of Canadians, 38 percent of respondents indicated that they felt the next generation will be worse off compared to their parents’ generation.
The relatively low-income growth of the middle class and Canadians’ perception that the future does not look as positive as it was for past generations suggests that the political battles over the middle income could become a very volatile issue in the next federal election. One lesson that can be drawn from the current debate is that the framing of the issue determines the parameters of the discussion. Examining the issue through the lens of earned income, net worth, consumer debt or real estate values will lead observers to draw different conclusions about its relevance.
Given the complexity of the issue, this might be one policy debate to bring before a parliamentary committee so that all interested parties can bring their own perspective to the conversation.