Study: Trends in income inequality in Canada from an international perspective

Income inequality in Canada is higher than in Europe but lower than in the United States, according to a new report that summarizes the findings of recent studies that have examined family income inequality and low income.

Income inequality is measured by the ratio of the income of a family at the 90^th percentile (here, a family for which 90% have lower incomes and only 10% have higher incomes) to a family at the 10^th percentile (the family for which 90% have higher family incomes and only 10% lower).

In the late 1990s, families at the 90^th percentile of the income distribution in Canada had incomes about 4 times higher than that of their counterparts at the 10^th percentile. This ratio was 5.4 in the United States and 4.5 in the United Kingdom. In the mainland European countries included in the study, it ranged from 2.9 to 3.3 (Germany, Netherlands, Belgium, Finland and Sweden).

Canada largely avoided the rise in income inequality evident in both the United States and the United Kingdom throughout the 1980s and early 1990s. However, evidence indicates this began to change during the 1990s when gains associated with economic expansion in Canada went mainly to higher income families.

While incomes among the richest 20% of families were rising by about 10%, total family income stagnated among the poorest 20% of families between 1990 and 2000. The result was a moderate increase in family income inequality in Canada.

In addition, the mid-1990s saw an unexpected increase in the low-income rate in Canada as it deviated from its expected trend based on the unemployment rate. As unemployment fell in the mid-1990s, the low-income rate continued to rise.

This finding may be attributed to earnings difficulties among poorer families and declining social transfers in the mid to late 1990s. By 2001, the low-income rate appeared to be back to its expected long-term trend as indicated by the unemployment rate.

Policy analysts are often concerned with persistent, as opposed to temporary, low income. Persistent low income tends to be concentrated among five groups: single parents, recent immigrants, people with work disabilities, unattached people aged between 45 and 64, and Aboriginal people.

Recent increases in low-income rates were concentrated among recent immigrants. In 1980, 25% of recent immigrants were living in low income. By 2000, this proportion had increased to 36%. Among Canadian-born people, the rate fell from 17% to 14%.

Most families that fall below the low-income cutoff do not remain in low income for long periods of time. However, 3% to 5% of the Canadian population stays in low income for four to six years or more. There is substantial variation in the persistence of low income among countries, with Canada again in the middle.

Of individuals entering low income in the United States, 31% were still in this state after five years, compared with 24% in Canada and 18% in Germany and the United Kingdom. Changes related to employment are the most important factors in determining why people enter and exit a low-income state, but marriage and divorce also play a significant role.

The research paper Income Inequality and Low Income in Canada: An International Perspective (11F0019MIE2005240, free) is now available online. From our home page select Studies, then under Browse periodical and series choose Free and for sale. Under Series select Analytical Studies Branch.

For further information or to enquire about the concepts, methods or data quality of this release, contact Garnett Picot (613-951-8214) or John Myles (416-323-0070), Business and Labour Market Analysis Division.