Study: Urban and provincial income disparities

Provinces whose populations are more heavily concentrated in small cities and rural areas tend to have significantly lower per capita employment incomes, according to a new study.

The study, which analyzed data from the 2001 Census, tests the long-held view that provincial income disparities were at least partly the result of variations in the level of urbanization from province to province.

It found that across all 10 provinces, per capita employment incomes increased with the size of cities. Per capita incomes were also higher in cities compared with rural areas.

As a result, provinces whose populations were relatively concentrated in smaller cities and rural regions, such as the Atlantic provinces and Saskatchewan, tended to have lower per capita employment incomes.

For these provinces, the population distribution across cities and rural regions accounted for at least one-half of their income disparities from the national level.

For example, earned income per capita in Nova Scotia was $3,616 below the national level in 2001. Of this disparity, $2,007 was due to the province's urban-rural composition, and $1,609 to other factors.

Nationally, almost 80% of Canada's population was concentrated in urban areas. However, over 40% of the populations of Saskatchewan and most of the Atlantic provinces were concentrated in rural regions.

A significant proportion of their population was also concentrated in small cities, where per capita employment incomes tended to be below the national level.

Per capita employment incomes increase with city size

The study found a strong positive relationship between the size of an urban area and employment income per capita.

In 2001, per capita employment income in the three census metropolitan areas with a population of more than 1.5 million (Toronto, Montréal and Vancouver) amounted to $18,400. It was just as high, around $18,500, in large urban areas with populations between 500,000 and 1,499,999. However, in smaller centres, income fell systematically.

Per capita employment income in medium-sized cities with populations of between 100,000 and 499,999 amounted to $15,800. In small cities, those with populations of 10,000 to 99,999, employment income was around $14,100 per person.

Per capita employment incomes were lower still in rural areas. Those rural areas with connections to cities through commuting flows, the so-called "urban shadow," had per capita earned incomes of around $12,200. More remote rural areas beyond the commuting distance of cities had incomes of $8,600.

The gap in per capita employment income between Canada's largest cities and its more remote rural areas was larger than the gap across provinces.

In 2001, the greatest disparity in per capita incomes between provinces was about $8,000. On the other hand, the biggest gap across urban and rural areas was just under $10,000.

Income disparities higher in provinces with large rural populations

The Atlantic provinces and Saskatchewan had below-average per capita incomes in 2001 to a significant extent because their populations were concentrated in smaller urban and rural areas.

In Newfoundland and Labrador, the urban-rural composition of its population accounted for about 48% of its income disparity from the national level. This proportion was even higher in the other Atlantic provinces.

In Saskatchewan, fully 84% of its income disparity can be attributed to the concentration of its population in smaller urban and rural areas.

However, the urban-rural composition of the population was not an important determinant of income disparities for all provinces.

For example, Ontario's relative strength in employment income resulted mostly from above-average incomes in Toronto, Ottawa and Hamilton compared to cities of similar size.

On the other hand, the relatively low employment incomes in Quebec and Manitoba resulted from low incomes in Montréal and Winnipeg.

Lower per capita employment incomes in smaller cities and rural areas linked to low employment rates

In part, per capita employment incomes were lower in small urban and rural areas because their employment rates were lower.

For instance, 65% of the working-age population of 15 and older was employed in larger urban areas, compared with only 50% in remote rural areas.

Urban labour markets, and in particular larger urban labour markets, appeared to be more dynamic, in that a significantly higher proportion of their working-age population was employed.

However, after controlling for differences in employment rates across urban and rural areas, per capita incomes in smaller cities and rural areas were still lower than larger urban areas.

For the most part, this was because employed workers in larger cities were paid higher wages than those in smaller cities and rural regions.

Definitions, data sources and methods: survey number 3901.

The research paper "Provincial Income Disparities Through an Urban-Rural Lens: Evidence from the 2001 Census," is now available online in the series Insights on the Canadian Economy, no. 12 (11-624-MIE, free). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

More studies on economic geography are available free of charge in the analytical series Update on economic analysis on our Web site (11-623-XIE).

For more information or to enquire about the concepts, methods or data quality of this release, contact Mark Brown (613-951-7292) or John Baldwin (613-951-8588), Micro-economic Analysis Division.