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After-tax income increased for the fourth consecutive year

The 2007 median after-tax income for Canadian families with two or more persons rose 3.7% 1  to $61,800, after adjusting for inflation, according to data from the Survey of Labour and Income Dynamics.

Market income 2  mainly contributed to the increase in after-tax income. This expansion is consistent with the economic growth, as measured by the real gross domestic product, which rose 2.7% in 2007. 3  The expansion was also observed by the Labour Force Survey which saw employment rise by 2.3% while unemployment fell to an all-time 30-year low of 6.0%.

Both senior and non-senior families experienced a 3.5% increase in median after-tax income in 2007. Senior families (whose main income earner was aged 65 or over) received $44,900 while non-seniors received $65,500. Compared to 2002, the year following the high tech slow down, seniors and non-seniors experienced increases of 10.9% and 9.2% respectively.

Similar to the trend observed from 2005 to 2006, median after-tax income of unattached individuals increased by 3.9% to $24,200 in 2007 from $23,300 in 2006. Since 2002, their median after-tax income has improved by 7.1% (from $22,600).

Albertan families continued to have the highest median after-tax income, while seven of the ten provinces showed year-to-year increases

For the fourth consecutive year, Albertan families with two or more persons had the highest median after-tax income with $75,300, followed by Ontario at $65,900 and British Columbia at $63,300.

Newfoundland & Labrador families experienced a 8.8% increase in median after-tax income from 2006 to 2007, as it witnessed a resurgence of its natural resource sector with the opening of mines and increased activity in the oil patch. Growth was driven, in part by the White Rose oil platform which began production in 2007. 4 

After-tax income of Manitoban families increased by 6.0% in 2007. Manitoba’s construction sector was booming with several large projects throughout the province contributing to non-residential investment in 2007, while homebuilding continued unabated. Manitoba’s manufacturing also contributed to its economic growth. 5 

Several other provinces also showed growth in after-tax income at the family level. Saskatchewan (4.9%), Alberta (4.4%), Quebec (3.6%), New Brunswick (3.9%), and Ontario (3.3%) also posted increases.

Market income increased for working-aged and senior families

Median market income 6  for working-aged (non-elderly) families, whose main income earner was under 65 years of age, increased by 2.3% between 2006 and 2007 to $69,800.

Among non-senior families, the level of market income varied. Median market income of two-parent families with children was $78,900; couples without children received $67,900; while other non-senior families received $54,300.

Median market income of female lone-parent families, at $24,400, remained virtually unchanged from 2006. Nevertheless, this group saw an increase in their median market income compared to the level received in 2002 ($17,300). Much of the gain experienced during this period reflects higher earnings and a larger proportion of working mothers.

Senior families saw their median market income increase by 6.3% to $25,300 in 2007. This follows a long term increase of their market income. Between 2002 and 2007, it increased by 18%. This reflects mostly growth in employment during this period. According to the Labour Force Survey, the employment rate among persons aged 65 and over was 8.6% in 2007, which represented a 2.1 percentage-points increase compared to the rate of 2002 at 6.5%. 7 

Unattached individuals also experienced a 6.7% increase in their median market income. Unattached seniors saw an 11.4% increase in median market income between 2006 and 2007 ($7,800) while it went up 3.9% to $26,800 in 2007 for individuals younger than 65 years old.

Rise in market income in Alberta, Saskatchewan and Newfoundland and Labrador

Working-aged families of three provinces had a significant increase of their market income in 2007. Albertan working-aged families, who had the highest median market income with $90,200, experienced an increase of 5.4% in 2007. Working-aged families of Saskatchewan saw a 4.7% increase in their median market income between 2006 and 2007 ($70,600). Median market income of working-aged families in Newfoundland and Labrador increased to $54,200 in 2007. 8  The median market income of working-aged families in other provinces was stable between 2006 and 2007.

Market income is closely tied to labour market conditions. According to the Labour Force Survey, employment in Alberta grew 4.7% in 2007, the province with the highest growth in 2007. Saskatchewan saw a growth of 2.1% in employment during that period. Although employment grew by only 0.6% in Newfoundland and Labrador in 2007, the employment rate hit a new record and the gap with the national average was the narrowest it had been in 30 years. 9 

Senior families in Alberta experienced a significant increase in their median market income to $31,800 in 2007, while it remained stable for this family type in other provinces. The Labour Force Survey reported a 1.7 percentage-point increase in the employment rate to 13.6% for this group between 2006 and 2007 10  . This represents the highest rate of employment across the provinces for seniors.

Little change in government transfers, but a decline in income taxes

In 2007, Canadian families and unattached individuals saw little change in their median government transfers compared to 2006. Median government transfers among families of two persons or more were $4,900, while the median transfers among the unattached individuals was $700.

Transfers vary across different family types. Families whose main income earner was under 65 years of age reported a median government transfer of $2,900 while it was $23,300 for senior families in 2007. Among those living alone, non-seniors had median government transfers of $400 while seniors had $15,000.

Nevertheless, median income taxes paid by families in Canada declined by 6.5% in 2007. This resulted in a median decline of $600. The decline was experienced by various families such as non-senior families, two-parent families with 2 earners, female lone-parent families and couples with one earner.

Changes in income taxes and benefits contributed to this decline in median income taxes paid in 2007. There were various changes in the Federal non-refundable tax credits such as the introduction of an amount of $2,000 a family could claim for each child born in 1991 or later. Two-parent families with children with two earners paid median income taxes of $12,300 which was 6.1% lower than in 2006.

Pension income splitting was introduced; eligible individuals were able to allocate up to one-half of their pension income to their lower-income spouse or common-law partner. Pension splitting affects the calculation of income and tax payable for both persons. Families with at least one spouse or common-law partner who was aged 50 and over and had pension income experienced a decline of 9.3% in their median income taxes paid in 2007. In contrast, their counterparts without pension income virtually paid the same amount as the previous year.

Families in Nova Scotia, Quebec, Ontario and British Columbia benefited from this decline in median income taxes paid. Those residing in Nova Scotia paid median income taxes of $7,600 in 2007, a decline of 9.5% compared to 2006. Median family income taxes paid in Quebec and British Columbia were $7,500 in 2007, which resulted in a 10.7% and 8.5% decline respectively. Even though families in Ontario paid $9,500 in median income taxes in 2007, this was 4.0% lower than the previous year.

After-tax incomes across the distribution improved in 2007 11 

Since 2002, after-tax income for families has been on the rise. When the population of families is broken down into five equal-sized groups or “quintiles”, from lowest after-tax income to highest after-tax income, it can be seen that the growth in after-tax income over the last six years occurred in all five quintiles. These income increases across the distribution indicate an increased standard of living for most. Between 2006 and 2007, the increase was still shared among all the quintiles.

The 20% of families with the lowest adjusted after-tax income saw an increase in the 2007 average income compare to 2006. Their adjusted average after-tax income rose 4.4% to $14,100 in 2007.

Families in the second adjusted quintile received almost twice as much in adjusted average after-tax income as those in the first, a trend seen consistently since 1976. Adjusted average after-tax income for this group was $25,100, up 4.6% from 2006 and up 10.1% from 2002.

Families in the third and fourth adjusted quintiles also benefited from positive economic conditions where they saw their average adjusted after-tax income increased by just over 3% between 2006 and 2007.Families in the fifth adjusted quintile experienced an increase of 3.6% to $76,700 in 2007.Their average grew by 9.7% over the 2002 to 2007 period.

In 2007, the 20% of persons with the highest adult equivalent adjusted after-tax income had, on average, 5.4 times the adjusted after-tax income as those in the bottom 20%. This ratio is virtually unchanged since 2000.

This period of relative stability followed a period of rise in inequality. In 1989, the 20% of persons with the highest adult equivalent adjusted after-tax income had, on average, 4.5 times the adjusted after-tax income as those in the bottom 20%. In 2000, the ratio was 5.6.

While growth in the adjusted after-tax income over the same period was observed in all quintiles, the magnitude varied. Between 1989 and 2007, adult equivalent adjusted after-tax income rose by 7.6% among the 20% of persons with the lowest adjusted after-tax income, and by 30% among the highest 20%.

Lowest rate of low-income in 30 years

In 2007, it was estimated that 3 million Canadians lived in a situation of low income, a decline of about 400,000 persons from 2006. This represents 9.2 % of the population living in the ten provinces compared to 10.5% in 2006. The 2007 rate is the lowest rate of low-income ever captured by Statistics Canada.

About 637,000 children under 18 years of age lived in low-income families in 2007, a decrease of more than 100,000 from 2006. The proportion of children in low-income families fell from its peak of 18% in 1996 to 9.5% in 2007.

In 2007, about 246,000 of these children in low income lived in female lone-parent families, representing almost 40% of all children in low income. One in four children living in female lone-parent families were living in low income in 2007. This is lower than in 2006, when one-third of children living in female lone-parent families were in low income. This continues the downward trend from the peak in 1996, when 56% of children in female lone-parent families were living in low income. In comparison, the proportion of children in low income living in two-parent families decreased from 11.6% in 1996 to 6.5% in 2007.

About 1.3 million unattached individuals (27%) lived below the low income threshold in 2007. This represents a decrease of 50,000 persons compared to 2006 where the rate was 29%. On average these persons faced a low income gap of $6,500, unchanged from 2006.

About 14% of unattached seniors lived in low-income in 2007. The low income rate among unattached seniors follows a downward trend which began in the early 1980s, while low income rates for seniors living in families remained relatively stable over the years. Around 1.1% seniors living in families were below the LICO in 2007.

Improvement in family low income rate

Around 525,000 Canadian families were below the low income cut-off 12  (LICO) after taxes, representing 5.8% of all families, comparable to 7.0% rate observed in 2006. Here also the 2007 rate is the lowest rate of low-income for families ever measured by Statistics Canada. From 2006 to 2007, there has been a 4.8% increase in the average after-tax income for families in the lowest income quintile which led to a 1.2 percentage-point drop in the low income rate. Families in low income needed on average $7,200 to climb above the low income cut-off.

Provincially, the low income rate of families declined in three provinces. In Saskatchewan, the rate decreased to 4.6% in 2007 from 7.0% in 2006. British Columbia and Ontario experienced a decline of almost two percentage-points to 6.7% and 5.9% respectively. Among those living alone, only those residing in Alberta experienced a drop in the low income rate to 18.2% from 23.1% in 2006.

Low income varies across family types

Among non-senior families the incidence of low income decreased from 7.9% in 2006 to 6.6% in 2007. This is a substantial decline compared to the 9.5% low income rate in 2002.

Female lone-parent families continue to have one of the highest incidences of low income. In fact, in 2007 the incidence for female lone-parent families is more than four times as high as that of two-parent families with children.

However, female lone-parent families experienced a large decline in low income rates in 2007. The rate for these families went from 28.2% in 2006 to 23.6% in 2007, continuing a downward trend in their incidence of low income since the late 1990s.

Two-parent families with children also experienced a decline in low income rates in 2007, declining from 6.6% in 2006 to 5.1% in 2007. The average low income gap for these families remained virtually unchanged at $7,600 in 2007.

In 2007, the low income rate for non-seniors living alone was twice that of unattached seniors, 27% compared to 14%.

The low income rates have evolved differently for unattached seniors and unattached non-seniors since 2002. The incidence of low income for unattached seniors decreased from 19% in 2002 to 13.9% in 2007 while the rate for non-seniors stayed about the same from 33% in 2002 to 32% in 2007.

Senior families – the family type with the lowest incidence of low income in 2007 – saw their low income rate remain relatively stable at around 1.5%. Despite this recent stability, the low income rate of senior families has been on a downward trend since the early eighties. This followed a sudden decrease during the late seventies; this was mainly associated with the maturation of the CPP/QPP program. Since the early eighties, senior families have always shown lower incidence of low income compared to their non-senior counterparts.

Low income dynamics

While looking at the low income rates for any particular year gives us a snapshot of how many families or people lived in low income during the year, it is also important to understand how long they lived in low income. Having low income for just one year is very different than being in low income for an extended period of time. This section reports on analyses performed on the SLID longitudinal respondents (Panel 4) to all years in the 2002-2007 period.

Of those who had been in low income in 2006, 40% were no longer in low income the following year. Of those who were below the low income cut-off in 2007, 30% had not been in low income the previous year. This indicates considerable turnover on a year-to-year basis.

One in five Canadians experienced low income for at least one year over the six-year period from 2002 to 2007. Of those who experienced low income at some point during this period, most lived in this situation for one or two years 13  (40% and 21% respectively), indicating that for many, low income is a short-term situation. However, of those who experienced low income at some point during the period, 529,000 persons lived in low income for all six years (11%). (Pie chart)

The persistence of low income varies across age groups.Young adults (aged 18-24) lived in low-income for at least one year significantly more often (30%) than other age groups (nearing 20% for those 25-64 and only 12% for seniors).This may reflect the fact that many young adults are either still completing their education or are in the early stages of their careers and therefore low income may be part of a transitional stage of their lives.

Education and income are related and as such, we expect to see differences in low income depending on education level. Indeed, among adults aged 25 to 54 years old who were not high school graduates, over one-quarter lived in low income for at least one year between 2002 and 2007 (26%), compared to 18% for those who had graduated high school. Having a university degree reduced the incidence of living in low income for at least one year of the six-year period even further to 11%, as those with a university degree generally have higher earnings.

For individuals aged 65 or older, education also matters. For seniors with a high school diploma or less, about 13% lived in low income at some point between 2002 and 2007. This compares to only 5% of seniors with a university degree. Again, this is impacted by a career of higher earnings, and often higher private pensions and investment income for these individuals. The proportion of low income among seniors with lower education is significantly lower than their non-senior counterparts. This is in part a result of government programs aimed at ensuring income security among seniors such as Old Age Security and the Guaranteed Income Supplement.