Fraser Forum

Income mobility is crucial for understanding inequality

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Income inequality is a complex issue all too often presented in simplified terms by many pundits and politicians. For instance, discussions about inequality miss the fact that Canada has a high degree of income mobility, meaning that the circumstance of individuals and families, as measured by their income levels, changes over time. Many Canadians who start off their working life in low income move up the income ladder as they acquire education, skills, and experience.

If Canadians were stuck in their current positions their whole life, then inequality would be a troubling issue. After all, it would mean Canada is effectively a caste society where only the already “rich” could enjoy higher incomes and where the “poor” are unable to improve their lot in life.

In such a society, inequality represents a permanent gap between the rich and poor. However, a society with high levels of income mobility—where people are constantly moving up and down the income ladder—is much more dynamic since the people who are rich and poor today will likely be different than the people who are rich and poor tomorrow.

Few people would want to live in a society that doesn’t have a high degree of income mobility and where the situation you are born into dictates your life circumstances. Fortunately, Canada is not such a country.

In fact, virtually all Canadians who experience low income do so for only a short period of time and experience marked increases in their income over the course of their lives.

In a recent study, we used Statistics Canada data to follow nearly one million Canadians to see how their incomes change over time. The study put individual Canadians into five income groups (from lowest to highest) with each group comprising 20 per cent of the total. It then tracked the movement of people between income groups after five, 10, and 19 years.

In just five years, four of every five Canadians (79 per cent) in the lowest income group had moved up to a higher income group. Ten years later, nine out of every ten (88 per cent) had moved up from the lowest income group. After 19 years, a similar percentage moved up and one in four (24 per cent) had managed to reach the very top income group.

Thankfully, the reality of our society is that very few Canadians get stuck in low-income and the overwhelming majority of Canadians enjoy a natural progression of income over their lifetime.

And individuals in the top income group do not remain there forever. Over the 19-year period, more than one in three (35 per cent) Canadians initially in the top income group moved down to a lower income group.

Put simply, inequality in Canada is much more complex than is often presented and income mobility is crucial for a full understanding. Any analysis of inequality that does not account for income mobility is incomplete. Comparing snap-shots of the income distribution at particular points in time is extremely misleading as it wrongly suggests that the rich and poor are the same individuals over time. They are not.

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