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Middle class continues to erode

The good news is the economy seems to be coming around, if only slightly. The bad news is that the downward pressure on incomes is likely to continue as it has through ups and downs for a few decades now.

The majority of us have seen real incomes decline. Studies show the gap between rich and poor is growing, even during the best of economic conditions. In 2004, the average earnings of the richest 10 per cent of Canada’s families raising children were 82 times that earned by the poorest 10 per cent of families. That is approaching triple the ratio of 1976, when the ratio was around 31 times. The after-tax income gap has never been this high in at least 30 years, and it has been growing faster than ever since the late 1990s.

Essentially, we’re spending more time at work, but 80 per cent of us are getting a smaller share of Canada’s growing economy. Only the richest 20 per cent are experiencing gains, and most of those gains are concentrated in the top 10 per cent.

That richest 10 per cent of Canadian families is getting richer. They enjoyed a 30-per-cent earnings increase compared to a generation ago, the only group to experience such gains. This is creating a new phenomenon in income distribution in Canada: the rich are breaking away from the rest of society, in a way not seen since such information began to be collected in 1976.

The differences become stark when the study compares the top half of families with the bottom half: between 1976 and 1979, the bottom half of Canada’s families earned 27 per cent of total earnings. Between 2001 and 2004, their share dropped to 20.5 per cent of total earnings, even though they were working more.

The poorest 20 per cent saw their share of the earnings pie drop from 4.5 per cent from the late 1970s to 2.6 per cent in the early 2000s. In sharp contrast, the top half of Canadian families saw their share of total earnings grow to 79.5 per cent from 73 per cent during that same time period.

Most of the increase went to the very richest 10 per cent of families – their share of earnings grew to 29.5 per cent from 23 per cent of all earnings by Canadian families.

The average Canadian household with children is clocking in almost 200 hours more each year compared to just a decade ago. Only one group of families didn’t put in more hours: the richest 10 per cent, on average, didn’t increase their work hours between 1996 and 2004. Yet the group was along in seeing major increases in their earnings.

In the past, income gaps were often the result of economic conditions and policies pushing more people into the ranks of the poor. In the latest boom, the rich are outpacing the pack to pull ahead. This is not automatically a bad thing, except that it increasingly comes at the expense of the poor and, to a growing extent, the middle class.

“Canadians sense that economic prosperity is largely accruing to the rich, leaving the rest behind,” says a report compiled by TD Bank. “That perception is borne out by these statistics. Though the pie is much bigger, it is not even getting divided into the same (unequal) pieces as a generation ago. The pieces are getting more unequal, with those at the top getting an ever-bigger share of the pie — at the expense of those at the bottom, but, more surprisingly, also at the expense of the majority of Canadian families.”

We will emerge from the current recession, but the real goal will be to reverse the downward pressure on the middle-class society that emerged in the post-war era.

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