Income inequality is a pressing issue in Canada and worldwide and it shapes the social and economic landscape of a nation. Despite being celebrated for a culture of inclusivity and its social welfare programmes, income inequality is still a topic of concern and debate in Canada.
A knowledge of income inequality statistics is essential for understanding its implications for various demographics in Canada and its potential impact on the country’s economic and social stability.
In this article, we look at income inequality in Canada. Is it improving or is the gap between the rich and poor growing in Canada?
Income Inequality Statistics for Canadians
- Income inequality decreased by 0.3% between 2021 and 2022.
- Canada’s wealthiest households hold 67.9% of the net worth in Canada, while low-income households hold only 2.6%.
- In 2022, wealth declined by 10% among younger households and by 7% among older households.
- The level of income equality is the highest in Toronto and lowest in Quebec City out of the ten biggest cities in Canada.
- Based on the 2021 census, Nunavut has the highest level of income inequality in Canada while Prince Edward Island has the lowest.
- At $109,000 Northwest Territories has the highest household after-tax median income.
- When adjusted for inflation, the wealthiest 1% in Toronto, Vancouver, and Montreal have made income gains of nearly $180,000 since the 1980s.
- According to the OECD, Canada has the 9th lowest income inequality rating among the OECD countries.
What is Income Inequality?
The term income inequality describes the unequal distribution of income among households or individuals in a society or a population. When a society or population has high income inequality, a small proportion of households or individuals earn a disproportionately large share of the total income.
A range of factors contribute to income inequality, including economic factors such as wages and access to education, social and demographic factors such as age, gender, race, the nation’s policies and taxation, market forces, and inheritance.
Consequences of Income Inequality
When a population has high levels of income inequality, it is likely to have significant economic, social, and political implications. It can lead to unequal access to necessities such as education, healthcare, and housing and reduce social mobility and a sense of injustice.
How is Income Inequality Measured?
Various statistical measures are used to quantify income inequality. One of the most commonly used is the Gini coefficient, which calculates the inequality of income distribution using a scale from 0 to 1. 0 represents perfect equality where everyone receives the same income and 1 represents total inequality where one person or household holds all the wealth. The higher the Gini measurement is, the more inequality there is.
Other common ways to describe the level of inequality is to use percentile and income ratios. A percentile ratio compares the income at various percentiles where larger ratios suggest greater inequality. Income ratios compare the incomes of specific groups, for example, the highest earners to the lowest earners to show the extent of income disparities.
Quintile and decile shares are also often used to measure income inequalities. This method divides the focus group into quintiles of 20% or deciles of 10% based on their income and then measures how much of the total income is held by each quintile or decile. If the top group holds a significantly large share of the income, it is a sign of income inequality within the focus group.
Other options to show income inequality include the Palma ratio, Lorenz curve, and Atkinson index. However, we have not used these in this article, and they are generally not as commonly used as the other methods.
Income Inequality in Canada
The last few years have been economically challenging for many households and individuals. The rising cost of living has had a negative impact on saving and wealth, which has been most strongly felt by the more vulnerable groups, such as households on lower incomes and younger Canadians.
Income Inequality Decreased in Canada in 2022
According to Statistics Canada, the income gap narrowed in 2022 because of strong gains in income among the lower income earners. The gap between the two lowest and two highest quintiles decreased by 0.3% compared to 2021.
Individuals and households in the second quintile saw the biggest gains in their earnings and disposable income at 3.2%. The lowest quintile saw slower gains at 1.6%. While the gains in average wages for households on lower incomes increased by 13.5%, this was partially offset by higher interest payments at 4.3%.
At the same time, households in the highest quintile saw their average disposable income increase by 1.4% which was slower than the average pace.
Wealth Gap Widened in 2022
Although the income inequality gap decreased, the wealth gap widened in 2022. In Canada, much of the wealth is held by a small portion of the population. The households in the top quantile account for 67.9% of the net worth in Canada. The least wealthy households in the bottom two quintiles only account for 2.6%.
The net worth gap between the least and most wealthy households increased by 1.1% in the final quarter of 2002 and it was the fastest increase to date. The net worth gap was 65.3% at the end of 2022, which despite the increase was lower than it was at the end of 2019 when the wealth gap was 65.7%.
The average net worth of the least wealthy households decreased by 16.3% in 2022 compared to the 5.2% decrease among the wealthiest households. The main reason for the decrease in net worth in all quintiles was real estate as the average real estate value held by Canadian households declined by 8.1% and the average sale price for residential homes was down by 12.1% compared to 2021.
Younger Households Saw Their Wealth Decline the Most
While the household net worth decreased in all age groups, the decrease was the sharpest among Canadians under 45 years of age. Their net worth decreased by approximately 10% compared to 7% among Canadians over 45 years of age. The declining real estate values were once again to blame with younger Canadians more vulnerable to the fluctuations.
Most Metropolitan Areas Have Higher Than Average Income Inequality
The national Gini index for Canada is 0.302 but many larger cities have a bigger issue with income inequality than smaller places. Toronto has the highest gap between low and high-income earners with a Gini coefficient of 0.407. The median after-tax family income in Toronto of $59,070 is the third lowest in the country. Quebec City has a similar median income of $59,550 but has the lowest level of income inequality at 0.293 among metropolitan areas.
Vancouver and Calgary have similar income inequality levels when measured using the Gini coefficient of 0.385 and 0.386, respectively. However, the median family income in Calgary is $8,320 higher compared to Vancouver. The median incomes are $69,610 in Calgary and $61,290 in Vancouver. The median income in Calgary is the second highest in Canada after Ottawa-Gatineau where it is $70,840.
Winnipeg, Montreal, Kitchener-Cambridge-Waterloo, Hamilton, Ottawa-Gatineau, and Edmonton all have similar income inequality levels. However, while Ottawa-Garineau has the highest and Edmonton has the third highest median family income, Winnipeg and Montreal have the two lowest.
Nunavut Has the Highest Level of Income Inequality
Based on the results from the 2016 and 2021 censuses in Canada, Nunavut has the highest income equality out of the provinces and territories, while Prince Edward Island has the lowest. In 2015, Nunavut had a Gini index of 0.379 and in 2020, it was 0.331. Although this shows that the gap has reduced between the two censuses, it is still the highest in the country. Prince Edward Island had a Gini index of 0.294 in 2015 and 0.271 in 2021.
Ontario with 0.308 and Alberta with 0.307 have the second and third highest income inequalities. At the other end of the spectrum with Prince Edward Island are New Brunswick with 0.272 and Yukon with 0.275.
Northwest Territories had the highest household after-tax median income according to the 2021 census at $109,000. It was followed by Nunavut with $104,000 and Yukon with $88,000. The lowest median incomes were in New Brunswick with $62,000, Nova Scotia with $62,400, and Newfoundland and Labrador with $63,200.
Large Income Gains Among Canadian Wealthiest 1%
When income is adjusted for inflation, the wealthiest 1% in Canada’s three biggest cities make close to $180,000 more than they did in 1982. During the same time, the income gains for the bottom 90% of Canadians are only $1,700.
The bottom 90% in Toronto, Vancouver, and Montreal make less than in 1982 when their income is adjusted for inflation. They have seen their income fall by $1,900, $4,300, and $224, respectively. At the same time, the top 1% in those cities have seen income gains of $297,000, $189,000, and $162,000, respectively.
How Does Canada’s Income Inequality Level Compare Internationally?
The Organisation for Economic Co-operation and Development (OECD) compiles statistics on the member countries for areas such as income inequality and poverty rate. Currently, the Slovak Republic, Slovenia, and Belgium have the lowest income inequality levels at 0,222, 0,238, and 0.248.
The OECD’s income inequality level for Canada is 0.280, which is lower than the latest published on Statistics Canada and places Canada 9th lowest among the OECD countries. The worst income inequalities are in Costa Rica, Mexico, and Turkey with 0.487, 0.420, and 0.415.
The poverty rate is used to show how many people are living on an income that falls below the poverty line. The countries that have the lowest poverty rates within the OECD are the Czech Republic, Denmark, and Finland with rates of 0.053, 0.065, and 0.086. Canada is 11th with 0.086.
The countries with the largest portions of people living below the poverty line are Costa Rica, Romania, and Israel. In Costa Rica, the poverty rate is 0.203, in Romania 0.175, and in Israel 0.169.
The poverty gap ratio can be used to refine the poverty rate of a country or a region. It shows how much the mean income of the poorest households falls below the poverty line. Ireland, Slovenia, and Finland have the smallest poverty gaps in the OECD with 0.196, 0.0197, and 0.215. Canada is 9th with 0.259.
At the other end of the scale with the largest poverty gaps are Romania, Greece, and Spain. Romania has a poverty gap of 0.408, Greece 0.374, and Spain 0.369.
Canada’s income equality level increased between 2021 and 2022 but only marginally. At the same time, the wealth gap widened and since the 1980s the top 1% have made significantly larger income gains than the bottom 90%.
When compared to other OECD countries, Canada does fairly well. It has the 9th lowest income inequality rating and poverty gap and the 11th lowest poverty rate. However, there is still plenty to do to prevent the wealth gap from widening further.
Frequently Asked Questions
Yes, Canada does have income inequality across the country but the level varies. Nunavut has the highest inequality among provinces and territories and Toronto among major cities.
According to the OECD, the Slovak Republic has the lowest inequality rating.
There are different ways to measure income equality. However, one of the most common methods is the Gini coefficient, which calculates the inequality of income distribution using a scale from 0 to 1. The lower the reading, the lower the inequality level is.