The rich get richer in Canada

[img_inline align=”right” src=”http://padnws01.mcmaster.ca/images/Mike_Veall_1.jpg” caption=”Michael Veall, chair, Department of Economics at McMaster University. Photo credit: Chantall Van Raay”]The rich have been getting richer very quickly in Canada, especially over the last two decades, according to Michael Veall, chair, Department of Economics at McMaster University, and Emmanuel Saez, associate professor of economics at the University of California Berkeley.

Their findings will be published in the American Economic Review's July issue, and is currently posted at the magazine's online version at http://www.aeaweb.org/aer/contents/#current.

Using data based on tax returns, Veall and Saez studied the share of income received by high earners in Canada in each year from 1920 to 2000. They estimate that each year in the 1920s and 1930s, the 1 per cent of Canadians with the highest incomes received about 15 per cent of all income. This fell during and following the Second World War, so that the share of the top 1 per cent was only about 7.5 per cent of all income in 1980. However, since then the share of the top 1 per cent has risen sharply until it was back to 13 per cent by the year 2000, almost double what it was in the 1980s.

The top 1 per cent of earners in Canada would have numbered about 50,000 in 1920, about 60,000 in 1930 and about 72,000 in 1940. By 1980, the top 1 per cent would have numbered about 165,000 and by 2000, the number was 228,000.

“The change has been most dramatic at the very top,” says Veall. “In 2000, the top 0.01 per cent of income recipients [that is, 2,300 Canadians with the highest incomes] had a share of about 2 per cent of all income: That works out to an average income of about $4.7-million per year or about 200 times the average income. Back in 1980, the top 0.01 per cent had a share of only about 0.5 per cent of all income with an average income of about $568,000, or about 50 times the average.”

The Statistics Canada data Veall and Saez used does not allow researchers to infer information about individual taxpayers, however, the estimates are consistent with those published in the Canadian financial press. For example, it has been reported that the five top salary-earning CEOs in Canada in 1978 were Jack Armstrong (Imperial Oil) $517,000; Philip Beekman (Seagram) $456,000; and Edgar Bronfman (Seagram) $453,000; Albert Thornbrough (Massey) $413,000; and Nathanael Davis (Alcan) $391,000. By comparison, in 2002, the top five salary earners were Frank Stronach (Magna) $52-million; Travis Engen (Alcan) $17-million; Donald Wright (TD Bank) $13-million; Belinda Stronach (Magna) $13-million; and Paul Tellier (Canadian National) $12-million.

Saez and Veall found that the trends are almost the same regardless of whether the income definition includes or excludes capital gains or stock options or whether the calculations are done on a family or individual basis. However, the reported method of earning income has changed substantially. Immediately after World War II, the top 0.01 per cent would have received most of their income from capital, such as from interest on bonds. By 2000, the top 0.01 per cent received more than 70 per cent of their income as wages and salaries.