Income gap widens between generations

by | Sep 23, 2014 | News

By Marlon Gomez
Infographic by Jeff Sehl

The Conference Board of Canada released a report that shows the income gap between younger and older workers is widening.

The results show the average income for people between the ages of 20 and 24 has not been higher than $20,500 since 1984. Meanwhile those aged  50 to 54 have benefited from higher average salaries reaching their peak at about $56,300 in 2007.

The report is titled The Buck Stops Here: Trends in Income Inequality Between Generations.

The information that was analyzed comes from 27 years worth of revenue data from Canada Revenue Agency (CRA) between 1984 and 2010.

Past research has shown that gender is traditionally one of the main factors that has impacted income inequality. However, age has now become a leading factor, said David Patterson, Vice President of The Conference Board of Canada and co-author of the report.

“We found that it’s increasingly about age rather than gender. Younger workers in Canada have been the losers, as inequality between generations has risen steadily over the past three decades,” said Patterson in a video posted on The Conference Board of Canada’s website.

The report states the average disposable income for workers between 50 to 54 is 64 per cent higher than workers between the ages of 25 and 29. This is up from 47 per cent in the mid 80s. The report states this is true for both before and after-tax income.

Older workers tend to make more money than younger workers. However, the problem that this report highlights is that the gap keeps getting bigger.

“Baby boomers fought long and hard for principles like equal pay for work of equal value, and yet our children can now face lower wages and reduced pension benefits even for the same work at the same employer,” said Patterson.

“That could be a big problem for our economy. As boomers retire Canada is going to be dependent on a smaller share of the population to earn money and earn the taxes that pay public services like health care,” he said. “We will need every working Canadian to earn more money than today to keep our economy growing.”

On average workers aged 50 to 54 have seen a salary increase of about $1,764 every five years in the last three decades.

The report reminds readers that many changes have occurred in federal and provincial income tax policy since the early 80s.

“One of the reasons why the gap between the older and the younger has widened since the 1980s is a result of buttoning taxes at the higher end of the income spectrum,” said David Macdonald, a senior economists at the Canadian Centre for Policy Alternatives.

“At the time, the federal government broadened the tax base (made more income taxable) while also simplifying the tax brackets (reducing the number of tax brackets form 10 to 3) and lowering the tax rates on taxable income”, the report said.

Then in 2000 the federal government started to reduce income tax rates for the middle tax bracket, from 26 per cent to 22 per cent where it currently sits today.

The report also said the government eliminated surtaxes as a part of a five year tax reduction plan that was announced in 2000. These tax reductions were particularly beneficial for middle-income and higher earners.

The Canadian Centre for Policy Alternatives (CCPA) published an article in 2012 that discusses possible solutions to fix the income disparity that exists in Canada. The CCPA is a think tank and research institute that focuses on publishing alternative solutions on economic policy, international trade, environmental justice and social policy. They are also very well known for publishing an alternative federal budget every year.

Macdonald suggested the idea of “solidarity” among the 16 solutions provided in the 2012 article. By solidarity he is specifically referring to union representation.

In the article Macdonald supports the idea of demanding a fair share of profits go to increasing workers wages when the company does well.

“Not only is there less unionized workplaces today, you’re also finding that within unionized workplaces there are two tiers. So that the younger employees don’t necessarily get the same pay benefits as the older employees, which is going to cause a bigger gap in pay between younger and older employees,” said Macdonald in an interview with Humber News.

The report also touches on gender income disparity and the disparity between couples and singles. For full details download the report from The Conference Board of Canada’s website.