A new release from Statistics Canada shows that financial inequality is deepening in Canada after the equity gains of the first two years of the pandemic. TVO Today sat down with James Gauthier, a senior economic analyst in StatCan’s National Economic Accounts Division, to talk about the process of producing the data and unpack what his team found.
The data underpinning last week’s article in StatCan’s blog, The Daily, is released for every quarter, but it isn’t always accompanied by an article. This one, which relied on data from July 2023 through September 2023, focused on income and wealth gaps. It found that the wealthiest Canadian households are pulling ahead of the poorest both in terms of their share of the country’s total wealth and in terms of how much income they have left over to spend after essentials are paid for.
Inflation and high interest rates have eaten away at the finances of the poorest 40 per cent of the population, the analysts found, while the wealthiest 20 per cent pulled further ahead in terms of their share of the country’s wealth.
“The more wealthy, they actually benefited from those [interest] rates because they drew more of their income from their investment portfolios,” Gauthier says. “For the more vulnerable households, it was kind of the opposite situation.”
The poorest 20 per cent didn’t make significant gains on investment returns, his team found: “So the interest — credit-card interest and mortgage interest — more than offset what they were earning from their portfolios.” That means that they were functionally losing money against inflation.
The wealthiest’s gain might look small on paper — just 0.2 percentage points compared to the same month a year earlier. But “you’re looking at billions of dollars,” says Gauthier, “because wealth is measured in the trillions of dollars. A 0.2 percentage point change in that size of value is actually quite monumental.”
As a result of this shift, the wealthiest 20 per cent of the country possessed more than two-thirds of Canadians’ net worth. The bottom 40 per cent held just 2.8 per cent, or about $67,738 per household.
The release also found that the income gap between the richest 40 per cent of the population and the poorest 40 per cent grew by 0.5 percentage points compared to a year earlier. For the poorest quintile — the same demographic group captured in the wealth-gap numbers — “gains in average wages and salaries … were more than offset by reductions in net investment income.”
By both of these metrics, the country’s least wealthy citizens are losing ground they can’t afford to cede, while those with the most wealth are getting richer. And it’s been happening for a while, Gauthier says: “What we're seeing in the last several quarters is this situation is continuing to get worse, compound, because of those rates and the inflationary pressures.”
To look at this kind of demographic info, economists divide the population into quintiles, or fifths, and compare their relative financial state. StatCan has been monitoring households’ economic well-being in this way since after the global financial crisis of 2008 as part of a coordinated effort by OECD countries.
Using a wide swath of primary data — everything from statistical surveys to tax info — they figure out the asset value of the country’s households. The data they produce lets policymakers spot vulnerabilities in the economy (for example, how many people lack the capital to weather a downturn or other issue) and see inequality in financial terms.
“It's a different framework relative to what you might find in surveys or other types of direct household observations,” Gauthier says.
StatCan used to release this data on an annual basis. But Gauthier says that, in 2020, “a lot of very new things were happening, and it was important to see more granularly what was happening in the economy.” His team started producing the report four times a year, aligned with the financial quarters, instead of just once. (In a follow-up email, Gauthier noted that Canada is the first country to publish the distributional estimates on a quarterly basis.)
The years since the pandemic haven’t brought much more stability to the financial system: shifts in the ways people live and work and rapid changes brought about by war and climate disasters have all given Gauthier’s team reason to stick to the quarterly system.
“It’s a completely different situation from what existed in the first few years,” says Gauthier, adding that, during the first phase of the ongoing COVID-19 pandemic, “you had quite low rates of interest, government support measures, and the cost of living was quite low as well … It’s kind of flipped on its head more recently.”
For the first two years of the pandemic, Gauthier says, the income and wealth gaps were shrinking at the fastest rate on record. Now things are moving the other way, but more gradually. He and his colleagues are watching to see what happens during the rest of 2024 — and beyond.
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