October 30, 2014

The Conference Board of Canada has identified age rather than gender as a new income divide. As reported September 23rd 2014  The Bucks Stop Here: Trends in Income Inequality between Generations, “Three decades of progress in reducing income inequality between men and women has been accompanied by a growing earnings gap between younger and older workers that could threaten future economic growth and social stability… The average disposable income of Canadians between the ages of 50 and 54 is now 64 per cent higher than that of 25-to-29 year olds, up from 47 per cent in the mid-1980s.”

With the growing aging of Canada’s population, the size of the labour force will be shrinking. Fewer Canadians will be earning income. This means that the younger generation will need to make more in the future. The evidence, however, suggests younger Canadians today are falling behind—their incomes relative to those of older workers are lower now than 30 years ago. If the future incomes of today’s younger workers fail to accelerate, economic growth will be constrained.

According to the report, factors that contribute to lower wages being paid today include the practice of major employers offering lower wages and reduced pension benefits for new employees, for the same work. At the same time employers persistently complain about shortages of skilled labour, while many highly educated young people get stuck in low-skill and precarious jobs.

Highlights of the report include:

  •          The income gap between older and younger workers has jumped over the past three decades: for women and men, for individuals and couples, and before and after tax.
  •          This trend in inequality, if it continues, could both limit future economic growth and trigger growing conflict between older haves and younger have-nots.

 “Age rather than gender is becoming the new divide in our society,” David Stewart-Patterson, Conference Board Vice President and a co-author of the report said. “The Canadian generation at the top of the income heap today fought long and hard for principles like equal pay for work of equal value, but their children now face lower wages and reduced pension benefits even for the same work at the same employer.”

 “We need average employment incomes in the years ahead to go up, and yet younger Canadians are falling behind,” Stewart-Patterson iterated. “This is a trend that could have serious consequences for employers, for labour unions, for governments and for communities.”

As reported by Lee-Ann Goodman in the Canadian Press, “Andrew Langille, a Toronto-based labour lawyer and youth employment advocate, said the Conference Board study confirms what's already known: Canada's young people are falling behind… Increasingly it's clear that Canada doesn't have a problem with a declining middle-class; rather it's a problem of income and wealth inequality for younger generations."

Skyrocketing tuition to the increasing cost of home ownership to the prospect of stagnating wages and precarious work were added to the financial mix for young Canadians that inhibit their ability to get ahead, financially.

Perhaps the most daunting part of the Canadian Press interview with Andrew Langille was the sad reality that few politicians seem ready to tackle the problem.

Barrie McKenna of the Globe and Mail on September 23rd labeled the Conference Board study as a "sobering new report … (that) says the income gap between older and younger workers has expanded massively since 1980s, leaving today’s twentysomethings the first generation of Canadians to be worse off than their parents."

A new economic precept was introduced to the financial malaise for today’s youth, “education inflation” which refers to today’s inflated educational requirements to secure a job like a Masters or PHD degree where three or four decades ago an undergraduate degree would suffice.

Of course all of the above presupposes debt – student loan debt, mountainous mortgage debt, staggering consumer debt all of which likewise drain individuals and families of net discretionary income. The debt for many contradicts the entire premise of economic growth because so many borrow to simply make ends meet – to raise children - and end up encumbered, broke and struggling.

Interesting how, as incomes fall behind, debt levels go up. As reported by the Bank of Canada on Sept 14th 2014, the total outstanding consumer debt excluding mortgages was $524,793 billion, up from $20 billion in 1975.