Given the debate over the past few years about income inequality and the fact that many people do not consider how the income of individuals change over time, a new study, "Measuring Income Mobility in Canada" recently published by the Fraser Institute, provides fresh evidence on how the incomes of Canadians change over the course of their lives.
While we welcome thoughtful criticisms of our methods and analysis, a recent blog penned by Professor Michale Wolfson of the University of Ottawa does a disservice to the discussion when he suggests the results are misleading and the analysis was done unfairly without adequate justification.
We agree with Professor Wolfson's implicit suggestion that more detailed research in this area needs to be completed, but such a suggestion is not a specific criticism of our study. Given some of the worrying responses to our study by prominent Canadians, we think additional basic research on the nature and importance of mobility is entirely warranted.
Professor Wolfson's principal criticism, however, is that we "focused on young workers" but defined our five income groups "based on the entire population of earners." (Canadians were put into five income groups from lowest to highest income with each group containing 20 per cent of the total).
The study did examine young workers between the ages of 20 and 45 (as of 1990) to see whether and to what extent they moved up or down the income ladder through their own effort and diligence. In other words, by design we wanted to examine and quantify the income changes for working-age Canadians regardless of their initial characteristics (e.g. education, family status, parental incomes, etc.).
Our decision to compare changes in income for the working-age population relative to the overall population is appropriate since that is the society that everyone lives in -- young or old.
The methodology used in the study was developed in close consultation with officials at Statistics Canada, including a researcher Professor Wolfson co-authored a paper with, and it is similar to previous research completed by Professor Wolfson's colleague and collaborator, Professor Ross Finnie.
Our research found that within a decade (1990 to 2000), 83 per cent of Canadians initially in the bottom 20 per cent of income earners in 1990 moved to a higher income group. By 2009 (the last year for which we have data), 87 per cent moved up. In other words, nearly nine out of 10 Canadians who started in the bottom 20 per cent had moved out of low-income 19 years later. For reference, Professor Finnie's study found that 72 per cent of Canadians initially in the bottom 20 per cent in 1982 moved to a higher income group by 1992.
Professor Wolfson labels our results misleading because we found proportionally more upward income mobility than downward mobility on average and suggests a fair analysis would mean that "for every person moving up a relative position on the ladder, someone else must have moved down."
Equal upward and downward movement would have occurred if we measured the income mobility of working-age Canadians in our study relative to themselves. But again, by design, we wanted to assess how the incomes of working-age Canadians faired relative to the general population of earners.
It is instructive to refer to Professor Ross Finnie's work who also measured income mobility relative to the general population. In his 1999 study, he notes:
"But how can this be that there are more winners than losers? In other words, if a good number of earners are moving up in the distribution, and most who begin at the higher levels remain there, who is filling the void at the bottom? The answer is that new entrants are continually entering the labour market at lower earnings levels and moving up the distribution in turn."
That is the main point of our study and findings. The results reflect a typical Canadian's life as they move from student to new worker to experienced worker. Even Professor Wolfson acknowledges that "there is a broad life cycle pattern to earnings... So of course, we should expect that a great many people will see rising earnings as they move from newly minted to mid-career workers."
It is this critical fact that is missing from most discussions about income inequality and one of the reasons why it is so important for research to consider the income mobility of Canadians. Canada is a dynamic society where individuals can indeed make themselves better off by completing (and continuing) their education, acquiring job skills, and gaining work and life experience.
Charles Lammam is co-author of Measuring Income Mobility in Canada. The study is available at www.fraserinstitute.org