Canadian middle-class incomes, purchasing power up dramatically

Canadian middle-class incomes, purchasing power up dramatically  

By Charles Lammam and Hugh MacIntyre

Many Canadians may think times are tougher today compared to several decades ago. You can’t blame them. We’re regularly told by politicians and pundits how middle-class families are stagnating economically or even falling behind. The reality, however, is much different. Middle-class incomes in Canada are up dramatically since the 1970s and those incomes go a lot further today, in terms of purchasing power, than they did back then.

In a recent Fraser Institute study, we found that median income in Canada has increased by 52 per cent from 1976 to 2011, the latest year of readily available data.

So why the gloom and doom from some politicians and pundits? Two words—incomplete analysis.

Claims that Canada’s middle class is stagnating—or worse, falling behind—often fail to properly adjust incomes for changes in taxes and government transfers (the GST credit, child benefit payments, etc.). They also overestimate the effects of inflation, and they don’t account for the fact that the typical family is smaller today than in the past, meaning a family’s income is now spread across fewer people.

After accounting for all this, median income is up from $25,771 to $39,200 per-family-member.

But it’s more than just a dramatic increase in income. Middle-class purchasing power has also increased significantly.

Our study compared a wide variety of typical household goods sold in the Sears Canada catalogue in 1976 to the same (or similar) goods sold in 2011. It turns out that the average Canadian wage-earner now has to work a lot fewer hours than in 1976 to earn enough income to buy every good that we compared.

the-myth-of-middle-class-stagnation-in-canada-goods-infographic

For example, in 1976, a microwave cost $579.98. Earning the average hourly wage of $5.30, it took the average Canadian 109 hours of work to buy it. Thirty-five years later, a much better microwave (given improvements in technology) sells for $229.99. At the average hourly wage of $23.30 in 2011, that’s only 10 work-hours.

Similarly, a colour television in 1976 cost the equivalent of 113 hours of work compared to just 12 work-hours for a much sleeker one with the same screen size in 2011. A fridge in 1976 cost 137 work-hours compared to 22 work-hours in 2011. And the list goes on.

If the amount of work-time required to buy these goods had remained unchanged over time, then a conclusion of middle class stagnation is warranted. But work-time costs have fallen across the board, so claims of stagnation are mistaken.

And note that our analysis only compares goods sold both in 1976 and 2011. Today, middle-class Canadians have access to many things (smartphones, laptop computers, etc.) that have improved our lives but that were unavailable in the 1970s.

So despite the rhetoric, multiple indicators show middle-class Canadians have enjoyed significant economic improvement since the mid-1970s.

Charles Lammam and Hugh MacIntyre are co-authors of the Fraser Institute study “The Myth of Middle-Class Stagnation in Canada,” available at www.fraserinstitute.org