Caught in the Middle: Some in Canada’s Middle Class are Doing Well; Others Have Good Reason to Worry

  • Philip Cross C.D. Howe Institute
  • Munir A. Sheikh Carleton University

Abstract

It is sometimes difficult to tell which group is more distressed about the purportedly deteriorating well-being of Canada’s middle class: Politicians courting middle-class voters, or the Canadians who actually identify as middle class. Even more difficult to discern is whether either group truly understands precisely who it is they are worrying about. There is no firm consensus on where the upper and lower boundaries of the middle class lie, with economists and statisticians disagreeing on the income levels and brackets that should be included in the definition of middle class, and some even arguing that income itself may be an inappropriate measure (preferring instead, for instance, consumption and lifestyle). And yet, despite all the conflicting approaches to measuring the middle class, what emerges from a review of the array of definitions and data sources is that the politicians and voters can at least partly justify their angst. While the middle class has seen its income grow, it has not kept pace with the income growth rate of higherearning groups. But not all members of the so-called middle class face the same plight. The workers who have lost the most ground relative to higher-income groups, are those with below-average human capital (that is, lower skill and education), and are at the lower end of the middle-income bracket. The largest source of downward pressure on middle-class incomes has been the decline of Canada’s manufacturing industry. Beginning in the postwar years, factory jobs developed a misplaced reputation for being well-paying middleclass work. In fact, the work provided generous pay and benefits only relative to the low human capital that was necessary to find employment in manufacturing. As manufacturing has declined across all industrialized countries, lower-skilled workers have been forced to accept lower rates of income growth. Meanwhile, more gains have been made by those with high levels of human capital. Public-sector professionals in particular have come to share the human-capital and income characteristics of Canada’s highest-paid managers and professionals, often enjoying greater job security as well. In reality, anxiety over the state of the middle class and its future is actually about the working class. Lumping middle-class factory workers and clerical assistants in with middle-class teachers and nurses — as current political discussion tends to do — obscures the truth about which members of that group are genuinely struggling to keep up. As long as politicians continue to promote policies aimed at helping everyone within such a vague and broad target group, they can only end up misdirecting resources by enriching those who are already doing reasonably well, rather than focusing on those working-class Canadians who truly are not. Already net transfers through the tax system to middle-income groups have grown markedly. These transfers have managed to offset about half the erosion of middle-class incomes in the marketplace. Those transfers have been financed through increased tax payments from high-income groups, but also through shrinking transfers to low-income groups. These developments raise serious policy issues for which there are no simple answers. The breadth of Canada’s middle class obviously means that it encompasses the largest proportion of families, by far. Any further policies aimed at transferring wealth from other income groups to appease middle-class voters will be costly. Given that the main cause for concern is the worsening situation of lowerskilled workers, politicians who truly want to help those struggling in the “middle class,” should focus their efforts on helping Canadians acquire more education and more skills.

Published
2015-03-19
Section
Research Papers