Canadian Incomes Haven't Risen In Decades

The other side of the housing equation

We’ve completely lost control of the Canadian housing market - in recent years affordability has reached all-time lows.

One of the reasons housing has become so unaffordable is because of rising prices.

A super insightful observation, right?

Stick with me here.

We spend so much time discussing property values, which have risen to such unimaginable highs, that at first, it might seem silly to explore other factors contributing to (un)affordability.

But consider this: there are two sides to the affordability equation, the cost of the purchase in question, and the financial position of the prospective buyer.

Rising prices are the most obvious driver of unaffordability, but there’s another reason why housing, and life more generally, feels so expensive these days; wages haven’t risen in decades.

Today I would like to share with you a short post exploring this less-often-discussed side of the affordability equation.

---

This chart shows us the median Canadian inflation-adjusted income over the last few decades.

Data source: Statistics Canada

It’s a simple but informative image that summarizes how our economic system has evolved over time.

According to the red line, after accounting for rising prices (inflation), the incomes of workers over the age of 16 have increased by only a few thousand dollars, or about 20%, since 1980.

The blue line tells us that workers in the 25-34-year-old range have fared worse than the population at large. The income of a typical young person is essentially identical to what it would have been 40 years ago. You might be shocked by these figures. I know I was when I first encountered them.

How can it be that, with all the advancements and developments since the 80s, a typical worker is no better off financially now than they would have been back then?

Why haven’t earnings increased?

Consciously or not, we tend to believe in an idea that John F. Kennedy’s popularized in 1963: "A rising tide lifts all boats".

Supposedly, a stronger economy benefits everyone since we all become richer as the economy grows.

Our belief in this idea is reflected by our conception of “how things are going” economically, which is tied to measures of growth such as GDP. Does anyone else feel a bit uneasy when they hear that a recession is coming? Well, a recession is just a period of weak GDP growth.

According to Kennedy, a society can improve its citizens’ quality of life by prioritizing economic growth. Unfortunately, things haven’t played out according to this theory.

By all measures, the Canadian economy has experienced extraordinary growth over the last few decades, but the average worker is no better off since wages haven’t risen. The rising tide doesn’t appear to be affecting our boats at all.

At a high level, the reason why wage growth hasn’t kept pace with economic growth is that the benefits of a growing economy have not been distributed evenly. The workers whose efforts are driving economic growth have not seen the fruits of their labor.

These days, it’s rare for businesses to use the higher profits generated during periods of growth to reward workers by increasing wages. Instead, these profits are usually diverted, almost exclusively, to shareholders.

We live in a society where the interests of corporations, and their shareholders, reign supreme.

We’ll discuss the exact mechanisms by which the benefits of a growing economy are transferred to shareholders, at the expense of workers, in future editions of People Over Profits.

For now, it’s sufficient to understand that wages haven’t risen because the rewards of a growing economy are reaped by the shareholders of corporations, through higher Profits on their investments, rather than by the People doing the work, and that this wasn’t always how things happened.

---

As I mentioned earlier, there are two sides to the housing affordability equation. It’s clear that we need to focus on curbing rising prices. But we’ll arrive at the desired outcome, a world where everyone can afford a place to call home, more quickly if we also focus on the less obvious side of the equation, by working to increase wages.

That’s it for this time!

If you have any questions/comments/feedback, I would love to hear them.

Thanks for reading,

Kareem