The Hook

OTTAWA -- Canada has entered a 1920s-like Gilded Age, where the super-rich consolidate their wealth while the middle class stagnates.

That's the conclusion of a new study based on income-tax forms filed up until 2007, showing that the richest one per cent of Canadians took home 13.8 per cent of all incomes claimed that year.

The share of total income going to the richest of the rich has risen steadily since the early 1980s, reversing a long-term trend toward a more equal distribution of the country's income during the postwar '50s, '60s and '70s, the study says.

"The higher up the ladder you go, the more colossal this glomming of wealth becomes," author Armine Yalnizyan, senior economist at the Canadian Centre for Policy Alternatives, said in an interview.

Her paper, to be released Wednesday, is based on unpublished tax form data crunched by Mike Veall, an economics professor at McMaster University in Hamilton. The numbers show that the richest one per cent quickly gained ground in Canada between 1925 and 1935. It was the era epitomized by the writings of Horatio Alger — the days of rags to riches, when millions of poor North Americans believed they could strike it rich.

"Like the Gilded Age a century ago, Canada is awash in money generated by an emerging new global economy," Yalnizyan writes. "During both slow and rapid periods of growth, incomes have increasingly become concentrated in the hands of the elite few rather than creating greater prosperity for all."

The inequality gap of the '20s and early '30s eventually collapsed and then switched direction with the Second World War, narrowing and steadily declining until about 1982. Since then, the super-rich have gradually claimed larger and larger pieces of the total income pie. "Most Canadians are inching their way through recovery, trying to hang on to what they've got," Yalnizyan writes. "But for some Canadians, things have never been so good."

The higher up the income scale, the more dramatic the gains. For the richest one per cent, the share of all Canadian incomes almost doubled between the late 1970s and 2007. For the richest 0.1 per cent of tax files, their total share almost tripled during those 20 years. And for the creme-de-la-creme — the richest 0.01 per cent making more than $640,000 a year — their share of total incomes more than quintupled.

The trends shown in the tax data are undeniable, analysts say. What is in question, however, is why the trends are so relentless, whether they are cause for concern, and what the appropriate public-policy response should be. "It's best data we have on the issue," said Andrew Sharpe, executive director of the Centre for the Study of Living Standards. "The key issue is, what's driving this?"

Yalnizyan's study shows that the super-rich are increasingly reliant on their wages — much like the rest of us. That hasn't always been the case. In the 1940s, for example, the top income-earners were mainly entrepreneurs who made it rich directly from the proceeds of their businesses. In other words, the super-rich in Canada are mainly the top executives of large companies who are being well compensated by their boards and shareholders. At the same time, the income tax regime has not kept up with the super-sized salaries of the ultra-rich, Yalnizyan says, so they're able to retain more of their earnings.

There's no solid explanation for why executives are being so well paid, especially when wages for most other sectors of the economy have stagnated. A similar phenomenon can be seen in Australia, New Zealand, the United Kingdom, and especially the United States, said Veall at McMaster. But non-English-speaking countries such as France and Italy don't show the same inequality gap.

While some researchers believe the super-rich are beneficiaries of advancing technology in a global economy, the discrepancies between countries undermine that theory, Veall said. Corporate governance structures in English-speaking countries may offer a partial explanation, but there too, there's no reason why the trend would suddenly change in the early 1980s, he said. Long-time policy guru Peter Nicholson — who published his own analysis on an earlier version of the income-tax findings — suspects the numbers speak to a cultural shift.

"Corporate chieftains have entered the realm that was formally reserved for sports stars and rock stars," Nicholson said.

In his earlier paper, Nicholson warned of social unrest if the trend towards increasing inequality were to persist. The trend has indeed persisted, but Nicholson said any backlash would likely start in the United States, where the inequality is far more exacerbated than here in Canada. There, public discontent over large salaries going to bankers who nearly brought down the global financial system and required taxpayer-funded bailouts has simmered down somewhat.

More concerning, said Nicholson and other researchers, is that Canadians have no firm grasp on why the super-rich are increasingly in an untouchable league of their own. "At least you have to understand why this is happening. Is it fair, or is it a good thing?"