Distribution of Economic Prosperity
How Canada Performs
Economic prosperity brings opportunities. How that prosperity is distributed among the people in a region can determine who can access those opportunities—more equal distribution of wealth can promote social cohesion and fairness.
In this dimension of How Canada Performs, we look at economic indicators that help us assess how level the playing field is for Canada and the provinces: the gender wage gap, income inequality, intergenerational mobility, the poverty rate, and wealth distribution.
Indicators on this page
Key findings
- Canada receives a B grade in income inequality and ranks 10th among the 16 peer countries in our analysis.
- All provinces score either A or B grades.
- Income inequality diminishes economic growth by affecting education and health outcomes and undermining social cohesion.
- Government taxes and transfers significantly reduce inequality.
Canada earns a B in income inequality
Income inequality is an important statistic alongside gross domestic product (GDP). While GDP measures overall economic prosperity, it doesn’t capture the distribution of that prosperity among citizens.
Canada earns a B in this indicator and ranks 10th.1 Its performance trails that of Belgium, Austria, the Netherlands, Ireland, France, and the Nordic countries in our peer group but is much better than that of the United States. Income inequality in the U.S. is 1.3 times that of Canada.
How income inequality is measured
The Gini index is the tool most often used to measure income inequality. It’s measured on a scale of 0 to 1:
- A Gini index of 0 represents exact equality—every person in the society has the same amount of income.
- A Gini index of 1 represents total inequality—one person has all the income and the rest of the society has none.
Why income inequality matters
Pandemic-related improvement in income inequality was short lived
Canada’s income inequality was lower in the 1980s, with a Gini index of 0.281 in 1989. The 1990s saw a sharp rise, peaking at 0.322 in 2004. Since then, it has hovered between 0.300 and 0.320, with the exception of 2020.
The COVID-19 pandemic brought about a dramatic reduction in inequality in 2020 due to extensive income support from the federal government. Market income inequality rose as workers, especially low-income workers, were laid off or had their hours reduced due to pandemic-related shutdowns. Government programs like the Canada Emergency Response Benefit (CERB) increased incomes in 2020, particularly for lower income brackets. Thus, inequality after adjusting for taxes and transfers fell from 0.299 in 2019 to 0.281 in 2020.
This reversed in 2021, when many government support programs began to be rolled back. By mid-2022, all benefits related to the pandemic had been fully phased out, and in fall 2022, the number of insurable hours required to qualify for employment insurance benefits in many parts of the country was raised back to the pre-pandemic requirement. The Gini index rose to 0.288 in 2021 and to 0.300 in 2022.
Government taxes and transfers significantly reduce inequality
Tax policies and government transfers—including social assistance, child benefits, old age security, and employment insurance—play pivotal roles in mitigating inequality. By examining changes in the Gini index across different income measures—market, total, and after-tax income—we can observe the substantial impact of these policies.
- market income: what we earn from our work and returns on investment
- total income: market income plus government transfers and subsidies
- after-tax income: total income less taxes paid
In 1976, Canada’s Gini index using market income was 0.384. When government transfers and subsidies were added, it fell to 0.330. When the effects of the tax system were included, it improved further to 0.300.
In 2022, Canada’s Gini index was 0.432 using market income. Transfers and subsidies reduced it to 0.347, and the tax system further reduced it to 0.300.
The effect of government programs differs by country
The chart shows the effects of transfers, subsidies, and taxes on inequality in each peer country, ranked from left to right based on the size of the effect. The largest effect was in Finland, where the Gini index decreased from 0.512 to 0.274 in 2022, a reduction of 47 per cent. The reduction for Canada was 31 per cent and 23 per cent for the United States. The smallest reduction was in Switzerland, at 22 per cent.
Provinces perform well in income inequality
All provinces earn either As or Bs in income inequality. Prince Edward Island leads with an A+, outperforming all peer countries and provinces. Ontario, the province with the highest income inequality, still outperforms five peer countries.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
Key findings
- Sitting at 13th out of 16 peer countries in our ranking, Canada earns a B grade.
- Poverty not only affects the individuals living in poverty but also hampers overall economic growth.
- Six provinces earn C or D grades.
Canada earns a B in the poverty rate indicator
The poverty rate measures the share of people at the bottom end of the income distribution. It’s defined as the share of people living with less than half the region’s median disposable income. In 2022, 11.9 per cent of Canadians were considered to be in poverty using this definition. Canada’s rate is significantly lower than in the U.S., the worst performer among our peer countries with a poverty rate of 18.1 per cent.1 In Denmark, the best-performing country, only 6.5 per cent of the population is considered to be in poverty.
Poverty affects the quality of life of everyone in society, not only those living in poverty. It can contribute to higher crime rates, health issues, substance use issues, and poor educational outcomes. These factors, in turn, affect the economy through lost productivity and hinder a country’s ability to sustain economic growth. Poverty can also lead to discrimination, inequity, and social exclusion.2
Why poverty matters
Pandemic support helped reduce Canada’s poverty rate
Pandemic-related income support programs reduced the poverty rate from 12.1 per cent in 2019 to 9.3 per cent in 2020. The largest program was the Canada Emergency Response Benefit (CERB), which provided $500 a week for workers affected by pandemic closures. The end of some of these programs pushed the poverty rate up to 10.6 per cent in 2021 and to 11.9 per cent in 2022.
Understanding how poverty is measured
Three measures are available to estimate poverty.
Market basket measure (MBM)
This absolute poverty measure assesses whether individuals can afford essential goods and services necessary to meet a basic threshold for survival.
Low-income cut-off (LICO)
This relative poverty measure is the income level below which a family would devote at least 20 percentage points more of their income to food, clothing, and shelter than the average family would. People are said to be in the low-income group if their income falls below this threshold. For example, if the average family in a region spends 43 per cent of their after-tax income on food, clothing, and shelter, then the LICO would be 63 per cent.
Low-income measure (LIM)
The LIM is the measure most often used when making international comparisons, and it’s the measure adopted in How Canada Performs. We use the LIM statistic of the Organisation for Economic Co-operation and Development (OECD), which is a relative measure that defines poverty in relation to the economic status of other members of the society—people are poor if they fall below the customary standards of living in a country or region. The poverty rate is calculated as the share of the population whose income is less than 50 per cent of the median family income in a given year. The advantage of this relative measure is that it considers social exclusion. To fully participate in society, people need resources that are not too far below the norm in their community.
Poverty rates differ widely among provinces
Alberta has the lowest poverty rate among the provinces at 10.0 per cent, scoring a B grade and ranking 11th among the combined provinces and international peers. Quebec follows closely with a poverty rate of 10.5 per cent. Nova Scotia and New Brunswick tie for the highest provincial poverty rate—16.5 per cent—and earn D grades. These two provinces rank ahead of only one peer country: the United States.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- Muhammad Khalid Anser and others, “Dynamic Linkages Between Poverty, Inequality, Crime, and Social Expenditures in a Panel of 16 Countries: Two-Step GMM Estimates,” Journal of Economic Structures 9 (June 2020).
Key findings
- Achieving a B grade, Canada ranks seventh among the 16 peer countries in our ranking of intergenerational income mobility.
- On average, it takes four generations for children from Canada’s lowest-income families to reach the country’s mean income.
- Income mobility affects social cohesion and economic growth.
- Income mobility varies significantly among the provinces, with P.E.I. exhibiting the highest mobility and Saskatchewan the lowest.
Canada earns a B in intergenerational income mobility
In this report card, intergenerational income mobility is measured by calculating the expected number of generations it would take for children from low-income families to approach the average income in their country.
Canada’s four-generation mobility trajectory earns it a B grade.1 The top performer is Denmark, with a mobility expectation of just two generations. At the other end, France and Germany each require six generations. Lack of mobility means that Canada is missing out on underdeveloped talents, as well as unrealized investment and business opportunities.
What is intergenerational income mobility?
The intergenerational income mobility indicator is a good companion to the income inequality indicator. While income inequality can be thought of as an indicator of equality of outcome, intergenerational income mobility can be thought of as an indicator of equality of opportunity. Promoting intergenerational mobility appeals to the belief that everyone should be given the same opportunities in life.
With complete mobility, a child from a low-income family would have an equal chance of achieving a high income as one from a high-income family. Conversely, a lack of mobility would mean that a child in a low-income family would become a low-income adult. In other words, children would inherit their parents’ income status.
Why income mobility matters
It affects social cohesion
People moving between income groups may improve equity by reducing economic inequality, promoting social justice, and more equitably allocating resources. For example, social cohesion may be higher in a society where people believe they can improve their economic circumstances on merit rather than be limited by a poor socio-economic background.
It affects economic efficiency
Lack of mobility means that potential talents are missed out on or underdeveloped. Improving class mobility may be a way to achieve greater economic efficiency and economic growth, in that people’s talents are not wasted.
Intergenerational mobility varies widely among the provinces
While it is not possible to compare provincial data with international data, a 2021 study provided insights into regional variations within Canada using the relationship between a child’s income and their parent’s income over time.2
The study highlights that three of the Atlantic provinces had the most mobility, while Saskatchewan and Manitoba had the least. The probability that a child whose parents’ income is in the bottom of the income distribution would remain there in adulthood ranged from 15.6 per cent in P.E.I. to 33.1 per cent in Saskatchewan.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- Marie Connolly, Catherine Haeck, and David Lapierre, Trends in Intergenerational Income Mobility and Income Inequality in Canada (Ottawa: Statistics Canada, 2021).
Key findings
- Canada has a higher gender wage gap than 12 of the peer countries in our ranking, resulting in a C grade.
- The gender wage gap has narrowed in all peer countries since 2000.
- Undervaluing women’s work and underutilizing their skills hinder economic progress and worsen income inequality and poverty.
Canada’s gender wage gap is a significant issue
Canada’s gender wage gap is larger than that of 12 peer countries in our ranking, with only the U.S., Finland, and Japan reporting a wider disparity.1 Canada’s gap stands at 16.1 per cent, earning it a C grade, while Belgium has the smallest gap, at 1.1 per cent.
How the gender wage gap is measured
The gender wage gap is calculated by taking the difference between the full-time median weekly earnings of men and women, expressed as a percentage of men’s earnings.2
The gender wage gap has narrowed over time
There is a general trend toward narrower gaps across all peer countries, which reflects gains in women’s educational attainment, workforce participation, and labour force attachment. For instance, Ireland saw a reduction from 17.8 per cent in 2002 to just 2.0 per cent in 2022. In Canada, the progress has been noticeable but smaller, with the gap decreasing from 23.9 per cent in 2000 to 16.1 per cent in 2023.
Belgium is the best performer among our peer countries, with a gender wage gap of just 1.1 per cent. But the Belgian wage gap wasn’t always so narrow; in 2003, it was 15.2 per cent. The country’s success in this indicator is attributed to high and growing levels of trade union membership, with 55 per cent of Belgian workers in unions and nearly 96 per cent covered by collective bargaining agreements, which ensure non-discriminatory wages.3
Deliberate government policies also play a crucial role, such as Belgium’s 2012 law making it compulsory for the gender pay gap to be considered in wage agreements and requiring that federal job classifications be gender neutral. In addition, companies with over 50 workers must report their gender wage gap every two years.
Why the gender wage gap matters
Closing the gender wage gap is essential for fostering inclusive societies and sustaining economic growth. Undervaluing women’s work and underutilizing their skills not only hinders economic output but also contributes to women’s vulnerability to low income.
Many factors affect the gender wage gap
Most provinces have a relatively large gender wage gap
P.E.I. is the standout performer among the provinces, with a wage gap of 5.5 per cent, earning it an A and placing it fourth among all comparators. Conversely, Alberta has the largest gap, at 24.7 per cent, positioning it last among all peer countries and provinces.
The most progress in narrowing the gap over the last 23 years was made in New Brunswick, while the least progress occurred in Newfoundland and Labrador.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- The data for this indicator did not specify whether data on men and women encompassed both cisgender and transgender individuals, and no data were available for non-binary individuals.
- Jon Stone, “How Belgium Is Defeating the Gender Pay Gap,” The Independent, April 5, 2018.
- Rachelle Pelletier, Martha Patterson, and Melissa Moyser, “The Gender Wage Gap in Canada: 1998 to 2018,” Statistics Canada, corrected October 11, 2019.
Key findings
- Canada earns a C grade in wealth distribution.
- At the top tiers, wealth is more concentrated than income.
- Provinces vary widely in wealth distribution.
- Disparities in wealth have the potential to limit income and social mobility.
Canada earns a C in wealth distribution
Canada ranks 10th among our peer countries, earning a C grade.1 The wealthiest 10 per cent of people in Canda control 58 per cent of the wealth, which is comparable to the peer-country average. This contrasts with the more equitable distribution seen in the Netherlands (45 per cent) but is significantly better than that of the U.S. (71 per cent).
Wealth is much more unequally distributed than income
Across all peer countries, the gap between the rich and the poor is significantly greater when examining wealth compared with income. On average, the top 10 per cent of income earners receive 35 per cent of all income, while the wealthiest 10 per cent own 58 per cent of all wealth. The gap between these two indicators ranges from a low of 10 percentage points in Denmark to a high of 29 percentage points in Switzerland. Canada’s gap is 23 percentage points, placing it in the middle of the pack.
Countries with a more equal distribution of income don’t necessarily have more equal wealth concentration. For example, Sweden ranks third in income distribution but 12th in wealth distribution. Canada ranks slightly better in wealth distribution (10th) than in income distribution (12th).
Why wealth distribution matters
Canada’s wealth concentration has remained stable
Over the past two decades, the concentration of wealth among the most affluent has hovered between 57 and 58 per cent. The Netherlands has seen a notable decrease in wealth concentration at the top, while Switzerland’s has become more concentrated.
Wealth distribution varies by province
Comparing the provinces with our international peer group is not possible due to data limitations. But we can compare the provinces themselves using an alternative measure: the share of wealth owned by the top 20 per cent. There are notable disparities among the provinces, with wealth being significantly more concentrated at the top in Alberta (70.0 per cent) compared with Newfoundland and Labrador (64.2 per cent).
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D.