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Earnings gap threatens growth

Tuesday September 23, 2014 Written by 
Decades of progress in reducing income inequality between men and women has been accompanied by a growing earnings gap between generations.

In The Bucks Stop Here: Trends in Income Inequality Between Generations, The Conference Board of Canada reports younger works are making less money relative to their elders. This holds true for men and women and individuals and couples, when considering both before and after tax income.

According to the authors of the report, this inequality could threaten the country's future economic growth and social stability.

"Age rather than gender is becoming the new divide in our society," said David Stewart-Patteson, vice-president of the Conference Board of Canada and a co-author of the report. "The Canadian generation at the top of the income heap today fought long and hard for principles like equal pay for work of equal value, but their children now face lower wages and reduced pension benefits even for the same work at the same employers."

Researchers found the income gap between older and younger workers has jumped over the past three decades. For Canadians between the ages of 50 and 54, average disposable income is now 64 per cent higher than that of younger workers in the 25 to 29 cohort. This is up considerably, from 47 per cent in the mid-1980s.

These statistics could spell trouble for the economy in the years ahead. As Baby Boomers transition into retirement, Canadians will be relying on a smaller share of the population to drive economic growth and sustain the tax base that supports public services – a tall order for a generation of workers facing lagging wages.

"We need average employment incomes in the years ahead to go up, and yet younger Canadians are falling behind," said Stewart-Patterson. "This is a trend that could have serious consequences for employers, for labour unions, for governments and for communities. If the earnings of younger workers continue to lag, we also could see growing conflict within our society between older haves and younger have-nots."

The report, based on 27 years of income tax data, also found that the size of the income gap between generations is bigger for men, but has been growing faster among women. Between 1984 and 2010, the gap in employment income for men grew from 53 per cent to 71 per cent, while for women it leapt from just nine per cent to 43 per cent.

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