Canada's 1% are getting richer, but they’re earning it, OECD study shows

[Kadabra]

If you’re rich but would like to be richer then come to Canada.

That, in a nutshell, is one of the key findings of an OECD study that looks at the the richest 1% across the developed world and how they got their money.

According to the OECD, the top percentile of wealthy Canadians captured a whopping 37% of income growth over the past three decades, more than any other country except the United States.

There’s no question that when it comes to income disparity Canada is one of the stars of the show. But, more than anywhere else, Canada’s richest 1% earn their living from their jobs rather than from investment or other income.

The top 1% earned at least 65% of their income in the form of salaries, with the rest coming from business income and capital investments, the study said. For their peers in the U.S., the figure was 60%, in France it was 55% and in Italy 45%.

And for almost every country except Canada, the richer the rich become, the bigger the chunk of their income made up by investments. In this country, by contrast, the trend moved in the opposite direction.

One explanation is that Canada has a lot of well paid professional jobs and that’s how the top 1% make their living.

It’s important to keep in mind that the income figures are all pre-tax, so real take-home results may be different from the numbers in the study.

More here: Rich on a roll: Canada’s 1% are getting richer, but they’re earning it, OECD study shows | Financial Post

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I thought this was pretty interesting and very encouraging. If you're moderately talented and are wise enough to put in effort into the right things, there's a good chance you'll be very well off, if not at the top.

People often misinterpret income inequality and confuse and/or lump it together with wealth inequality. I think that's a real shame; there's nothing wrong with people earning through work what they're worth to the economy. These people should not be confused with those who've obtained their wealth through inheritance and the like.

I'm curious if others are feeling as optimistic about this topic.

 

[Shadowgui]

It's good that they earn it mostly through salary, but there's something inherently wrong with the rich getting richer. It is a trend that has been on the rise for the past decades: the top 1% gets more and more and the the bottom gets less and less. On that topic, I think it's crazy how they lump the bottom 90% in a single group. Sure it makes it not too bad when you compare it to the other groups, but that's kinda misleading. What I'd love to see is where the bottom 50% are. I'm sure that'd be quite a shocker.

Basically, the point is this: there are hundreds of thousands of people "moderately talented and wise enough to put efforts in the right things" in the bottom 90%, but as the rich gets richer, the less opportunity these people have to get to the top. Sure you'll get the occasional "rags to riches" inspiring story, but the fact is the big majority of people in the bottom will stay in the bottom; not because of a lack of talent or potential (though of course that can sometimes be the case), but because the system works increasingly against them.

I guess you can understand from my post that I'm not optimistic about the way things are going. I think Canada as a whole should strive to be like Scandinavia, not like the United States.

 

[Fig]

Another point of concern is how little of that income derives from businesses. This point at a situation where few really successful new business are being created - little entrepreneurship, which is a major source of job creation.

You WANT people creating new businesses and being successful with them. That's far more useful to the economy than people getting money off their shares, or even than people getting money off their salaries.

 

[Solayoh]

I don't mind the rich getting richer, or inequality rising up, as long as the poorest are making progress as well overall.

For example, if someone offered to give me a pay rise of £1000, but my boss would get a £10,000 pay rise, I would accept that over none of us getting a pay rise, or alternatively us getting a pay rise of £500 each.

 

[Hector]

Another point of concern is how little of that income derives from businesses. This point at a situation where few really successful new business are being created - little entrepreneurship, which is a major source of job creation.

You WANT people creating new businesses and being successful with them. That's far more useful to the economy than people getting money off their shares, or even than people getting money off their salaries.

I'm with Mr. Figment on this one. The issue with the US is that so much of the money that the top of the top earn is neither salary nor business income but capital income (especially the .01 percent and the super rich) due to the fact that A) the tax laws on capital gains are silly and B) that money could do much better if it was being put back into the economy.

The issue that I'm seeing with Canada's distribution on this chart is just what he said. You want to see a large portion of money being earned by business profit. I know the phrase 'job creator' has been made into almost a slur of sorts but it still is a point to be made (and again is part of the US issue). You want people seeing a business as a good investment and if people are making profits on a business they will put their money back into it and continue to invest. As the business grows it will require more workers and you know the rest. The issue I see here (for both the US and Canada) is that while I don't know what the Canadian super rich are doing with their earnings (I can't say I know much about their culture), in the US it's easier and more profitable for the individual to take their earnings to a broker, put it into derivatives and do nothing good for the economy with that money except line their own pockets.

 

[Kadabra]

It's good that they earn it mostly through salary, but there's something inherently wrong with the rich getting richer. It is a trend that has been on the rise for the past decades: the top 1% gets more and more and the the bottom gets less and less. On that topic, I think it's crazy how they lump the bottom 90% in a single group. Sure it makes it not too bad when you compare it to the other groups, but that's kinda misleading. What I'd love to see is where the bottom 50% are. I'm sure that'd be quite a shocker.

Basically, the point is this: there are hundreds of thousands of people "moderately talented and wise enough to put efforts in the right things" in the bottom 90%, but as the rich gets richer, the less opportunity these people have to get to the top. Sure you'll get the occasional "rags to riches" inspiring story, but the fact is the big majority of people in the bottom will stay in the bottom; not because of a lack of talent or potential (though of course that can sometimes be the case), but because the system works increasingly against them.

I guess you can understand from my post that I'm not optimistic about the way things are going. I think Canada as a whole should strive to be like Scandinavia, not like the United States.

Why is it inherently wrong for the rich to get richer? It's natural that people who are better at making money than other people will continue to make more money than other people. This isn't a trend that's been on the rise for the past decades--it's always been true in one form or another.

Lumping the 90% together is just fine for the point they are making. In fact, since we're looking at income growth here, here's an interesting graph that really may be a shocker to you.

Source: http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdf

The wealth of the top 1%-0.1% in USA remained more or less flat over the decades. It's actually only the top 0.1-0.01% who've had their wealth increase significantly. Those poor Wall Street protesters (no pun intended) were protesting against the wrong crowd!

But no, the system doesn't work against people who are "moderately talented and wise enough to put efforts in the right things." It works against the art and psychology majors (not even, more like most of them are just working against themselves!) I'm oversimplifying a bit here, but if you pursue an education in the STEM fields, you have very good odds at making a good living. This is of course not the only way; it's just what I know more about.

As for Canada VS Scandinavia: Know that Canada actually loses to only one of those countries when it comes to the quality of life for the general population--and even then, just barely. We don't need to be like Scandinavia to do well.

Another point of concern is how little of that income derives from businesses. This point at a situation where few really successful new business are being created - little entrepreneurship, which is a major source of job creation.

You WANT people creating new businesses and being successful with them. That's far more useful to the economy than people getting money off their shares, or even than people getting money off their salaries.

Agreed, I actually found that very surprising. But you should know that unlike the clear advantage of having so much wealth coming from salaries, business income stats are not a black and white matter, particularly when debating income inequality. Many of the highly paid professionals who make up the top % work for publicly traded and/or foreign multinationals. This won't bring up the business income stats. At the same time, business creation on its own does not mean high paying jobs for most of its employees. If you're looking at Canada and the US, the problem isn't unemployement; it's underemployment. A bunch of dudes opening restaurants won't help from an income inequality standpoint.

At the same time, it's obvious that one shouldn't argue against enterpreneurship. My point is only that it's beside the point of this article--and that it's not a black and white issue!

I don't mind the rich getting richer, or inequality rising up, as long as the poorest are making progress as well overall.

For example, if someone offered to give me a pay rise of £1000, but my boss would get a £10,000 pay rise, I would accept that over none of us getting a pay rise, or alternatively us getting a pay rise of £500 each.

It's all about who delivers more value. Nobody deserves anything except for what they're worth. If you're skilled at your job and you've been able to generate extra profits for your business, then you should get more money than a crappy boss (who would evetually get fired in a well-run firm).

Another point of concern is how little of that income derives from businesses. This point at a situation where few really successful new business are being created - little entrepreneurship, which is a major source of job creation.

You WANT people creating new businesses and being successful with them. That's far more useful to the economy than people getting money off their shares, or even than people getting money off their salaries.

I'm with Mr. Figment on this one. The issue with the US is that so much of the money that the top of the top earn is neither salary nor business income but capital income (especially the .01 percent and the super rich) due to the fact that A) the tax laws on capital gains are silly and B) that money could do much better if it was being put back into the economy.

The issue that I'm seeing with Canada's distribution on this chart is just what he said. You want to see a large portion of money being earned by business profit. I know the phrase 'job creator' has been made into almost a slur of sorts but it still is a point to be made (and again is part of the US issue). You want people seeing a business as a good investment and if people are making profits on a business they will put their money back into it and continue to invest. As the business grows it will require more workers and you know the rest. The issue I see here (for both the US and Canada) is that while I don't know what the Canadian super rich are doing with their earnings (I can't say I know much about their culture), in the US it's easier and more profitable for the individual to take their earnings to a broker, put it into derivatives and do nothing good for the economy with that money except line their own pockets.

Already answered most of this. I do like that you caught on to the point about the 0.01% before I brought it up, though! (Was curious if anyone would, so I waited a bit before responding!)
One thing I'd add is that it's unwise to outright demonize capital gains. One of America's greatest strengths is the easy-going culture regarding getting investment money for startups. It's one of the few places where you can take risks and fail, then try again. This is how you got Sillicon Valley, as but one example.

I'll most certainly agree that there are some form of investments that are quite difficult to see in any sort of good light.

 

[Fig]

The problem with the rich getting richer is that ultimately wealth is not an infinite resource. So when their share of the wealth increase, other people's share decrease, and (due to inflation, increase in living cost and whatnot) their ability to live their life become threatened.

 

[Kadabra]

You're right to an extent, however, do keep in mind that it's not a pure zero-sum game, either. People actually have no idea how extreme wealth inequality is in the US; here's a biased video which is good enough for the purpose of this point:
[video=youtube;rMhvYeQPOcE]https://www.youtube.com/watch?v=rMhvYeQPOcE[/video]
They are wrong on some points, but for the sake of this argument, let's assume they aren't. If inequality was that harmful, given to the extreme degree in which it is present in the US, things would have to be a lot worse there than they are now. Living in the US is really not that bad, even compared to many other developed nations who have a more equal wealth distribution. Sure, you may not be able to afford the disgustingly expensive mansions and cars that the super rich have, but at the same time, people don't need those to enjoy a good quality of life.

Some would argue that the living standards in the US have gone down during the past few decades, but that has more to do with the evolution of the domestic economy and globalization. Primarily, this happens in the form of low-skilled jobs being outsourced to other nations. But what these people have lost sight of is the fact that globalization has helped raise billions of Chinese and other peoples out of poverty. It's not really all that bad, and you can still be very successful in the US if you stay ahead of the curve in terms of having valuable skills. You may no longer be able to get a great salary pushing the same button on a factory assembly line, but you can still get one by becoming an engineer, a software developer, etc. It's tough for those who aren't as intellectually capable (though there are plenty of well paid professions that don't require this level of training, as well), but with today's world of global competition, it's inevitable that competition is tougher. The rich getting richer has nothing to do with these new challenges.

The only real issue I can think of when it comes to the wealthy creating a problem for the average folks is when it comes to real estate. Cities like Vancouver, Toronto, San Francisco, etc have a problem in that wealthy people buy homes and condos, raising the market prices quite drastically as a result. This makes it extremely difficult for the average folks to be able to buy a home. But even then, it's not the 1% that contribute to this problem primarily. In San Francisco, it is primarily the well-paid workers of tech firms who are raising property values. I don't think it would be fair to criticize them.

 

[Fig]

Life isn't "bad" in the USA, but compared to Canada (which has less income inequality) it's sinking further and further. For people outside the wealthy, America takes pretty much every problem Canada has and magnify it, on top of adding new ones.

 

[Shadowgui]

Why is it inherently wrong for the rich to get richer?

It gets wrong when something like "It's all about who delivers more value. Nobody deserves anything except for what they're worth" is claimed. When the rich gets richer, it makes it that much harder for the poor and middle class to contribute more value. Following such a logic, it would mean that all these people deserve less and less. It gets wrong because this is then passed on to the children, who now have to deal with the fact that his parents "deserved" less. Ideally, a child born in a bottom 50% family would have as much chance to become successful as a child born in a top 1% family. We would then see where real skill, talent and determination triumph. As it is now, we both know that the children born into a bottom 50% family has less chances, and it keeps decreasing as the rich get richer.

As for Canada VS Scandinavia: Know that Canada actually loses to only one of those countries when it comes to the quality of life for the general population--and even then, just barely. We don't need to be like Scandinavia to do well.

According to the Economist's 2013 lottery of life, Canada only beats Finland by a small margin and loses to the rest.
Link: International: The lottery of life | The Economist

 

[Nero the Giant Whiscash]

It's good that they earn it mostly through salary, but there's something inherently wrong with the rich getting richer. It is a trend that has been on the rise for the past decades: the top 1% gets more and more and the the bottom gets less and less. On that topic, I think it's crazy how they lump the bottom 90% in a single group. Sure it makes it not too bad when you compare it to the other groups, but that's kinda misleading. What I'd love to see is where the bottom 50% are. I'm sure that'd be quite a shocker.

Basically, the point is this: there are hundreds of thousands of people "moderately talented and wise enough to put efforts in the right things" in the bottom 90%, but as the rich gets richer, the less opportunity these people have to get to the top. Sure you'll get the occasional "rags to riches" inspiring story, but the fact is the big majority of people in the bottom will stay in the bottom; not because of a lack of talent or potential (though of course that can sometimes be the case), but because the system works increasingly against them.

I guess you can understand from my post that I'm not optimistic about the way things are going. I think Canada as a whole should strive to be like Scandinavia, not like the United States.

blame NAFTA and other so called "free trade" agreements as there sucking the jobs out wholesale