Narrowing racial wealth gap will result in economic gains, says economist

During the epidemic, Canadians in general accumulated savings and wealth to an unprecedented extent. The increases for Canadians of colour, however, have been less significant – but levelling that inequality prove beneficial to Canada as a whole.

In a recent commentary, RBC economist Ranella Billy-Ochieng stated that for decades, visible minorities have had less opportunities to accumulate wealth. They have fewer financial holdings, are less likely to own enterprises, and perhaps most importantly, are less likely to buy a home. This should not be surprising, she argued, considering that they earn as low as 85 cents per dollar compared to the non-visible minority population, even though they may have more formal education.

And as the government reduces its emergency and pandemic aid programs, long-standing income and wealth disparities are poised to reappear, Billy-Ochieng said.

She noted that in Canada, nearly 40% of total national household net worth is held in the form of home equity. It was also the main driver of wealth growth during the epidemic, accounting for 55% of a total $2.8 trillion rise in family wealth since Q4 2019.

However, because of the low percentage of property ownership, many people of colour in Canada are on the outside looking in. Black Canadians, in particular, accounted for only 38.4% of homeowners—the lowest rate among visible minorities -- as per the 2016 Statistics Canada Census.

If visible minorities owned homes at the same percentage as white Canadians, she said, the country's overall net worth would be $100 billion higher. And compared to the non-visible minority community, visible minorities earn less from salaries and investment income, earning as low as 65 cents for every dollar they invest.

In the year 2020, visible minorities lost a disproportionate amount of jobs. Despite better work conditions, their unemployment rate stayed at 1.8%, according to recent poll data.

Because they have weaker financial bases, Billy-Ochieng said it’s hardly surprising that fewer visible minorities own businesses. This group makes approximately a fifth of the population in Canada, but only 13% of private company owners.

“Breaking this pattern would benefit the economy as a whole,” she said.

She stated that if visible minorities owned businesses at the same rate as the general population, more than 100,000 new businesses would be founded, each capable of employing 8 to 10 people. When compared to non-visible minority owned firms, a higher percentage of visible minority owned enterprises (more than 70%) reported lower revenues as a result of the pandemic.

Government assistance has helped to soften the shock, but it is about to end. And financial inequities persist, with more than 15% of visible-minority-owned businesses unable to obtain financing, almost double the rate for other enterprises.

“With financing already a challenge prior to the pandemic, there is a concern that many of these businesses won’t have a soft landing as they contend with rising input costs and labour shortages,” Billy-Ochieng said. “Empowering talented Canadians from visible minority groups with more opportunity can help to narrow long-standing wealth gaps, while fostering positive long-run productivity impacts.”