What stifles Canadians in climbing the income ladder?
A new study from the Montreal Economic Institute (MEI), an independent public policy think tank, has revealed that high taxes and excessive regulation are significant barriers to social mobility in Canada.
The report, released today, highlighted how these economic conditions restrict Canadians’ ability to improve their income and climb the economic ladder. Vincent Geloso, senior economist at the MEI and co-author of the study, stated, “We wanted to find out what economic conditions are required to help Canadians who aspire to do better than their parents reach those aspirations.”
Geloso highlighted that prior economic research supports the notion that lower taxes and regulatory burdens are conducive to growth and income mobility, especially benefiting the least advantaged in society.
The study drew on the work of Nobel Prize-winning economist Gary Becker, emphasizing that markets can serve as powerful engines for income mobility. It posits that increased economic freedom is correlated with enhanced income mobility. This is attributed to individuals gaining more opportunities to elevate their earnings and the broader economic growth benefiting the lower-income brackets.
Comparative analysis: Quebec vs. Alberta
Using Quebec as a case study, the MEI’s publication has demonstrated a troubling trend: lower economic freedom in the province correlates with decreased social mobility. Quebec is ranked the lowest among Canadian provinces in economic freedom, primarily due to its high taxation and regulatory environment. As of 2022, taxes accounted for an estimated 38.9% of all economic activity in Quebec, the highest rate in the country.
“The unfortunate reality is that Quebec’s status as a high tax and high regulation jurisdiction prevents a large number of Quebecers from moving up the income ladder,” said Gabriel Giguère, senior policy analyst at the MEI and co-author of the study. He added that the data clearly indicates government intervention has contributed to a stagnation of income levels for many individuals, leaving them trapped in the same income bracket.
The report utilized longitudinal data from Statistics Canada to track relative income mobility from 2016 to 2021. It examined the percentage of Canadians in the lowest income decile who successfully moved up by three deciles or more during this period. The findings revealed that only 20.2% of Quebecers in the lowest income decile ascended to the lower middle class or higher, compared to 25.5% of Albertans, who benefit from the highest level of economic freedom in the country.
The report highlighted a stark contrast: had Quebec’s income mobility rates mirrored those of Alberta, an additional 25,400 Quebecers could have exited the lowest income decile within the same timeframe.
Moreover, the study analyzes intergenerational income mobility, finding that Quebecers born in the early 1980s are 6.1 percentage points more likely to inherit their parents’ socioeconomic status compared to those born in the early 1960s.
“As the welfare state expanded in Quebec, so has the likelihood of being stuck in the same socio-economic state as one’s parents. We might have gained more economic equality, but it has been at the expense of growth and our ability to improve our situation,” noted Giguère.
