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Study: Inequality in wealth

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The Daily

Wednesday, December 13, 2006
1984 to 2005

The gap between the nation's families with the highest net worth and those with the lowest widened between 1999 and 2005, in part because of gains in the value of housing, a new study shows.

The study, published today in Perspectives on Labour and Income, ranked family units into five groups, or quintiles, from the lowest net worth to the highest. Each represented 20%, or one-fifth, of all families.

Between 1999 and 2005, the median net worth of families in the top fifth of the wealth distribution increased by 19%, while the net worth of their counterparts in the bottom fifth remained virtually unchanged.

In 2005, those in the top 20% of the wealth distribution had a median net worth (excluding the value of employer-sponsored pension plans) estimated at $551,000 (in 2005 dollars). In other words, half of the families in the top 20% of the wealth distribution had net worth more than this figure, and half less. The corresponding numbers were $465,000 in 1999 and $336,000 in 1984.

In contrast, the median net worth of the families in the bottom fifth stagnated between 1984 and 2005. In fact, the value of their assets never exceeded the value of their debts during the 1984 to 2005 period.

As a result, the top 20% of families held 75% of total household wealth in 2005, compared to 73% in 1999 and 69% in 1984.

The study was based on results of the 1984 Assets and Debts Survey, and the Survey of Financial Security conducted in 1999 and 2005.

Net worth is the amount an individual or family would clear after selling all assets, such as residences, stocks and registered retirement savings plans; and paying off all debts, such as mortgages, car loans and student loans. The terms "net worth" and "wealth" are interchangeable. Families include unattached individuals.

To make the concept of net worth comparable among all three surveys, this study excluded various items from the 1999 and 2005 data since they were not included in the 1984 survey. These were: employer-sponsored pension plans, contents of the home, collectibles and valuables, annuities, and registered retirement income funds.

On that basis, the median net worth of all Canadian families in 2005 amounted to about $84,800, compared with $74,400 in 1999 and $67,300 in 1984.

Part of the growth in net worth among families in the top 20% of the distribution was fuelled by increases in the value of housing.

In both 1999 and 2005, the vast majority of these families (at least 95%) owned a house. During the six-year period, the median value of their principal residence rose a solid $75,000, reflecting sharp increases in housing prices.

In contrast, the value of holdings on a principal residence changed little among families in the bottom 20%. At most, 6% of these families owned a house during this time.

The growing inequality in net worth during the past six years followed an increase in inequality in family after-tax income that occurred during the 1990s. This suggests that growing income dispersion over the last decade also contributed to the increase in concentration of wealth.

The study also showed that population aging was not a factor behind the growth in wealth inequality between 1984 and 2005. In fact, it found that wealth concentration would have risen even more had the age structure of the population remained constant over time.

While the median wealth of families and unattached individuals rose 26% between 1984 and 2005, it fell substantially among families in which the major income recipient was aged 25 to 34.

In 2005, these families and individuals had median wealth holdings of $13,400, much lower than $27,000 in 1984 and $17,400 in 1999.

This decline was due mainly to the fact that cumulative earnings of young men (the sum of earnings they receive over several years) fell substantially between the 1970s and 1990s.

Between 1994 and 2004, these cumulative earnings averaged roughly $267,000, compared with $330,000 accumulated between 1973 and 1983.

In contrast, cumulative earnings of young women increased about $10,000 from $166,000 to $177,000 during these periods.

Three factors were behind the decline among young men. First, they now stay in school longer than their counterparts did during the mid-1970s. This reduces the number of years during which they receive significant wages. Second, once out of school, they are less likely to have a full-time, and therefore relatively well-paid, job than in the past.

Third, those who did work on a full-year, full-time basis earned less annually during much of the 1990s than their counterparts did previously.

Increases in student loan debt played a minor role. One reason is that student debt is carried mainly by post-secondary graduates, who represent only a fraction of young individuals. In fact, average amounts owed on student loans rose by a modest $3,300 between 1984 and 2005.

Definitions, data sources and methods: survey number 2620.

The article "Revisiting wealth inequality" is now available in the December 2006 online edition of Perspectives on Labour and Income, Vol. 7, no. 12 (75-001-XWE, free) from the Publications module of our website.

For further information or to enquire about the concepts, methods or data quality of this release, contact René Morissette (613-951-3608;, or Xuelin Zhang (613-951-4295;,Business and Labour Market Analysis Division.

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