What is happening to earnings inequality in Canada?
by René Morissette, John Myles and Garnett Picot
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 060
Data from the Survey of Consumer Finances covering the period 1969-1991
show that inequality in annual earnings increased in Canada during the
1980s. The rise in inequality is not solely due to the 1981-83 recession.
Shifts in the composition of employment away from manufacturing and
towards the service sector do not explain much of the observed rise
in inequality. The growth in earnings inequality resulted partly from
an increase in earnings differentials among age groups. Earnings differentials
among education levels did not widen substantially. Most of the increase
in earnings inequality occurred within groups of comparable workers,
i.e. within groups of similar age and education.
Data from the Survey of Work History of 1981 and from the Labour Market
Activity Survey of 1989 show that unlike the United States, where changes
in earnings inequality have resulted mainly from changes in the distribution
of hourly wages, the increase in Canadian earnings inequality is, at
the aggregate level, mainly driven by changes in the distribution of
annual hours worked. Changes in inequality in hourly wages are not substantial
at the aggregate level. The small change in inequality in hourly wages
at the aggregate level masks off-setting trends which are substantial.
These trends consist of :
- an increase in the wage gap between young and older workers, which
tends to increase hourly wage inequality, and
- decreases in hourly wage inequality resulting both from changes
in the composition of employment and from decreases in hourly wage
dispersion within age groups.
These findings imply that – apart from cyclical factors – changes in
the distribution of annual hours worked and changes in hourly wages
among age groups are the main forces which increased earnings inequality
in Canada during the 1980s.
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