Income gap widening dramatically: report

A new report from CIBC Economics warns of a “dramatic widening in the income gap” caused by Covid-19.

In the report, senior economist Benjamin Tal analyzed the performance of the Canadian job market last year.

By the end of December, the Canadian economy had recovered 70% of the jobs lost in March and April and unemployment sat at 8.6% — 3% above the pre-crisis level.

There are some peculiarities about the current state of the job market, Tal noted.

For example, the duration of unemployment “is rising fast,” with people who’ve been unemployed for more than 27 weeks now approaching 30% of the total number of unemployed.

Temporary employment has been hit hard, accounting for 52% of job losses since February — even though temporary employees accounted for only 12% of total pre-crisis employment. Self-employment also plummeted, accounting for 31% of jobs lost.

But what’s particularly notable about the current state of the job market, Tal suggested, is “changes in employment by wage category as opposed to changes by type of employment.”

Tal noted that all the jobs lost last year were among workers who earned below-average wages, with people in the lowest wage quartile experiencing the largest losses.

Meanwhile, high-wage earners experienced net job gains during the crisis.

“The surprise here is that, not only did high-wage earners not experience job loss, but in fact they have gained almost 350,000 jobs over the past year,” Tal noted.

High-income earners in the fourth quartile of the wage scale gained 260,000 jobs, representing a 9% year-over-year increase.

Tal also observed that the number of low-paying jobs in Canada had been rising consistently prior to the crisis as the quality of employment in the country continued to deteriorate.

“That ratio has plummeted during the recession, not because the quality of employment has magically improved, but due to the dramatic reduction in the number of low-quality jobs,” Tal wrote.

Tal concluded that the income gap has widened at “an even faster rate than we’ve assumed so far,” noting that overall personal income has risen, thanks in part to the increase in high-paying jobs.

“In fact, the rise in high-wage employment mitigated the decline in headline wage income, as it masked a deeper than perceived drop in wage income among low-wage workers,” Tal wrote.

Staff

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