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The disappearance of Canada’s middle earners

Workers and family members participate in the annual Labour Day parade in Halifax on Monday, Sept. 3, 2012.

Andrew Vaughan/THE CANADIAN PRESS

We have heard a lot about the squeezed middle over the past few years. For the most part, the statistics have focused on the fact that average incomes have been stagnating (or declining) in both the U.S. and Canada.

A close look at the numbers reveals that the number of middle income earners in Canada is shrinking. Thing is, I'm not exactly sure that's as dire as it sounds.

This week, a study from the U.S. National Employment Law Project (NELP) offers a new snapshot on U.S. jobs.

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Rather than looking at incomes, the NELP researchers looked at employment growth by occupation. Starting with monthly data on earnings in 366 separate occupations, they divided those into high-middle-low categories depending on the average pay at the start of the recession. They then tracked those occupations over the course of the last four years.

Their results suggest that a lot of downward mobility is going on in the United States. During the recession, employment in middle wage occupations accounted for 60 per cent of total U.S. job losses, but since the recovery have only accounted for 22 per cent of the gains. The job categories that have been gaining are in lower wage occupations, which were 28 per cent of recession job losses, but have accounted for 58 percent of recovery growth. Higher wage occupations have basically come out even.

But that's the U.S.; what about Canada?

Canadian occupational data is not available monthly, but Statistics Canada does a comprehensive survey of employment and earnings by industry. I looked at weekly earnings in Canada's twenty-one major industry groups in July, 2008, the month in which Canada's economic output peaked. I then grouped the industries into high-middle-low categories, and tracked how each group has fared (see attached chart).

It is not a bad picture, particularly by international standards. For the four years ended in June, 2012, Canadian employment rose by 2.6 per cent. That may not sound like much, but it compares to a loss of 3 per cent in the U.S..

The industries that have added the most workers are the ones that pay the most money. Canada's highest paying industries have increased their work forces by 4.5 per cent since mid-2008, far more than the average. The energy boom has played a big part in this – jobs in mining and quarrying industries have risen 8.6 per cent over the period – but there are other strong gainers, including construction, finance and insurance and public administration.

The seven industries that pay the least added 2.1 per cent more workers in total, although there were huge variations by industry. The strongest growth in the sub-sector – and the strongest growth in all Canadian industries over the period – was in the health care and social services category, which was up a 10 per cent. Retail trade, real estate and leasing and administrative support industries all lost workers over the time period.

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That's all of the good news. The bad news is that the industries that typically employ 'middle income' earners have taken a big hit.

Employment in the middle category of industries dipped 3.3 per cent over the four years ended in June, 2012. Predictably, the manufacturing industries fared the worse. Durable goods manufacturing (heavily dominated by autos) now employs 11.8 per cent less people than four years ago, while non-durable manufacturing is down 10.4 per cent. In fact, of the seven so-called 'middle earning' industries, only Educational Services gained ground.

So what to make of the data? For sure, you can look at it and say that middle income earners have been squeezed, which they have. But here is the thing: is it a bad thing that there are fewer people in middle-earning industries if there are more people in better paying jobs?

Since the recession, there have been a lot of jobs created in industries that pay a lot of money. Not everyone will reap the gains: some of those jobs require specific education and skills. And, some of the workers who lost their jobs in the middle earning industries will not be able to find work in the industries that are growing the quickest.

There is a re-shuffling of the deck going on. Let's keep a close eye on the statistics before adjusting any policies that interfere with the results.

Economist Linda Nazareth is the principal of Relentless Economics. Visit her at www.relentlessseconomics.com. A longer version of this post is available on her website 

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About the Author

Linda Nazareth is the principal of Relentless Economics and senior fellow for economics and population change at the Macdonald Laurier Institute. More

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