Out of Ottawa, Some Deflating New Stats on Life in the World’s Richest Nation

South of the border, here in the United States, we Americans tend not to pay much attention to our northern neighbors. Entire election cycles can come and go without anyone running for national office saying anything significant about Canada.

But that all has changed of late. Canada now looms large in our politics, mainly because many more of us have realized that Canadians enjoy a health care system far superior to our own, by every meaningful yardstick of fairness and efficiency. Canada’s single-payer approach to health care has become — for progressives in the United States — a guiding inspiration. We want what the Canadians have. We need what the Canadians have.

And we need what Canadians have, an innovative new study suggests, on more than just health care. Average Canadians, this research relates, now enjoy higher incomes than their counterparts in the United States.

The new report — Household Incomes in Canada and the United States: Who is Better Off? — comes out of the Ottawa-based Canadian Centre for the Study of Living Standards and essentially challenges the conventional wisdom on economic well-being. That wisdom, report author Simon Lapointe notes, typically defines well-being as GDP per capita.

To calculate this GDP yardstick, economists take the sum total of the goods and services a nation produces, divide that total by the nation’s population, and tell us that the resulting number measures how well a nation’s people are doing economically.

By this standard measure, Americans are doing much better than Canadians. In 2016, the latest year with comparable stats available, GDP per capita in the United States ran over 20 percent higher than GDP in Canada, $57,798 to $47,294, in U.S. dollars adjusted for what economists call “purchasing power parity.”

But GDP per capita can obscure reality as most households live it, especially in a deeply unequal society like the United States. Lapointe acknowledges in his new Canadian Centre for the Study of Living Standards report that American households certainly do rate as richer than Canadian on average. But “much greater incomes at the top of the income distribution” in the United States, he points out, are driving the difference in the Canadian and U.S. averages.

The statistical remedy to the confusion GDP per capita creates? Lapointe’s approach divides both the Canadian and U.S. populations “into 100 equal sized groups, ordered from lowest to highest income,” then compares the actual income for each “percentile” on each side of the Canadian-U.S. border.

“Canadian households with incomes up to the 56th percentile,” Lapointe’s resulting calculations show, “are better off than American households at the same point in the income distribution.”

At the 20th percentile, for instance, Canadian households pocketed $27,201 in 2016, a substantial $3,786 more than the comparable U.S. household, adjusted for purchasing power parity.

At the 40th percentile, Canadian households made $1,871 more than similarly situated American households. The gap narrows down to a $101 advantage Canada at the 56th percentile.

The biggest single percentile difference between Canadian and U.S. households? That comes at the 100th percentile, the top 1 percent interval. U.S. households at this lofty level collected $711,801 in 2016, a stunning 57 percent more than Canadian top 1 percent households.

“The usual comparison of incomes between Canada and the United States using GDP per capita or average household income hides a critical part of the story,” sums up Lapointe. “American society has greater income inequality, such that the higher average is driven by incomes at the top of the distribution. For poorer or middle-class Canadians, their incomes actually compare favourably to those of their American counterparts.”

Lapointe would be the first to admit that his new research on comparative Canadian-U.S. household well-being has some significant limitations: His numbers only trace “money incomes before tax” and do not factor in “major government transfers in kind — public education, publicly funded health care, and publicly supported housing.”

Canadians today get much more substantial “transfers in kind” from their government than Americans do, as any American who’s followed the debate over single-payer now realizes. Higher taxes do, to be sure, accompany Canada’s much more generous social benefits, but the greater overall progressivity of the Canadian tax system, Lapointe observes, “most likely” leaves ordinary Canadians even further ahead of their American counterparts once we factor in taxes and transfers.

What explains the increase in the proportion of Canadian households “better off than their American counterparts”? This increase, concludes Lapointe, reflects “the slower increase in economic inequality in Canada compared to the United States.”

The faster that income and wealth concentrate at the top, in other words, the worse off the daily lives of average people become. Canadians seem to understand this dynamic much more fully than we do. So let’s hope we hear a good bit more about Canada in the 2020 election campaign. We Americans have a lot to learn about how decent life in North America can potentially be.

Sam Pizzigati co-edits Inequality.org. His latest book: The Case for a Maximum Wage. Among his other books on maldistributed income and wealth: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 and Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives. Follow him at @Too_Much_Online.