Canada Is Poor

By Dominic Pino

Monday, October 07, 2024

 

Ten years ago, commentators were telling Americans their northern neighbor was a middle-class success story. Now, every province has lower median earnings than every state.

 

Last month I wrote a post about a comparison of GDP per capita between U.S. states and Canadian provinces. It found that Ontario would be the fifth-poorest U.S. state, Quebec would be second-poorest, and Nova Scotia, New Brunswick, or Prince Edward Island would each be the poorest U.S. state, as measured by economic output per person.

 

A new report from the Fraser Institute, a Canadian free-market think tank, looks at income instead of output, and its findings are even worse for Canada. In a ranking of the 50 U.S. states and ten Canadian provinces by median earnings per person, all ten provinces line up at the bottom, occupying spots 51–60. Every U.S. state has higher median earnings per person than Alberta, the richest Canadian province.

 

What the Report Says

The report tracks the changes in median earnings per person for each state and province in real, constant Canadian dollars between 2010 and 2022. “This twelve-year period allows for the analysis of a full business cycle following the 2008 recession through to 2022 when the economic effects of the global COVID pandemic began to subside,” the report notes.

 

Every state and province except Alberta saw increases in real median earnings between 2010 and 2022. But most U.S. states saw faster growth than their Canadian counterparts. British Columbia is the only Canadian province in the top half of the 60 total jurisdictions in earnings growth. Real earnings growth in Ontario, Canada’s most populous province, was slower than in every U.S. state.

 

The report also zooms in on specific comparisons. It finds that relatively poor U.S. states have improved more than relatively poor Canadian provinces. In the ranking of all 60 jurisdictions by median earnings between 2010 and 2022, Utah improved from 47th to 28th, Michigan improved from 44th to 27th, and Arkansas improved from 45th to 31st. “Conversely, none of the lower-ranking Canadian provinces improved their relative positions by more than one position over the period from 2010 to 2022,” the report found.

 

Even similar U.S. states have seen earnings growth greater than Canadian provinces. The report considers five comparisons of this kind:

 

1.       Alberta and Texas are each massive oil producers, and Albertans had higher median earnings than Texans in 2010. While Alberta was hammered by falling oil prices and was the only jurisdiction with a decline in real median earnings per person in the report, Texas’s increased by $7,121 in Canadian dollars (C$). After trailing by C$3,423 in 2010, the median Texan was C$5,254 ahead of the median Albertan in 2022.

 

2.       Saskatchewan and North Dakota border each other, are sparsely populated, and have economies heavily dependent on petroleum and agriculture. North Dakota was already ahead of Saskatchewan on median earnings per person in 2010, but the gap more than doubled by 2022, increasing from C$6,795 to C$15,511. North Dakota’s grew third-most of any state or province between 2010 and 2022, increasing by C$9,677. Saskatchewan had the slowest growth at just C$961.

 

3.       British Columbia, the best-performing Canadian province in terms of earnings growth between 2010 and 2022, borders Washington State. Even with the strong growth from British Columbia, Washington’s growth was slightly stronger, and Washington’s lead in median earnings per person grew slightly, from C$10,879 to C$11,311.

 

4.       Michigan borders Ontario, with a cross-border automotive industry that contributes to both sides’ economies. In 2010, Michigan already had a lead over Ontario in median earnings per person of C$2,955. The lead nearly tripled by 2022, to C$8,661.

 

5.       Atlantic Canada (Newfoundland and Labrador, Prince Edward Island, Nova Scotia, and New Brunswick,) and New England (Maine, New Hampshire, Vermont, Massachusetts, Connecticut, and Rhode Island) share similar geography and history. All six New England states had higher median earnings per person than all four Atlantic provinces in 2010 and in 2022. At a regional level, median earnings per person for New Englanders was C$48,579 in 2022, compared with C$32,059 for Atlantic Canadians, and that gap had grown by C$1,171 since 2010.

 

It Wasn’t Supposed to Be This Way

Canada was supposed to be the anti-American success story for middle-class incomes. David Leonhardt and Kevin Quealy wrote in 2014 in the New York Times that Canadians’ middle-class income had equaled Americans’ for the first time, and it spurred a flurry of lefty chin-scratching about how the genteel Canadians had finally surpassed the greedy Americans in economic prosperity.

 

Ian Austen and Leonhardt wrote for the New York Times about how middle-class Canadians were richer because of labor unions, government health care, stronger family values, and lower income inequality. “Young Canadian adults, for example, are now more educated than their American peers,” they wrote, which, if it was determinative, should mean that Canadians are even richer ten years on as returns from greater education compounded.

 

“How Did Canada’s Middle Class Get So Rich?” asked a headline on a 2014 piece by Derek Thompson in the Atlantic. Part of the answer was a housing-price boom that made middle-class homeowners richer but has now turned Canada into one of the most expensive places on earth to buy a house. Thompson’s overall takeaway was: “Canada is a modern, energy-rich country (with more open doors to high-skilled immigration) whose riches are better shared between the upper- and middle-classes — and this has been to its credit for decades.”

 

At the Brookings Institution, Richard Reeves and Pete Rodrigue asked in a 2014 article, “Has the American Dream Moved to Canada?” They wrote, “Canadians have not only enjoyed more broadly shared income growth; they’ve also seen more movement up and down the economic ladder.”

 

A 2014 Salon article by Edward McClelland was headlined “America’s middle-class defeat: How Canada shamed the wealthiest nation on earth.” He wrote, “Losing the middle-class crown is a blow to our self-image as the Land of Opportunity, and the surest sign that the Great Recession and the Great Divergence have permanently altered our nation’s character.” Canada was wealthier because it never had slavery, he wrote, and he quoted progressive activist Rick Smith as saying, “The conservative movement in the States has been more successful in creating a low-wage economy.”

 

Writing in the Guardian, Suzanne McGee praised the original New York Times story for using median-income data: “Instead of being distorted by the impact of millionaires and billionaires becoming still richer and the wealth gap becoming still wider, using this data gives analysts a sense of the experience of the average household in any given country.” (The Fraser Institute’s data are also median data and therefore are also not affected by wealthy outliers.) In the U.S., incomes were “flatlining,” she wrote, and “in contrast to European nations and Canada, the government plays very little role in redistributing income.”

 

All of these articles were written in 2014, and that’s because they had to be. As Scott Winship of the American Enterprise Institute has pointed out, 2014 was the only year when U.S. and Canadian median income were the same. Canada’s had been growing faster since roughly 2000, but once the gap was closed, U.S. median income began to take off the next year and hasn’t looked back.

 

That year, 2015, was when Prime Minister Justin Trudeau and the Liberal Party took power in Canada, where they have been without interruption ever since. Election results do not determine economic outcomes, but Canada’s falling behind the U.S. is likely a big part of the reason that the Conservative Party of Canada is polling at record-high levels of support right now.

 

It is doing so under the leadership of Pierre Poilievre, who is campaigning on free markets, fiscal responsibility, and tax reform. On the floor of the House of Commons, Poilievre cited a recent Economist article on Canada’s decline in GDP per capita relative to the U.S. that concluded, “Catching up to Alabama may soon seem like a distant dream.” He’s tough on crime and immigration, and he wants to make it easier to build more housing. He’s also anti-woke and attacks left-wing media bias, which is at least as bad in Canada as it is in the U.S.

 

It’s not as though the U.S. has been maximizing its economic growth potential or minimizing government. Our onerous regulatory burden, aging population, massive budget deficits, and policy acquiescence to labor unions and environmentalist groups make us far from a pro-growth utopia. Yet even with those weights, the U.S. has still managed to pull away from Canada, not only in top-performing corporations and billionaires, but in median earnings.

 

The media were telling us ten years ago that Canada had figured out economics for the middle class. After nine consecutive years of left-wing government, every Canadian province has lower median earnings than every U.S. state. Maybe it’s time to give free markets and limited government a try.