Wealth Inequality: A Long-Term View

By: Livio Di Matteo, Professor of Economics, Lakehead University

The distribution of wealth in Canada is a hot topic, yet longer term trends are not frequently discussed. Piecing together many studies shows that the wealth share of the top one percent, stable over most of the post-war era, may again be increasing. A broader view however shows there have been gains for the middle class and decreasing shares of wealth for the top ten percent.

Inequality between rich and poor is a key issue for policy-makers and the general public alike. Economists have typically measured inequality by examining dispersion in annual incomes, a natural measure of economic wellbeing of families. But, lately, inequality in wealth rather than incomes has attracted considerable attention too.

Wealth is the stock of resources an individual owns, as opposed to the flow of value represented by income.

Wealth matters, not only because it can finance future consumption for the owner, but also because it is a source of economic security, economic power, and social status.   As such, trends in wealth inequality may be as important or even more important than those around income inequality.

So how is wealth distributed in Canadian society, and how is this changing?

The top one per cent

A recent report from the Parliamentary Budget Office estimates the share of wealth owned by the wealthiest one per cent of Canadian families. By the PBO’s estimate, the top one per cent of the wealth distribution owns 25.6 per cent of Canada’s wealth.

But what of the longer-term trends? We can learn more by piecing together the evidence from a series of studies performed over the past few decades on Canadian wealth inequality.[1]

Figure 1 shows the estimated share of all wealth held by the top one per cent of Canadians from 1872 to 2016.[2]

In the earliest years of Confederation, the top one per cent held approximately 10 per cent of all wealth. The decades immediately following saw this share increase to more than 20 per cent. Since then however, the wealth share of the top one per cent has been relatively consistent.

Figure 1: The wealth share of the top one percent over time.

The figure shows that the wealth share held by the top one per cent has remained approximately constant since the end of the industrialization and wheat boom era (1986-1914). There is, however, some evidence that the share of wealth held by the top one per cent has once again started to increase further. Specifically, recent estimates by Davies and Di Matteo (2020)[3] put the current wealth share of the top one per cent at nearly 30 per cent of Canada’s wealth.

In summary, the share of wealth held by the top one percent of Canadians increased quickly in the years immediately following Confederation, and then remained essentially flat over the course of several decades. Recent research suggests the top one per cent’s wealth share may once again be increasing, but we will only know with time if this is a short-term variation or the beginning of a new upward trend

The rest of the distribution

Much popular discourse and academic research focuses on the very top end of the economic distribution. However, if we take a broader view of developments in the top half of the wealth distribution in recent decades, a different story emerges. Di Matteo (2016)[4] shows that as the twentieth century has progressed, there has been a shift in wealth distribution that saw the wealth share of the top ten per cent decline from about 75 percent to as low as 50 percent while that of the next 40 per cent has increased from 20 percent to 40 percent .  

The “Great Levelling” of the post-war era therefore saw an increase in the wealth share of the “middle” classes – those in the 4 deciles above the median. This on its own represents a substantial historical achievement in terms of increasing economic security by creating broader wealth holding.

The “good news” story for the top half of the income distribution, however, is coupled with a “bad news” story when we look at the bottom half of the wealth distribution.  In terms of its share of Canada’s wealth, the bottom fifty per cent has made essentially no progress, with their share since the 19th century never exceeding 10 per cent.  Indeed, the recent PBO report estimated the wealth share of the bottom 40 percent in 2016  at 1.2 percent of wealth.

The sustained lack of progress for the bottom half of the wealth distribution is disconcerting. For several decades now, Canada has maintained a reasonably comprehensive redistributive state with income security programs, child support payments and credits, subsidized university education, public health care, and other assorted public goods and infrastructure. One would expect that, over time, human capital would rise, earnings enhanced, and wealth flow down to those at the lower end of the wealth distribution. While everyone is richer in absolute terms because of rising real income and wealth, the relative shares of the bottom 50 percent have not improved.  It would appear that the poor are still with us.

The dynamics of wealth is a complex phenomenon, reflecting far more than just individual accumulation decisions. Broader economic changes like war, globalization, technological progress, and even property booms create winners and losers, with the balance between these sides driving changes in inequality. 

We don’t know enough yet about which of these factors are driving this persistence of inequality –  although intergenerational transmission of values and attitudes toward human capital, saving and wealth may be a factors.  Acknowledging this reality is a start in addressing what has been a long-standing and persistent problem.

[1] The data comes from wealth micro-data studies based on probate and assessment roll data, federal estate tax data and survey data compiled by statistics Canada. For more detail, see the references and sources listed below.

[2] Given the variety of geographic jurisdictions and the differences in methodologies and sources used to generate these estimates, a non-parametric data smoothing procedure is adopted to deal with noise and outliers in the data and help illuminate long-term trends. 

[3] Davies, J. and L. Di Matteo (2020) “Long Run Canadian Wealth Inequality in International Context,” Review of Income and Wealth, https://doi.org/10.1111/roiw.12453; 

[4] Di Matteo, L. (2016) “Wealth distribution and the Canadian Middle Class: Historical Evidence and Policy Implications,” Canadian Public Policy, 42 (2), 132-151. SEE ALSO Di Matteo, L.  (2018) The Evolution and Determinants of Wealth Inequality in the North Atlantic Anglosphere, 1668-2013: Push and Pull, Palgrave MacMillan