At least temporarily, government support measures in response to the Covid-19 pandemic helped narrow income inequality in Canada, as the lowest income households benefited most, according to a new report from Statistics Canada.
The national statistical agency reported that disposable income for the lowest income households rose most significantly over the first three quarters of 2020.
“Although the everyday experiences of particular households may have differed, on average, the gap in household disposable income between the lowest and highest income earners declined in 2020,” StatsCan said.
The lowest 20% of households in terms of income saw their share of disposable income rise from 6.1% in the first quarter to 7.2% in the second quarter of 2020, it reported.
Over the same time frame, households in the highest 20% saw their share of income decline from 40.1% to 37.7%.
StatsCan said the shift in income distribution came as government support measures exceeded lost income.
Had the federal government not introduced those support measures, overall household disposable income would have dropped by 3.6% in the second quarter, StatsCan said.
“The largest declines would have occurred for middle- and lower-income earners, as well as younger households,” it said.
Instead, the agency found that, as the economy began recovering in the third quarter of 2020, lower-income households largely held on to their gains from the second quarter, while high-income households experienced “relatively muted gains” in their disposable income in Q3.
In dollar terms, middle-income households gained the most from the government support measures, StatsCan reported. “On average they gained roughly $2,500 more [in government supports] than they lost [to decreased wages and self-employment income],” it said.
Yet, the effect of the supports was most meaningful for lower-income households.
“Although a larger proportion of the total value of government Covid-19 support measures went to middle- and upper-income earners and middle-aged households, the impact of the benefits was greater for lower-income and younger households,” StatsCan reported.
For the lowest income households, government support measures accounted for 16.4% of disposable income in the first three quarters of 2020, compared with 4.3% for the highest income households.
Additionally, the lowest income households saw the strongest increase in their net worth in 2020, StatsCan reported.
Household wealth for the lowest 20% of income earners rose by 6.3% (in the third quarter of 2020 relative to 2019), compared with 4.8% for the highest income households.
“Gains in net worth for the lowest income households occurred as increases in the value of their real estate holdings outweighed increases in the value of mortgage debt acquisitions, while they reduced their non-mortgage debt balances more than higher-income households,” StatsCan said.
Indeed, non-mortgage debt declined by 1.8% on average for low-income households in the third quarter, whereas for high-income households, debt declined by an average 1%.
For high-income households, financial market volatility was a bigger driver of wealth shifts in 2020, StatsCan noted.