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Advantage for Whom?

Declining Family Incomes in a Growing Alberta Economy

Executive summary

Advantage for Whom?

This report is an analysis of Albertans’ family incomes during the 1990s. It compares the incomes of Alberta families at all income levels, examines the income gap between the richest and poorest of families, and discusses the escalating stress that Alberta families face as they attempt to maintain their standard of living in an increasingly competitive market place.

In addition, Advantage for Whom? challenges certain assumptions behind Alberta’s current economic policy - does a growing GDP, low government spending, and a flatter tax structure really benefit Alberta families? If Alberta families are not benefiting from the Alberta Advantage, who is?

Most of the data used in Advantage for Whom? was originally compiled by Statistics Canada for the Centre for Social Justice and was used in their publications The Growing Gap and Canada’s Great Divide (Yalnizyan, 1998, 2000). Families are divided into 10 equal groups from lowest income to highest income. Each group is called a decile and includes 10 percent of the families in Alberta. Those in decile 1 are the poorest 10 percent of families; those in decile 10 are the richest 10 percent of families. Most of the income amounts cited in this report reflect the average income of families in each decile. All amounts are in constant 1997 dollars.

Income is defined in two ways. “Market income” refers to everything that a family earns as a result of their activities in the marketplace - all of their earnings from wages, salaries, selfemployment, and investments. “After-tax income” is a more comprehensive way of looking at families’ total income. It includes the total of a family’s market income plus any income received from government transfer programs such as employment insurance, child tax benefits, social assistance, etc. Income taxes paid are deducted from the total family income. The resulting amount represents Alberta families’ real income - the cash they have to provide for their shelter, food, clothing, transportation, and other needs.

Since 1981, Alberta families at all income levels have experienced a great deal of fluctuation in their market incomes. While there has been some recovery during the latter part of this decade, market incomes have still not returned to their 1981 levels. In 1997, market incomes for families in decile 1 were approximately 62 percent of their 1981 high. Families in the third lowest decile in 1997 had market incomes that were approximately 85 percent of their 1981 levels, and families in the fifth lowest income decile had incomes that were approximately 92 percent of 1981 income levels.

Cuts to taxation and spending on social programs are doing little to redistribute income in Alberta. In spite of the economic boom of the 1990s, the gap between rich and poor in Alberta has grown since 1981. In 1981, the richest 10 percent of Alberta families had market incomes 14.2 times higher than the poorest 10 percent. In 1997, the richest 10 percent had market incomes 22 times higher than the poorest 10 percent. While this market income gap is smaller than in any other province in Canada, Alberta’s gap in after-tax incomes was the third highest in the country - the richest 10 percent of families had after-tax incomes of 6.96 times those of the poorest 10 percent of families. Poor families are now relying on market forces for a greater and greater proportion of their income.

There is no evidence to support the assumption that an ever-increasing GDP will result in a better standard of living for families. There is no discernable correlation between fluctuations in GDP and in the market incomes of families at any income level. For example, if wages had kept pace with GDP, a family earning the decile 3 average of $30,164 in 1990 would have had an after tax income of $41,585 in 1997. In fact, the average after-tax income for these families was $32,494. Similarly, if GDP were a real indicator of prosperity for average families, families in decile 5 would have had an after-tax income of $57,550 in 1997, 35.7 percent higher than their actual average of $42,397. In fact, the average after-tax income for families in all deciles has not grown at all during the last two decades.

Finally, the implementation of Alberta’s new “flat tax” structure in 2001 can only exacerbate income disparities in the province. The wealthiest Albertan taxpayers will benefit most from the tax cuts, while middle-income families will pay a greater proportion of the total tax revenues.

Therefore, one can only conclude that the much-touted Alberta Advantage is an advantage for the wealthy at the expense of low and middle-income families.

Patricia Lawrence

Patricia Lawrence has first-hand experience with several social issues - as a farm woman, she has raised children while living in poverty; seeing education as a solution to her family’s financial difficulties, she returned to school at the age of 30 and obtained a bachelor’s degree in psychology and English. She has worked in human services in municipalities and non-profit organizations.

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