What the numbers tell us
In November 2019, Canada’s Prime Minister Justin Trudeau appointed MP Mona Fortier to the post of Minister of Middle-class Prosperity. No such ministry has ever existed before.
During her first press conference, the Minister was asked for her definition of the middle class. Her response is summarized in the headline of a report by CTV News:
“Middle class prosperity minister says Canada can’t measure who is in the middle class.”
This answer implies the existence of a serious problem for her and the government since it is impossible to adopt policies to serve people whose identity is not known.
It is a puzzle why this problem exists since there are several standard definitions of the middle class used by statisticians and governments around the world. The first considers families to be members of the middle class if they earn incomes falling within a specific range of dollar incomes such as $30 thousand and $50 thousand. Government census and other data readily allow calculation of the number of families in the group and their average incomes.
This approach provides useful information about conditions at a moment in time, but it cannot be used for the design of policies over time. The reason for this problem is discussed by Thomas Sowell, who shows that increases in incomes due to inflation or real gains in income normally experienced by all citizens of Western democracies will necessarily decrease the number and average incomes of families in the range of previously specified absolute incomes. An income of $30 thousand may have been a decent, middle-class income in 1970, but is not in 2020.
A second definition allows the creation of useful information through time by making the range of middle-class income a function of its distribution. For example, it considers families to have middle-class incomes if they are in the middle three quintiles of the distribution or, in other words, have incomes that are neither in the lowest or highest twenty percent and therefore are neither “poor” nor “rich”. Under this definition the number and average incomes of families in the middle class keep up with economy-wide increases in prices and real income and provide information needed to deal with any perceived problems affecting the middle class.
A third definition provides the same benefits as the second but is more in tune with the current concern of politicians and governments with poverty and the incomes of the highest income earners. It has been used by the Organization for Economic Co-operation and Development (OECD), “which defines a member of the middle class as anyone who earns between 75 per cent and 200 per cent of median household income after tax. Based on the most recent data available from Statistics Canada, in this country that means anywhere from about $45,000 to $120,000.”
It might reasonably be expected that the government of Canada’s statistical office has access to the basic statistics needed to calculate the incomes and numbers of the middle class based on the last two definitions just discussed.
However, Trudeau’s government has failed to do so for unknown reasons. Whatever they may be, they have forced two of its ministers to come up with the following strange statements:
Bill Morneau, the Minister of Finance said in the House of Commons on January 30, 2017:
“The Government of Canada defines the middle class using a broader set of characteristics than merely income…Middle-class values are values that are common to most Canadians and from all backgrounds: they believe in working hard to get ahead and hope for a better future for their children…they aspire adequate housing and health care, educational opportunities for their children, a secure retirement, job security and modest spending on leisure pursuits.”
Mona Fortier, the Minister of Middle-class Prosperity in her first press conference said:
“Well, I define the middle class where people feel that they can afford their way of life. They have quality of life. And they can … send their kids to play hockey or even have different activities.
“It’s having the cost of living where you can do what you want with your family. So, I think that it’s really important that we look at, how do we make our lives more affordable now?”
These characteristics of the middle class spelled out by the two ministers are common to all Canadians who, without exception, want a better future for their children, aspire to adequate housing and so on. So, why appoint a minister with a big staff, high salary, big office and limousine, and charge her with improving the prosperity of all Canadians, which is the same as the professed goal of all members of the current Liberal and that of all preceding governments of Canada?
Is it possible that the conventional, empirical measures show that the middle class in Canada has done well and that the Liberals’ slogans about the need to help suffering middle-class families used during the last two federal elections are inconsistent with the facts?
Herbert Grubel is Emeritus Professor of Economics at Simon Fraser University, and a Senior Fellow at The Fraser Institute.