On July 13, Statistics Canada released census data on Canada’s income profile for 2020. The data show that average Alberta households and individuals continued to earn more than their national compatriots, but the gap is closing.Alberta households and individuals continue to earn more than the rest of the country, but that gap is closing. In this #QuickRead, @BizCouncilAB looks at income trends since 2015, and what they mean for Albertans. Click to Share
In this Quick Read, we’re taking a look at Alberta’s after-tax income compared to the rest of Canada, and how government pandemic supports and broader economic conditions have contributed to income trends since 2015.
Household incomes—the crown and the missing jewels
Rather than focusing on averages which can be distorted by a small number of very high income-earners, we consider the status of the median household—the one right in the middle with half of other households making more, and the other half making less.
Alberta’s median after-tax household income was $83,000 in 2020. This remains the highest among provinces and is 4.2% higher than in Ontario, Canada’s second-highest province ($79,500).
Alberta’s median income is higher than elsewhere in Canada for two reasons: we have proportionately fewer households at the lower end of the income distribution, and we have more at the higher end. In fact, Alberta has almost as many households earning more than $150,000 as Quebec, even though Quebec has 2.3 times as many total households.
However, Alberta was one of only two provinces to see median household income fall from 2015 to 2020—by 4.8%. Combined with median income gains in other provinces, the gap between Alberta and rest of Canada has shrunk considerably. In 2015, household income in Alberta was 23.6% above the Canadian average and 18.4% higher than the next closest province. By 2020, those gaps had shrunk to 12.0% and 4.2%, respectively.
Explaining the gap: Income distribution provides clues
One of the biggest changes over that time was a large drop in the share of adults earning less than $20,000 after taxes and a corresponding jump in the next highest income category. This trend holds true across Canada but was more pronounced outside Alberta.
Alberta also stands out at the opposite end of the spectrum. The number and proportion of people earning over $80,000 fell in Alberta while it rose in the rest of the country. In other words, income gains across Canada came from a large drop in the number of low-income individuals. Meanwhile in Alberta, that positive trend was more than offset by a loss of high-income earners. So, what’s driving these trends?
Two of the most significant dynamics impacting incomes during the 2015-2020 period were the pandemic and the commodity price downturn from mid-2014 to 2020.
The pandemic’s impact on lower-income individuals
We can’t discuss 2020 income trends without discussing COVID-19. Statistics Canada data show that Canadians’ median after-tax market income for adults—total income minus government transfers—decreased by 4.3% in 2020 compared to pre-pandemic. However, Canada’s median income still rose by 4.5% in large part because government transfers to individuals more than doubled from a median of $4,240 in 2019 to $9,800 in 2020. Individuals in Alberta likewise saw a substantial increase in median government transfers to individuals (+$6,680 above 2019 levels), even as household incomes fell.
Commodity price downturn
These government transfers, however, could not overcome the combined impact that the pandemic and several years of low commodity prices had on Alberta. Employment in the high-paying oil and gas sector decreased substantially after 2015 as low oil prices pushed the industry to become more efficient. So even as the population grew, the number of people earning high incomes actually fell.
The District of Wood Buffalo, home of the Athabasca oil sands, exemplifies this impact. Here, median after-tax individual incomes fell by 12.5% from 2015 to 2020, and the number of people earning six figures fell by 17.7%.
Canadian realities have changed significantly since 2020. The pandemic is no longer shutting down large swaths of our economy and commodity prices have rebounded strongly. Pandemic benefits have wound down across the nation, and high energy prices are spurring economic activity again in Alberta, even if not to the same degree as in the pre-2014 commodity price boom.
The real question is whether all this will translate into income gains in Alberta, or whether recent wage growth will continue to lag other provinces. Alberta is still the best place in Canada to earn a good living. That gap has closed recently; it remains to be seen whether our current economic good fortune will reverse that trend or not.
Dylan Kelso, Policy Analyst