‘Something Is Not Working Here’ – “The median after-tax income for families of two or more people in B.C. have remained unchanged at about $67,000.”

“The median after-tax income for families of two or more people in B.C. remained unchanged between 2008, 2009 and 2010, after adjusting for inflation, said Wendy Pyper, analyst at Statistics Canada. There was a slight increase between 2007 and 2008, from $66,400 to $69,900, but since then incomes have remained unchanged at about $67,000.”

“Something is not working here [in the Canadian economy], this is not a positive report,” said Benjamin Tal of CIBC World Markets.

Canadians are spending beyond their means and it’s starting to catch up with them, said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc. “It’s going to be even more of a problem if they continue these behaviours if their incomes are not rising,” Schwartz said. “If we see everything else go up in price, then they’re going to have trouble affording much of anything. It’s really important for Canadians to get their spending in order and reduce their debt.”
– from ‘Despite economic growth and job gains, family incomes remain stagnant’, Vancouver Sun, 18 Jun 2012

Housing prices ultimately follow incomes; if they go through a period of decoupling from rates of income growth, they will eventually reconcile. – vreaa

37 responses to “‘Something Is Not Working Here’ – “The median after-tax income for families of two or more people in B.C. have remained unchanged at about $67,000.”

  1. “It’s really important for Canadians to get their spending in order and reduce their debt.” ~~ J.Schwartz
    ————————-
    He is right. It is important too. Thats the pickle we face because as the stresses from a combination of falling asset prices, reduced access to easy credit and low levels of savings combine together we will see the results show up in declining consumption numbers. Canadians will suck in their guts and tough it out. Good for the banks but dangerous for much of the rest of the economy that delivers all the goods and services we need. And this is how unemployment comes in through the backdoor as an outcome of speculative real estate forces.

  2. The key phrase here is “after tax”.

    • Because Canadians are taxed so much more than Americans. My friend in California can attest this is not always the case.

      • Anonymouse

        What does California have to do with it? From the article:

        “Growth in household disposable income slowed in the quarter as a result of a decline in household investment income and an increase in personal income taxes and other social contributions”

        So the suggestion is that after-tax incomes are standing still because the %age taken by the government is increasing. I didn’t suggest that the absolute rate was higher than anywhere else.

    • I’ve got a comment in moderation, but I have some questions about whether that “after tax” statement is actually a mistake, based on the public data, the published methodology, and the marginal tax rates. I’ve written to Statscan to clarify.

  3. *After tax* median of $67K for a family? That seems weird to me, although it’s coming from a Stats Can analyst and I assume she knows what she’s talking about. The website has approximately that number for median total income for a census family (http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm), but it certainly looks like a gross income.

    On the CANSIM table, the footnote says: “Family income is the sum of the incomes of all members of the family”. Following to definitions, it clarifies they’re using T1, T4, and Child Benefit info in the calculation.

    It doesn’t clearly say gross or pre-tax income, but it also doesn’t clearly say after-tax income, either.

    I’ll write them a questioning note.

    • Actually, given the methodology explained at Statscan I’d be surprised if it is after tax. They’re using T1/T4/CB data, and source deductions are often incorrect; there are refunds or balances owing. So without adjusting for that you’d have pretty weird numbers. Anyway, I’ve sent an email. (I see my previous comment is in moderation for links… it’ll be weird if my reply to myself shows up, before the original!)

  4. I am wondering why there is no data from 2011…If the incomes started to catch with the spending, it would easy the future housing bubble resolution, but the recent moves in the immigration policies simplifying the import of the workforce from abroad interfere with it providing an access to a cheaper labor supply for the businesses and less initiative to incearse the vages. Not the right move for the govrnment pursuing the soft landing scenario.

    • The pressure you are seeing to lower wages and keep the country competitive against a backdrop of the rise of the developing nations is a very long term strategy. It is a deliberate strategy too and one that carries on day by day throughout North America, Japan, Europe and all the very developed countries.

      I would go further and suggest that the reason our collective economies never rebounded after the last deep recession is partly because of the forces of wealth redistribution and this has sapped some of the strength that policy level stimulants were meant to address.

      There is significant leakage abroad where intervention is concerned.

      It is not a pleasant process and it will hurt households incrementally as it progresses but in my estimation it is essential or we risk a massive correction and falling revenues down the road. We face being toppled by the forces of cheap labour and so there is no option but to act. It cannot ultimately be contained though.

      The mechanism chosen is to slowly balance the differential over time but it means incomes here will deflate in real terms. This is a balancing act to keep our standards high yet still remain in the game. Something had to give and that something will show up as downward pressures on incomes as just one single example.

      I hope you can appreciate how we all need to modify our thinking to cope with the competition we face from very low wage jurisdictions. We all know intuitively that the vast differences in compensation between Canadians and those in poorer countries are not permanent and sustainable in this new globalized economy.

      Just look at the simple facts. “Those people” have educations that are often our equal and sometimes better. Low wage countries as a result are able to attract much more than simple manufacturing and labour type jobs. The truth is that wage arbitrage has meant that professional positions are equally as vulnerable and the advent of broadband communications spanning the globe has brought highly skilled, well educated, cheap labour right to our doorstep. Engineers, archictects and accountants are all threatened.

      Checkmate. There is no way out of this pickle.

      In the meantime, policies designed to educate the masses of people in North America and Europe mean that there are multiple candidates for even the most specialized of positions. Supply exceeds demand…just ask any PHD. This effect will certainly drive down wage costs and this is its intention (although most people cannot believe any policy would be so deliberate as to cut incomes even while delivering benefits of excellent educations).

      Let me assure you, that is exactly what is being done.

      • Now that we have to buy our Bombardier Skidoos from Mexico… Will the Mariachis & Caballeros be obliged to buy our Sombreros?…

        Hint: No. Worse, they don’t even like MapleSyrup. Who is the world’s WealthiestMan? What are the origins of his Croesus like stash?…

        Transnational capital is no longer bound by spatial/temporal constraints, Farmer… (or subject to any constraints, in practical terms)…

        However, as the Gini approaches 1 economics becomes the NewPolitics… and what is the continuation of politics by other means?…

      • So true Nem. It is the free flow of capital that cannot be controlled that is giving some people nightmares. Nothing is really sacred. Loyalty is just a thin veneer and only goes as deep as mutual agreements for benefits.

        Kind of like sex with strangers in a bar, I suppose.

  5. Of which (for Canada) from 1981 to 2011, average hourly wages increased by 17% among men aged 45 to 54 and by only 1% among men aged 25 to 34. http://www.statcan.gc.ca/pub/11-626-x/11-626-x2012008-eng.htm

    Repeat.. 1% real wage increase.

    • Exactly, Watchdog. And as the Boomers retire we will eventually see a very noticable average income reductions over the years. We may even see real incomes in decline for that 25 to 34 age group in the future.

      The good old days are gone.

    • Wage increase of 25-34s from 1998-2011 was higher. Interesting…

  6. Ah I was wondering why those bond rates were so low. Maybe not so free a lunch after all.

    The CPC has a policy of bringing in temp workers from abroad as well as siding with management in labour disputes of late. The two policies and low wage inflation are not entirely unrelated. Tal’s comments are odd, it’s not like this is a shock to anyone breaking down core CPI into its constituents.

    • Yep. And core CPI doesn’t include food and energy prices; as if people don’t eat and commute to work. I flipped out on StatsCan on Twitter earlier this week when I was going through average prices and calculated that almost half the items in the basket are up by 40% over the last four years; toothpaste up 86% http://postimage.org/image/7b39ui99f/

      People are working harder and getting nowhere because currencies are falling against hard assets and commodities. Let’s see if Bernanke prints another round of QE tomorrow. Carney to follow as told by the Fed.

    • The temporary foreign workers program is an outlet that is chosen as an alternative to outright expanding immigration numbers. We do need the influx of younger blood, Jesse, due to the rapidly aging population. What we don’t want to do is commit as the future is uncertain. The program is not as crazy as it seems.

      • TFWs are a way of quickly reacting to job growth, the side effect is that wages are lower. Whether or not that’s a good thing is another question; my point is that the policy in and of itself reduces CPI.

      • No. We do not need more immigrants. What is needed is better skilled workers and more entrepreneurs who can produce more goods and services for the economy. Instead, we have i) immigrants taking low wage jobs and borrowing more then they earn, creating more money supply chasing less goods and services (inflation) ii) immigrants taking up public services and health care jobs that should be going to Canadians ii) elderly immigrants who retire here using up our resources and free health care, putting more of a debt burden on the younger generation.

        Our system is highly inefficient and only designed to redistribute wealth from the taxpayer to the wage earner, or in better terms, from you to another.

      • Not sure what you mean by reducing CPI, Jesse. How is that affected by the TFW program? You might need to be more specific for me. I think it is late…..getting tired.

      • Farmer, absent TFWs firms would need to increase wages to attract resident workers. That would put upwards pressure on wages and through it increased CPI growth. At least that’s my first pass. Maybe I’ve got it wrong and TFWs make business ventures viable that would otherwise not be started and that does something opposite.

      • “No. We do not need more immigrants”.

        this is completely opposite our Gov’t position. They’re planning on increasing immigration level cap from 250K/year to 350K.

    • “Ah I was wondering why those bond rates were so low. Maybe not so free a lunch after all.” – Dr. J

      Nope, ain’t no FreeLunch anywhere [although HogTown’s WheatSheaf did once experiment with the concept]. Never mind all that though, cause UncleBen’s got a new SummerDanceCraze in store for us!

  7. Relaxed & Happy Islander

    There’s some interesting reading on the money page @ http://www.msn.ca (sorry unable to add links here):
    – Gen Y dominates luxury spending (an Amex trend report)
    – Worst home buying mistakes (Realtor Patricia Houlihan: …Who cares if the market goes down. It always goes up higher…)
    -Will housing boom end? (Reuters poll)

  8. I hate to say it, but it is time to dial back globalisation.

    That is the only way to prevent rich countries’ workers from becoming impoverished and to prevent developing countries from destroying their natural environments.

    But the first thing that must be done is restrain Financial entities from extracting the wealth of the world.

    • Too late, Robert. This has been in motion for two decades and it has plenty of momentum.

      • Has globalization not been in motion since the beginning of humankind?

      • Not like this, Ninja. I get my veggies fresh from China at the local market all winter long. Bok Choy is not expensive either. Same with Snow Peas and all the exotics…..but you have to just stop and think about it for a minute. This food is almost all shipped in by sea in chilled containers that take 4 to 6 weeks to arrive. When it gets here the food is still priced competitivly to local production and its damn good (even crispy).

        We have never seen anything like this in the history of the world. And it all depends on cheap energy to keep working. Which begs the question….are we creating vulnerabilities in our food supply network that could be badly exposed if energy were to spike significantly? Are we too dependant on Mexico, California and Florida for our essential supplies?

      • Farmer,
        Eat food from China at your own peril.
        Long live the ALR

      • Indeed. Long live the ALR. One of the best ideas ever.

        Cheers, Formula

  9. These are average (not median) so they are biased up. But they are definitely pre-tax (and adjusted for inflation). Two earner families.
    http://www5.statcan.gc.ca/cansim/a26
    British Columbia Vancouver Victoria
    2006: 86,600 96,200 88,800
    2007: 90,500 100,400 98,300
    2008: 92,700 98,400 95,700
    2009: 90,200 94,100 103,200
    2010: 90,700 95,900 96,200

  10. I don’t like bs like: getting spending their consumer spendings under control.

    Look at food prices, Translink, BC Ferries, MSP, HST, Property taxes, Carbon tax, EI, rent.

    How about their price raises under control? How about that?

  11. again…cap the amount of HELOC on each home at 50K and you completely solve the debt dilemma. Easy fix if you ask me.

  12. I heard back from StatsCan. The “Incomes in Canada” report used in the Sun are, s’posedly, “after-tax income” all in 2010 dollars and the Census data s’posedly total income – pre-tax or gross.

    Which means that in 2010 dollars, the median BC family of two or more people made, after tax, $67,000. But in 2011 dollars, the median BC Census family made (gross), about $66,700.

    The difference (which, tax wise, should be 5 to 20K-ish depending on who is earning what and what deductions are involved) – must, I think, be in their definition of family.

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