Mexico’s middle class gaining from economic growth; Canada and the U.S. trailing

An examination of income inequality in North America reveals that Mexico is the only part of the continent where the middle class has been gaining from growth, according to a new study by economist Lars Osberg, Dalhousie University professor and CCPA Research Associate.

Osberg has tracked the rise and fall of income inequality in Canada, Mexico and the U.S., noting Mexico’s middle class has benefited from urbanization, greater female employment, improved education and better social programs.

“Although similar trends in Canada and the U.S. maintained growth in middle class incomes until the 1970s,” Osberg says, “they have since run out of steam. Globalization, technological advances, a drop in unionized work, and a deregulated labour market have contributed to stagnant real incomes for most in Canada and the U.S. since the 1980s.”

Meanwhile, income growth at the top has accelerated in both Canada and the U.S. This combination of stagnant real incomes for most people and a rapid rise of the incomes of the richest 1% in the U.S. and Canada have produced steadily increasing income inequality – to a level that hasn’t been seen since the 1920s.

“Increasing inequality is not a sustainable trend,” Osberg warns. “When those at the top keep amassing income, their growing savings have to go somewhere. For a while, lending to the mortgages of the middle class can prop up GDP growth, but middle class incomes have not been growing, so their consumption is maintained by ever deepening debt.

“When the rising savings of the rich are parked in the financial markets, but everyone else falls deeper into debt, a house of cards is created, producing the kind of economic instability that led to the 1929 financial sector crash and the market meltdown of 2008.”

The path to stability requires either an acceleration of the income growth rate of the bottom 99% or a decline in income growth of the top 1%, Osberg says.

“There is no evidence that purely economic forces will produce either outcome anytime soon in Canada or the U.S. – so any return to stability depends on political economy.”

More information

Instability implications of increasing inequality:

Infographic comparing the Three Amigos: