I have had several conversations with various people since Covid came about regarding the world’s economy and how it has changed. There seems to be a lot of fears that the middle class is disappearing. It wasn’t something I had thought much about before as I’m further along to the retirement road than those who brought this to my attention. With the recent election here in Canada and some beliefs around our current government having a hidden agenda with socialism and some believing there’s even some hints of potential communism, I thought I should sit up, pay attention and find out what is going on with all of this so I can form my own opinion.
I thought I would start with the American viewpoint on this and picked up a book by Richard V. Reeves called Dream Hoarders on How the Upper Middle Class is leaving everyone else in the dust and why that is a problem and what should we do about it. I wanted to see what was happening there and how this relates to Canada and not just the U.S as we are tied closely together. Even though this book was written prior to the pandemic in 2017, it’s still quite relevant to what was happening and now is probably even more heightened.
In 2015 Barrack Obama had put forth a proposal for the budget in the house of commons to remove tax benefits from 529 college savings plans which disproportionately helped affluent families, and use the money to help fund a broader fairer system of tax credits. This made perfect sense, but he had underestimated the Upper Middle Class and immediately after he proposed it, Democrats started gathering in secret to come up with a way to disway the President to remove this from Congress as quite a few of them represent this Upper Middle Class. So, who are these “Upper Middle Class” people and why would this proposal from Obama have negative implications for them? According to Reeves, there are Liberal affluent well-educated districts and over half of the constituents within these districts have 6 figure annual incomes. Ninety percent of tax advantages go to families with income into the top 25 percent of the wealth distribution system. So, we aren’t talking about the wealthy top 1-2% of entrepreneur’s millionaire and billionaires out there, Reeves is talking about the professionals. They are wealthy enough to have influence and numerous enough to be a large voting block. And he believes the upper middle class is leaving the other classes behind. The economic gap is the most obvious sign but it’s happening in other areas as well. As Obama put it, “Inequality is the defining challenge of our time”.
What is interesting with all this divide between the middle and working class and the upper middle class was Trump’s campaign in 2016 tapping into the divide amongst the classes and it was more about class than money. He exuded and validated blue collar supporters who have no problem with the wealthy, in fact they admire them, but it’s the upper middle class they have a problem with. The Journalist, scholars, technocrats, beaurocrats, managers and anyone with letters after their name fit into this upper middle class. According to Reeve who also fits into this class, “they proclaim the net benefits of free trade, technological advances, and immigration safe in the knowledge that they will be among the beneficiaries. Equipped with lots of capital they can flourish in a global economy. The cities they live in are zoned to protect their wealth but deter the unskilled from sharing in it. Professional licensing and an immigration policy tilted toward the low skilled, shield them from the intense market competition, faced by those in non-professional occupation. They proclaim the benefits of free markets but are largely insulated from the risk they can pose”. This is why he feels the middle and lower classes are angry with the upper class and why there is such a divide on so many issues these days.
Reeves is a Britain who came over to the U.S in 2012 to live the American ideal of opportunity and escape the walls created by social class distinctions in the U.K. The American ideal of a classless society was attractive to him but what he found out when he moved over to the U. S is that the class structure is more rigid than the one he left behind and even more noticeable is the upper class. He sees the upper middle class separating from the majority. Inequality begins in childbirth and continues over generations. Reeves believes unfair opportunity hoarding has landed them in this situation. There is a sense of entitlement for this upper class and they bring a whole new perspective to helicopter parents. When it comes to getting their children into the best schools, all they need to do is make a call and it happens by bumping a child onto a waitlist whose parents don’t hold stature. The solution sits with this class but whether they are willing to speak up for a fairer society remains to be seen. I’m sure we’ve all heard the news earlier this year that had 50 people being charged with participating in the college admissions scandal, a scheme involving bribery, money laundering, and document fabrication to unfairly get students admitted to elite colleges. Some of these people were well known Hollywood actors and actresses and it has really put a spotlight onto what Americans are willing to do to get their kids into the best schools.
So here in Canada, does this same divide occur? In Canada, we are divided into upper class (earn at least $100,000 per year and average around $250,000), middle class (earn between $45,000 and $120,000), the working class (earns $19,000 to $45,000) and the lower class (earn $9000 to $18,000). The upper class represent approximately the top 10% of all Canadians and the middle are 58% leaving the lower class at 32%. Politicians in Canada typically go after the middle class holding the largest voting block at 58% and do what they can to grow this class. Paul Vieira noted in the WSJ, that Prime Minister Trudeau formed his campaigns around this class and in 2019 even went so far as being the first leader of an industrialized economy to give the middle class its own cabinet minister – Mona Fortier, the minister of middle-class prosperity. His budget plans have had titles such as “Growing the Middle Class” and “Investing in the Middle Class”. In 2019 his government’s main goal and tourism strategy was to create “good middle-class jobs.” From all I could gather the U.S upper middle class has the attention and favour of the government as the middle class does here in Canada. This may be why Prime Minister Trudeau has been successful in the last 3 elections.
Many economists have warned about the consequences for the global economy from a shrinking middle class. Vieira says that the “financial squeeze on middle-class households is one of the factors economists say have prompted voters in Europe and the U.S to turn toward nationalist politicians who have supported immigration restrictions and protectionist trade policies as remedies”. He goes on to quote Joseph Stiglitz, a Nobel Prize-winning economist who wrote in a paper on the topic in 2019, “Unless we change the script, these patterns will continue – or worsen”. Vieira notes, “The Organization for Economic Cooperation and Development and the middle class in its member countries is shrinking as many households slip into lower-income classes. It cites stagnant income growth, the rising cost of housing and education, and the negative impact of technology on labor markets as contributing factors”. The Financial Post notes that, “People feel like they are working harder and not getting ahead. Wages are staying stagnant, but the cost of living is still increasing”. More middle-class people are moving down into lower class as they struggle to keep full time work in an economy that has dwindled in what use to provide flourishing jobs. The middle class used to be an aspiration. For many generations, it meant the assurance of living in a comfortable house and affording a rewarding lifestyle. Now with less stability, it leaves a damper on hope for the next generations behind the baby boomers.
According to the Organization for Economic Cooperation and Development (OECD) website, Millennials are slightly less likely to be in the middle class than previous generations (approx. 10% less) and Generation Z is almost certain to have even fewer people meet the standard. Gabriela Ramos, OECD chief of staff reported that, “Societies with a strong middle class, have lower crime rates, they enjoy higher levels of trust and life satisfaction. The middle class, in a sense, is the immune system of modern democratic societies: weakening it weakens us all”. Max Fawcett wrote an article for The Walrus on all of this. He says, “What we need is an idea of the middle class that aligns with the technological social and financial realities of our time. This means understanding that we don’t all have to live in major cities or near our workplaces anymore: as the pandemic has shown, technology can make it possible to move from places that are overpriced or overcrowded. It means understanding that atomized households can lead fragile family structures and that we may need to extend our sense of community by welcoming different generations into the same spaces, which will not only stretch our money further but also leave us more connected. And it means understanding that the current generations will likely live longer than any in history and we should plan accordingly”.
A report called “Under Pressure: The Squeezed Middle Class, says that Canada has fewer middle class and more poor-income class than the OECD average. The report mentions that the problem gets worse for each generation. Millennials are significantly less likely to be middle class than previous generations. They face precarious employment in an increasingly gig economy (more short-term contracts and freelancing than full time jobs) and skyrocketing housing costs that eat up an average of 29 per cent of household income. In Canada, one in five current middle-income jobs are at high risk of automations says the OECD. The OECD says governments and policy makers need a comprehensive action plan, including policies that encourage affordable housing, an investment in vocational training, and social insurance and collective bargaining for the increasing number of part-time, temporary and self-employed workers.
For myself, with adult children who are of the Millennial and Generation Z generations, I have seen the decline in what post- secondary education has landed them for jobs and it is a lot less then it was when I was their age. I have seen them struggle and hold multiple jobs leaving them with little social time. There is not the hope of what the future can hold from so many I speak with from these generations either. That is taking a toll on us as a Country and the divide is becoming greater and greater. Back in January 2020, a new report was released by the Basic Income Canada Network that laid out 3 options to eliminate poverty and support the middle class and reduce the gap between the rich and poor. This report explored the option of introducing an annual basic income of $22,000. It would be an unconditional stipend for adults over 18 and would come at a price tag of $134 Billion and $637 billion depending on the three different options. Everyone would be impacted as it would change the tax system and although some would take a hit, it would result in a tax system that is fairer, more transparent and easier to understand, the report argues.
The report’s co-author Sheila Regehr, chair of the network, says, “All this money goes back to all Canadians in a fairer, more transparent way through a basic income that is better for everyone and the economy. Downstream savings in public health and criminal justice as well as increased economic productivity due to a basic income could help offset the cost”. The report says that the argument may be difficult to sell politically as recent policy proposals have demonstrated, proposing even minor variances to OAS/GIS can create a public backlash. Regehr says people should consider what is more important. “Would we rather have tax breaks for wealthy Canadians, or dignity and security for low income Canadians and middle class? I don’t even know what middle class means anymore, because without security, where does that sense of middle class come from?” Laurie Monsebraaten a Social Justice Reporter wrote in the The Star about all this. Her article talks about various pilot projects around a basic income model that never got the chance to be completed due to different governments coming in part way through and shutting it all down, but the report shows it works. Monsebraaten interviews Evelyn Forget, a University of Manitoba professor who says, “Another knock against basic income is that it gives people money but what this report also shows is that we give people free money all the time through the tax system in ways that aren’t really efficient. We say we want to do something about poverty. And yet we give away $122 Billion worth of tax expenditures every year to people who aren’t anywhere close to the poverty line. This report says it’s time to have that conversation”. It defines basic income as “an unconditional cash transfer from government to individuals to enable everyone to meet their basic needs, participate in society and live with dignity regardless of work status. The three options tested in the report aim to reduce inequality; prevent poverty; provide everyone with greater income security, including middle-income earners; and “ensure the wealthiest individuals and corporations contribute their fair share”. The report also says, “While all this is well and good intended ideas, it will require policy changes – governments need to make income taxes more progressive and fair”.
In my recent travels, I have had conversations with some people who feel when the younger generations are complaining about the bleak future and wanting the government to do more, I think the tone moves toward feeling these younger folks are not wanting to work as hard as the baby boomers and Gen Xers did but the more I looked into this the more I think the facts stack up that it doesn’t matter how educated you are or how hard you work, the economy and tax structure isn’t leaving much room for advancement for the working and middle class. So many people echo the same thing…” I am making less now then I was 5 years ago”. I can also see how if you are part of the millennial or Gen Z groups of people, that it would be hard to be motivated when you feel there’s hope for their future. When I finished high school in the 80’s, there was this buzz in the air that you could do anything, be anything and get ahead – the dream was alive, but if I was coming out of school now to what is being offered up in the world, it would be depressing. There will always be the percentage of people that will see a way through this and move themselves into the upper middle class, but I see it being more like those 2 percenters you hear about that can make it no matter the odds. It does have a lot to do with mindset, but the reality is, how do you reach the large number of folks in those up and coming generations and support, inspire and change their mindsets? I don’t think the school curriculum has changed to accommodate this and with technology the main influencer these days, there is more out there leaning toward the negative then the positive which makes it even harder to be motivated towards the self-development realm for these up and comers.
Everything I read on this topic showed that this issue was prevalent and being talked about pre-Covid but I feel it is heightened now due to a greater divide that has become further evident with so many businesses not surviving the lockdown and restrictions that took place during the pandemic. There obviously isn’t going to be resolution on this in the short term and we will need to wait and see what happens, but in the meantime, I feel I am slightly more education on this and in doing so maybe will be more of the solution than the problem. It also helps me to put myself in the shoes of the younger generations with more compassion and understanding of the reality of their world and not mine. I think this needs to be looked at from the perspective that governments can’t afford not to do all they can to save the middle class and I’m disheartened for what that future holds otherwise.