The COVID-19 pandemic is closing the gap between lower- and higher-income households, a new report from Statistics Canada says.
A recently released estimate of Canadian household accounts found that those in lower-income households reported having disposable income of 6.1 per cent in the first quarter of 2020, increasing to 7.2 per cent in the second quarter.
In that same period, the report found disposable income among Canadians in higher-income households — which it said was driven more by volatility in financial markets and investment funds — diminished from 40.1 per cent to 37.7 per cent.
Disposable income was highest among Canadians in the lowest-income households, increasing by 36.8 per cent during the first three quarters of last year. At the same time, Statistics Canada said “the youngest households recorded the largest gain in their net worth” at 9.8 per cent.
The changes came at the head of the Canada Emergency Response Benefit and enhanced income packages doled out by the federal government to help ease the strain among Canadians who had either lost their jobs or income as a result of the COVID-19 pandemic.
In all cases, Statistics Canada said the value of government COVID-19 support measures “exceeded losses in wages and salaries and self-employment income,” with young and middle-aged households gaining around $3,000 more in relief funds than they lost in the second quarter of 2020.
Mikal Skuterud, an economist teaching at the University of Waterloo, said this excess in cash is a good thing and has “hopefully” led to some savings for households on the lower end of income distribution.
“This is very optimistic now because what it says is once things start to open up again, all of this income that — presumably, some of it has been saved to some extent — will lead to really big increases in spending and a lot of activity in the economy, (and) a lot of job creation,” he said.
When the pandemic was first declared in March, Statistics Canada said there was a decline in disposable income across all household demographics.
Middle and higher-aged households held the bulk of COVID-19 relief money supplied by the government, but the impact of the benefits was greater for lower- and younger-income households.
Households rebounded in the second quarter of 2020, but with the help of government measures, the largest gains were made by the lowest- and youngest-income earners, who said they had 33.6 per cent and 20.1 per cent more disposable income, respectively.
“Over the first three quarters of 2020, the value of government COVID-19 support measures represented 16.4 per cent of disposable income for the lowest-income earners and 11.3 per cent for the youngest households, compared with 4.3 per cent for the highest-income earners and 4.2 per cent for the oldest households,” Statistics Canada wrote.
According to Skuterud, this is the ideal outcome with large relief funds and it “bodes well for the recovery that we’re all hoping to see in 2021.”
For households with lower-income earners, he said the money acts as “survival money” to do things such as pay rent, bills and buy groceries. But when the relief bills stop coming in, the hope is that some Canadians will have enough money saved to spend.
Helping families get through this pandemic is certainly priority number one, Skuterud said, but giving Canadians extra spending money creates a “multiplier effect” in which people take that money and put it right back into the economy.
“When you spend a dollar, that puts the dollar in somebody else’s pocket, who in turn spends it and creates a job for somebody else,” he said. “That dollar gets circulated around. And that’s what you want.”
But if somebody saves that money, the multiplier effect doesn’t happen. According to Skuterud, this is why it’s important to target lower-income households.
Canadians with lower incomes are more likely to spend money than save it, while those with higher incomes are more likely to save than spend, he said.
Notably, Canadians who qualified for CERB were later transferred to other benefits packages like the Canada Response Benefit or Employment Insurance. Skuterud added the pattern suggested that Canada can expect to see more transitions like this in the future.
He said that Canadians still being reliant on government by June could be “something to be concerned about,” but added that could also just lead to further “adjustments.”
“And some of them are clearly the kinds of adjustments we want, and that is that people are going to go back to work,” Skuterud said.
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