Canada-U.S. income gap narrows
Growth in Canadians' real income has outpaced the U.S. rate of expansion in the last six years, a sharp reversal of fortune from the 1990s that stems largely from the boom in resources.
Statistics Canada said Thursday that per capita real income grew by 15.5 per cent between 2000 and 2006, nearly two-thirds faster than the 9.1 per cent growth in the U.S. Real income growth is a way to measure changes in a person's purchasing power that takes into consideration returns from international investment and capital consumption.
“In three short years, real income relative to the United States returned toward levels not seen since the mid-1980s,” said Ryan Macdonald, the author of the report. “And much of this has been due to the much maligned resource economy.”
Prior to 2000, the resource economy was waning, commodity prices were weak and the loonie was depreciating. The earnings foreigners received from their investments in Canada were larger than those that Canadians earned from their foreign investments. As a result, real income growth failed to keep pace with real GDP growth.
Various economic indicators, including income measures, pointed to a long-term decline in the Canadian economy relative to its U.S. counterpart.
“All that has changed with the commodity boom that Canada experienced after 2000,” Mr. Macdonald said.
Since then, export prices have jumped relative to the prices of imports and the loonie has surged. Income flowing from abroad into Canada has increased dramatically, relative to payments abroad.
“At the same time, China and India emerged as important players in the world economy, contributing to a dramatic increase in real income growth in Canada relative to GDP growth,” Mr. Macdonald said.
Rising commodity prices, a skyrocketing loonie and falling prices for manufactured goods has improved Canada's terms of trade in the last four years, while U.S. measures of real income were far less impacted by these factors.
“The performance of the Canadian economy post 2000 has shown the advantages of having a diversified economy with a not-insignificant resource base,” Mr. Macdonald said. A diversified economy has some of the same advantages of a diversified stock portfolio, with some sectors declining gradually for long periods of time, only to have a sharp and sudden change in fortune.
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