Canadians are putting more money in their pockets than their American cousins and will continue to do so for years to come, according to a new report from CIBC World Markets.
The real disposable income of Canadians, the report concluded, has grown twice as fast as that of Americans in the past four years and that trend will continue into the post-recession economy.
Since 2005, per-capita real disposable income in Canada has risen by $2,600. Meanwhile, U.S. disposable income has risen by US$1,300 or roughly $1,460 based on the current U.S-Canadian dollar exchange rate.
This is a complete reversal of the trend seen in the '90s where Canadian income stagnated compared with surging U.S. earnings.
Benjamin Tal, a senior economist at CIBC World Markets and author of the report, said, "So quick was the revival of Canadian income that in a short four-year span, per-capita real income in Canada was able to wipe out no less than 16 years of income underperformance versus the U.S."
The key driver of Canadian income growth was increase in labour income, which increased 11% over the past four years. The report found that outperformance of Canadian labour income has accounted for the entire widening income gap between Canada and the U.S. in 2005.
"The reality is Canada has outperformed the U.S. in all categories," Tal said.
Since 2005, real wages in Canada have risen by 10%, more than double the pace seen in the U.S. The growth in wages accounts for one quarter of the increase in the labour income gap between the two countries.
In the last four years alone, overall employment in Canada climbed 5.5% while employment remained flat in the U.S. Stronger Canadian job creation has accounted for about 45% of the increase in the U.S.-Canada labour income gap since 2005.
The quality of jobs in Canada is also much higher than it is in the U.S. The number of jobs created in high-paying industries was up by more than 4.5% in Canada, but down 4% in the U.S. As a result, the ratio of high-paying to low-paying jobs in the U.S. has fallen by almost 10% over the past four years, while it has remained relatively stable in Cnaada. This difference in the sectoral distribution of employment growth accounted for almost 18% of the increase in the labour income gap.
While personal disposable income has fallen by 2% in the first quarter of 2009, Tal believes the decline is temporary and that Canadians will still collect more and larger pay cheques than Americans in the post-recession era.