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Finance and business jobs drive wage growth of top 1%, report says

Canada′s richest are getting even richer, according to a new report, but don′t blame doctors, dentists or lawyers. Jobs in finance and business are driving wage growth within the top one per cent, and not necessarily because they deserve it.

The study by the Institute for Research on Public Policy says the rise in pay for Canada′s top earners is far outpacing wage growth for all other Canadians over the past three decades. 

Authors Thomas Lemieux and Craig Riddell looked at the characteristics of that top tier over three decades. To be considered a one-per center in Canada in 2011, one had to make $160,000 a year. The average income in the tier was twice that — $320,000. The authors found the typical one-per center is a man over the age of 35 who works longer hours than most, likely in a senior management position.

They also found their share of all income in Canada went from less than eight per cent in 1981 to almost 14 per cent in 2007. For the ultra-rich, those referred to as the 0.1 per cent of society, their share of total income more than doubled from about two per cent to five per cent in the 30-year period.

For the bottom 90 per cent, wages barely grew. The study says earnings inched up by about two percentage points over the period studied. But when you factor in inflation, their actual wage growth was a negligible 0.1 per cent. 

Bay street bonuses

The sector that′s fattening the wallets of the richest is finance and business. Although people with medical degrees make up one in 10 of Canada′s super rich, their earnings have actually lost ground when compared to other fields. People in finance and business, however, account for 50 per cent of the top one per cent of earners. They also account for 70 per cent of the growth seen in incomes earned by the top 0.1 per cent.

Canada′s rich resources sector has also created a lot of rich Canadians. Twenty-one per cent of this country′s top earners live in Alberta — Canada′s oil and gas heartland. That sector accounted for just three per cent of top earners in 1981 versus seven per cent in 2011.

Although the study says market forces are mostly driving high income in the energy sector, that doesn′t appear to be the case in the finance and business sector. The authors refer to something called ′economic rent,′ which is an economic term that essentially means getting paid more than one would otherwise deserve.

"In the case of finance, deregulation and lack of oversight have created opportunities for finance professionals to earn extraordinarily large incomes by taking substantial risks with other people′s money — and in some cases, by camouflaging the nature of those risks," say the authors.

They also suggest that if market forces purely dictated wage growth, there would be a greater share of engineers and computer scientists among Canada′s richest.

"If the IT revolution had been the main driver of income growth at the very top, the group of IT specialists at the very core of this revolution should have accounted for a larger share of top-income earners," they concluded.