The gap between Canada's wealthiest and poorest households reached a record high in the first quarter of 2025, fueled by investment gains for the wealthy and wage stagnation for lower-income earners.

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Statistics Canada Data Highlights Growing Divide

Earlier in July 2025, Statistics Canada published data revealing a significant increase in the income gap between the highest and lowest income households in Canada. The difference in disposable income between the top 40 percent and the bottom 40 percent of households surged to 49 percentage points in the first quarter of 2025, up from 43.8 percentage points in 2021.

The statistical agency's data defines "income" as all earnings from wages, salaries, government transfers, and income derived from interest-bearing assets like investments and savings.

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Drivers of Income Polarization

According to Statistics Canada's analysis, the primary driver of this income polarization is the disparity in investment gains. Higher-income households benefited from investment income, while lower-income households experienced wage declines. Middle-income households saw mixed results, with labor income growing at a similar rate to the overall household average but investment income falling slightly.

The top 20 percent of households experienced the most significant income gains, increasing their disposable income by 7.7 percent compared to the previous year, with wages up by 4.7 percent and investment income up by 7.4 percent.

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Impact on Low-Income Households

The economic situation for low-income households is further strained by earnings that fail to keep pace with expenses. Statistics Canada noted that the wages of the lowest-income households did not match expenditure growth, resulting in a "net dis-saving" growth of 3.9 percent. In contrast, the highest-earning 20 percent of households saw their earnings far outpace expenses, leading to a 9.6 percent growth in savings.

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Wealth Gap Implications

A widening income gap can directly exacerbate Canada's persistent wealth gap. In the first quarter of 2025, the top 20 percent of households held 64.7 percent of all wealth, while the bottom 40 percent accounted for only 3.3 percent. This wealth gap widened compared to the previous year, even with a slight decrease in real estate values. The wealthiest tend to hold more of their wealth in financial assets, making them less vulnerable to fluctuations in housing values.

Younger households experienced the slowest wealth growth, as more young people exited the housing market. Despite falling mortgage interest costs, many young households are increasingly unable to afford homeownership, negatively impacting their cumulative wealth. Real estate agents in the Kelowna area are seeing this trend impact the first-time home buyer market.

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The income gap has widened annually since the pandemic, as the economy has returned to "normal" while temporary government support programs have been phased out amidst rising interest rates and a cost-of-living crisis.

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Impact of Interest Rate Policies

Despite debt-servicing costs falling, income inequality has continued to grow. Although the Bank of Canada moderated interest rates between April 2024 and March 2025, this did not translate into disposable income gains for working-class Canadians. Those who refinanced their mortgages at higher interest rates continued to bear the burden of increased housing costs.

Furthermore, while price increases for food, energy, and other necessities have slowed, sticker prices have not decreased. Lower-income households also experienced a reduction in income from savings and deposit accounts due to interest rate moderation, further contributing to the income gap.

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Wage Growth and Labour Market

The most significant factor reducing the income share of the bottom 40 percent has been moderating wage growth, reflecting a weakening labour market since 2023. Employment, unemployment, and average wage growth have all trended negatively since early 2023.

According to the latest Labour Force Survey, employment increased only moderately to 60.9 percent in June 2025, the first gain since January, primarily consisting of part-time positions. The employment rate has fallen by 1.6 percentage points since its peak of 62.5 percent between January and April 2023 and is now below its pre-pandemic average.

Unemployment has steadily increased since its record low of 4.8 percent in July 2022, hovering between 6.6 and 7 percent since November 2024, weakening workers' bargaining power. Long-term unemployment has also increased, with those unemployed and seeking work for 27 weeks or more rising by 4.1 percentage points to 21.8 percent over the past year.

Hourly wage growth has moderated considerably after remaining steady at around 5 percent year-over-year for several months in 2022. In June 2025, it fell to 3.2 percent, or 1.4 percent when adjusted for inflation. Weekly earnings across all employees grew by only 1.8 percent between June 2024 and June 2025, before inflation adjustment.

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Collective Bargaining and Wage Growth

A key factor in closing the income gap is raising wages, particularly for those in the bottom 40 percent of the income distribution. Industry experts suggest that increased access to collective bargaining can help raise wages.

Data indicates that collective bargaining continues to deliver wage gains. In 2024, major wage settlements covering 500 or more workers averaged annual wage gains of 3.3 percent, with first-year increases of 4.8 percent. In Ontario, ratified collective agreements averaged 4 percent in the first quarter of 2025, unchanged from 2024.

Furthermore, union members generally experience greater job security and security of hours, mitigating the risk of weekly wage decreases due to reduced hours.

According to Statistics Canada data, from June 2024 to June 2025, average hourly wages for all union members grew by just under 4 percent, compared to only 2.7 percent for non-union workers. In June 2025, union members earned an average of 9.7 percent more per hour than non-union workers, up from 8.4 percent in June 2024.