Wealth and income inequality is a big issue and I thought some historical perspective on wealth inequality might be interesting given that my research to date has led me to conclude that little has changed for the bottom of the wealth distribution at least in terms of relative wealth shares. While there has been the growth of a middle wealth holding class over the last one hundred years in Canada, the wealth share of the bottom half of the wealth distribution is remarkably unchanged.
In my wealth work on Wentworth County, Ontario (the Hamilton area), I had the opportunity to construct wealth shares by decile using probate wealth records. This data was quite detailed with real estate, financial assets, livestock and other personal estate documented (sixteen asset categories all together). Of course, not everyone probated wealth and therefore I needed to adjust for the possibility of people with wealth who did not go through probate. There are other issues with probate records in terms of their representativeness but I’m going to set those aside as they are discussed in the published wealth work. (See Di Matteo & George, “Canadian Wealth Inequality” Canadian Historical Review, 1992, 73,4, 453-483.)
The approach used to adjust the data was what is known as the estate multiplier technique – a method by which the estates of those dying in a particular year can be used as a sample of the population still alive at that time. If it can be assumed that the age and sex of those dying in a given year are representative of the living population, you can then “blow up” the estate data by a mortality multiplier equal to the reciprocal of the mortality rate. The alternative is of course to assume that those who did not probate resembled those who did in which case the distribution of probate type individuals alone is the proxy for everyone. The latter approach will tend to result in a slightly more equitable picture of wealth distribution as the results below show.
I have both the estate multiplier estimates as well as the raw probate estimates for Wentworth County in 1892. Based on the estate multiplier estimates, in 1892, the top half of the population owned 100% of wealth, while if just the probated estates are considered, the top half owned 92 percent of the wealth. While it is debatable just how representative Wentworth County is of late 19th century Canada, these historical results mirror other research. For example, in late 19th century Nova Scotia, the top 10% reported owning 66% of wealth, while results for Massachusetts in the late 1880s put the share of the top 10% at 74%.
I compare these with estimates done in a 2006 paper titled “Revisiting Wealth Inequality” by Rene Morisette and Xuelin Zhang in 2006 in Statistics Canada’s Perspectives on Labour and Income (See Table below). They use the Assets and Debt Survey for 1984 and the Survey of Financial Security for 1999 and 2005 to construct estimates for the distribution of wealth for families in Canada. While survey data and probate wealth data are two very different sources and the sample sizes are vastly different (there are only 154 individuals, with three quarters of them male, in the 1892 Wentworth County data) the comparison is interesting.
Wealth in the 19th century was very unequal – according to the estate multiplier estimates, the top 10 percent held 83 percent of all wealth. One of the changes in wealth distribution moving from the nineteenth to the twentieth century was the growth of a middle wealth holding class. The share of the top 10 percent declines while that of deciles 2-6 goes up. However, in 2005, the top 10 percent still holds almost 60 percent of the wealth. The next five deciles hold the remaining forty percent while the bottom forty percent of the distribution has almost nothing.
After a century, the bottom half's share of the wealth distribution in Canada has not changed very much. While the inequality of the 19th century can perhaps be attributed to an unmitigated capitalist market economy, what explains the present? After all, during the twentieth century Canada adopted a comprehensive welfare state system with income security programs, subsidized university education, public health care and other assorted public goods and infrastructure. One would think that, over time, human capital would be built up, earnings enhanced and wealth would then trickle down to those at the lower end of the wealth distribution.
What about the effects of our redistributive tax system? In the 1890s, tax revenues came primarily from tariffs and excise duties. There was no general sales tax or income tax. We now have a mildly redistributive tax system, and still no major improvement has occurred in the share of wealth held by the bottom half of the population. The only redistribution appears to have occurred away from the top 10%, and towards the remainder of the top half. Have the welfare state and the progressive income tax system primarily benefited the middle class? Should we take this as proof that poverty is inevitable? Or is it the existence of a middle wealth holding class that is the anomaly with most of history being divided simply into rich and poor?