MRO Magazine

Study reveals differences in Canadian and US income levels

Ottawa, ON -- In 2008, the purchasing power of Canadian income per capita was 92% of the US level. This was th...


Human Resources

January 8, 2010
By MRO Magazine

Ottawa, ON — In 2008, the purchasing power of Canadian income per capita was 92% of the US level. This was the highest relative income Canadians experienced since the oil shocks of the 1970s and early 1980s. The results are from a new study from Statistics Canada, Differences in Canadian and US Income Levels, 1961 to 2008.

 

During the latest commodity boom, Canadian income per capita converted to US dollars rose from 85% of the US level in 2002 to 92% in 2008. Measured in US dollars, Canadian income per capita increased by $11,300 from $31,800 to $43,100, while US per capita incomes increased by $10,500, from $36,300 to $46,800 over the same period.

 

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Relative income is calculated by converting Canadian gross domestic income (GDI) into US dollars and then comparing Canadian levels to US levels of income per capita. The metric used for converting Canadian to US dollars is referred to as a purchasing power parity (PPP).

 

PPPs are conversion rates based on the price levels of traded and non-traded goods and services in Canada and the United States. A PPP of 0.90 meant that it took 90 US cents to purchase the same bundle of goods that $1 Canadian bought. They provide a more appropriate method for adjusting Canadian incomes into US dollars than the market exchange rate.

 

Historically, PPPs have been associated with gross domestic product (GDP), which is a measure of income based on production. Today’s release extends Statistics Canada’s PPP estimates to correspond to GDI, which is an income measure based on what can be purchased with production. The difference between the two reflects terms of trade.

 

Using these new PPP rates, incomes per capita in Canada were 92% of the US level in 2008. This is higher than the 85% using conventional PPPs and below the 96% when converting with the exchange rate.

 

Since 1961, the PPP for GDP and GDI tended to move in concert. The exceptions were during commodity booms when Canada’s terms of trade rose and the US terms of trade declined. During the oil shocks and the post-2002 resource boom, Canada’s PPP for GDI rose relative to its PPP for GDP.

 

The study is included in the December 2009 Internet edition of the Canadian Economic Observer, Vol. 22, no. 12 (11-010-X, free), and can be found on the Statistics Canada website at www.statcan.gc.ca.