Canada vs. USA

We finish our country analysis with Canada, which provides an extended set of income data. These data cover all persons who completed specific tax return forms for the year of reference. Therefore, the data are related to tax purposes only and some non-taxable income sources are missing from the dataset. In 2013, about 74.9% of Canadians (of all ages) filed tax returns. Most children do not file tax return as well some elder people. That may introduce age-specific bias in the estimates for children and pensioners. Unlike the CPS survey, all data are extracted from administrative files. The sample includes 100% of individuals who filed an individual tax return but not all population. Depending on age, from 89% to 96% of the population is covered by administrative records [8]. Overall, the population and income source coverage is good for the purposes of our research.

Figure 19 depicts the evolution of real mean income since 1976 [9]. Three years age shown for comparison – 1976, 1993 and 2011, i.e. with approximately a 17 year step. The real mean income estimates are given in 2011 constant Canadian dollars and calculated in 10-year bins except the two youngest age groups: under 20 years – the average age of 17 years is used, and between 20 and 24 years of age. The curve for 2012 presents real mean incomes only in 10-year bins; it was obtained from a different table provided by Statistics Canada.

Figure 19. The evolution of age-dependent real mean income (in 2011 constant Canadian dollars) in Canada from 1976 to 2012. All estimates are given in 10-year bins except the two youngest age groups (below 20, and between 20 and 24). The curve for 2012 presents mean incomes only in 10-year bins and was obtained from a different table provided by Statistics Canada. The highly unusual feature is the 1976 curve above the 1993 curve.

The first and highly unusual observation is that the 1976 curve is above the 1993 curve. The real GDP per capita curve in Figure 5 gives $18,138 (1990 US$) in 1992 and $14,902 in 1976. For comparison, the mean income for the whole population with income in Canada is presented in Figure 20. In fact, the average income in 1976 was $35,700 and only $33,300 in 1993. The contradiction between real GDP per capita and mean income is likely related to the difference between domestic currency and that converted at Geary Khamis PPPs. In our quantitative analysis, this discrepancy may introduce large errors in theoretical estimates of the peak age.

Following the procedure developed in two previous paragraphs, we normalize the curves in Figure 19 to their respective peak value and present the central segments of the obtained curves in Figure 21. The 1976 curve peaks between 41 and 42 years of age (27 to 28 years of work experience). In 1992, the peak age is about 45 years, and then it reaches 49 to 50 years in 2012. Overall, the increase in the age of peak mean income increases by about 8 years. Theoretically, the change in real GDP per capita from $14,902 to $25,629 should change by a factor of 1.31, i.e. the peak working age experience rises from 27.5 years to 36.1 years (50 years of age). This is an extremely accurate prediction, especially taking into account the problems with real GDP per capita estimates. The proportion of working age population does not change much in the USA since the mid-70s. It is likely not a big error if we assume that the share of working age population in three studied countries does not change since 1976. Then the correction for population does not affect the relative change in real GDP per capita and the estimates of the peak age increase in Canada, New Zealand and the UK are not biased.

Figure 20. The evolution of mean income (2011 CAD) in Canada between 1976 and 2011.

Figure 22 is similar to Figures 10 and 16 and displays the evolution of peak-normalized mean income in various age groups. The peak age resides in the bin from 35 to 44 years of age before 1990. Then the peak jumps into the elder group and will likely stay below 54 years before the group between 55 and 64 overtakes the lead. As in other three countries, the proportion of mean income has been increasing in all elder groups and decreasing in the younger groups. In Canada, fluctuation of the curves in Figure 22 is much lower than that for New Zealand and likely at the same level as in the UK. This is a consequence of income data quality – better coverage of population is directly translated into the accuracy of mean income estimates.