Income inequality has fallen across all provinces and territories, according to recently released data from the 2021 Census.

There are several ways to calculate income inequality. Each of the methods provides different insights. Statistics Canada tracked income inequality in the census data using two of the most common measures: the P90/P10 ratio and the Gini index.

The P90/P10 ratio compares the top 10% of household income earners to the bottom 10%. According to this method of calculation, income inequality between households fell in all provinces and territories compared to the 2016 Census. While the Northwest Territories and Nunavut saw the highest drop in levels of income inequality over the past five years, data indicates that these regions still have the highest levels of economic inequality in Canada.

Statistics Canada also measured income inequality using the Gini index. The Gini index measures distribution of income across a population, with zero representing perfect equality and one representing perfect inequality.

The Gini index helps us see how taxes, tax credits, and government transfers affect income inequality. Between 2015 and 2020, there was very little change in the Gini index for before-tax income. This indicates that there is still significant income inequality in the amount of income households receive from the labour market and investments. However, the Gini index for after-tax income between 2015 and 2020 dropped significantly. This suggests that the biggest factor behind the improvement in income inequality in Canada has come from government measures like tax credits and government transfers.

Many government benefits were introduced between the 2016 and 2021 censuses. Some of these benefits, like the Canada Child Benefit, are permanent. Others, including the emergency benefits provided during COVID, were temporary. As such, at least some of the reduction in income inequality indicated by the census data may be short-term.

While the drop in income inequality is good news, there is more to be done. The promised federal disability benefit would make a big difference in income inequality and reach a group of people that have been left out of other measures. Governments can also reduce inequality in before-tax income through labour reforms that increase wages and protections for precarious workers. And because unions help workers secure higher wages, governments can tackle income inequality by implementing pro-labour measures like anti-scab legislation and single-step certification.