Mind the Wage Gap

Unpacking the growing wage gap between American and Canadian workers

Meredith Martin

Mike Moffatt

, and

Sabrina Maddeaux

Mar 12, 2025

In this episode of the Missing Middle podcast, conservative pundit Sabrina Maddeaux and economist Mike Moffatt explore the growing wage gap between American and Canadian workers, discussing the implications for young Canadians and the factors contributing to this disparity. They delve into the data on emigration, the impact of housing costs, and the need for policy changes to boost productivity and wages in Canada. The conversation also touches on the potential for brain drain and the importance of attracting talent to maintain economic growth. (Full transparency: we recorded this episode before the most recent round of Trump tariffs were imposed on Canada. The content would not have changed in any way, although the tone of the discussion around tariffs, emigration and the demographics of Canadian patriotism may have been expressed more emphatically if we had recorded it this week.)

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Below is an AI-generated transcript of the Missing Middle podcast which has been lightly edited.

Sabrina Maddeaux: We're diving into something that affects pretty much every young Canadian's wallet and future. You know that friend who moved to Seattle or New York for work and is suddenly posting about their amazing apartment or fancy vacations? Well, it turns out it's not just your tech or finance friends making way more south of the border.

Mike Moffatt: Now, this was a topic that Sabrina pitched and I loved it. I thought it was really interesting in part because I lived in the United States for a few years and in beautiful Rochester, New York. I absolutely love the place. I miss it. I would, you know, gladly go back though. Obviously I love living in Ottawa as well. So this is a two-part question for Sabrina. First of all, have you lived in the United States before? And secondly, if you haven't, would you consider it?

Sabrina Maddeaux: So I have lived in the States before because I was an international student. I went to school in Western New York, St. Bonaventure University. So I spent the better part of four years there and then came back to Canada. And I did love it at the time and I never ruled out going back. The big thing that I have noticed over the years is that it seems my friends that I graduated with in the States have just had access to a lot more opportunities. They had an easier time getting jobs after school. They made higher incomes faster.

Practically every single one of them, no matter what field they work in or what location they're in, owns a home. So it can be hard not to look south of the border, especially at your peer groups, and realize that they seem to have a lot more economic opportunity. And one of those things boils down to the wage gap. So every so often I do find myself looking at job postings online and being like, wow, you could make so much more down there for the same type of work. That said, I do think I'm pretty settled in Canada at that point, so probably won't be going anywhere anytime soon. But Mike, do we have an idea of how many Canadians are actually moving to the States every year?

Mike Moffatt: Well, I'm surprised to learn that we both went to school in upstate New York because I'm a University of Rochester grad. So there we go.

Sabrina Maddeaux: So many friends in Rochester.

Mike Moffatt: There we go. Well, that's fantastic. Every time we do one of these episodes, I'm learning that you and I have more in common than I thought.

Now let's go to the data part of this question. This is one of those issues, and this is a total producer Meredith issue where the data on this is really not great. There is data from the American Community Survey that's conducted by the US Census Bureau, which actually showed a big jump in Canadians moving to the US in 2022. And that's the last year they have data for. And it was a big one-year blip. So, 2020, 2021, it was fairly low, [there was a] big jump in 2022, but it's not clear if it's just a one-year blip, or if it's some kind of post-COVID effect, or if there's something real here. But the sheer number was 126,000 people moved from Canada to the United States, which is about 50-70% higher than in most typical years.

That's US data. If we look at the Canadian data from Stats Can on emigration, which is, people moving out of the country, we haven't seen much of a change from pre-COVID patterns. It was low during COVID just because of closed borders, but it went back up to what we saw in 2017, 2018 and so on. So we're getting really contradictory data. Like if we look at the US numbers or the Canadian numbers, they tell a different story.

And I want to be clear here. I'm not suggesting that one government is putting their thumb on the scale or, or anything like that. Measuring this stuff is surprisingly difficult. So there's bound to be some discrepancies. My best guess is that the number of Canadians moving to the US has gone up since 2022. For the reasons that you describe, you look at those wages down in the United States, you look at home prices. It looks pretty attractive.

A big question in my mind is whether or not that these increases, if they're real, do they go up further. Do they start to decline during the Trump era? In my mind, that's the big known unknown.

Sabrina Maddeaux: Absolutely it is. And so if Canadians are leaving in increasing numbers, one reason like we'd both talked about might be wages. I was just looking at a new Fraser Institute study that shows that workers in every single Canadian province, even Ontario, Alberta and BC are now earning less than workers in every single US state. So we're talking workers in Mississippi are out earning Torontonians and that gap's only getting wider.

Canadian salaries are falling behind not just in the US. but compared to other wealthy countries as well. And this is the first time in decades that we've actually dropped below the average of developed nations. Mike, it seems almost unbelievable that wealthy provinces like Alberta with all its oil wealth or Ontario with its massive finance and tech sectors could have lower median wages than states like Mississippi or Alabama. So what factors are driving the surprising gap?

Mike Moffatt: Yeah. And this is a total Meredith data episode. I think even though it wasn't really intended to be…

Sabrina Maddeaux: Big shout out to producer Meredith!

Mike Moffatt: …who loves any issues around data collection. Because we need to be careful with these studies here. And again, I'm not accusing the Fraser Institute or anyone else of deliberately fudging the numbers, but the numbers that you get are really highly dependent on the assumptions the researcher makes.

One of the assumptions is what do you use for the exchange rates? Because Canada gets paid in Canadian dollars. [In the] US, you get paid in US dollars. So if you look at the actual dollar exchange rate, which is like 70 cents now that we're recording, things don't look too good here in Canada, right? Just because you go to the US and automatically you get like a 45% raise just from the exchange rate. But that doesn't take into account differences in purchasing power. If you take into account those purchasing power differences, Canada looks a little bit better.

There's another thing to consider. Are we considering pre-tax or post-tax? There's a case where the US looks better, right? Because if you're using post-tax, it’s not how much you earn, but how much you actually get to keep. Because taxes are lower in the United States if you use post-tax income, the US starts to look better. Use pre-tax Canada starts to look better. You also have to take into account the value of cash transfers. So things like Child Benefit cheques are much more generous in Canada.

So are you just counting labor market income or are you counting all of these other kinds of financial things?

And the obvious one that you also have to take into account is healthcare expenses because the two countries are very different in who pays and how we pay. And also, the quality of services available.

I'm not suggesting that the Fraser study is right or wrong or that there's a right or wrong way to approach these questions. But it is highly dependent on the assumptions you make. You make different assumptions, you get very different answers. The other thing we have to control for is quality of life issues. Like, we don't just care about how much money we make, but we care about crime and pollution and that kind of thing.

So now it seems like I'm just saying, okay, well, it's all statistical noise and we can't determine anything. And I'm going to say, that's a little bit too far too.

I think we should be worried in Canada. I think we are seeing progress in the United States that we aren't seeing in Canada. In Canada, we've had pretty stagnant middle-class wages, particularly [compared] to the price of housing - We have a piece on the substack about this. We'll put it in the show notes - showing places like my hometown of London, Ontario - a home costs two to three times more in terms of wages than it did 20 years ago. And that's a big, big problem. Home prices in Canada tend to be much higher than those in the United States outside of a few pockets like California, New York, Boston corridor and so on. So we have a real problem up here and I don't want that problem to be lost in my nerdy data answer.

So what's causing this?

Well, one thing I think we can point to is the growth models between the two countries. The United States’ growth model over the last decades has been about increases in investment and productivity. Now those increases have come at an absolutely massive cost of government debts and deficits. So a lot of that increase in productivity and investment, particularly from the government has been debt-financed in a way that it hasn’t in Canada, but it's been real. And we've seen things like the Chips Act and we've seen, going back 20 years, all kinds of investments in productivity from the government that we haven't seen that much here in Canada.

Canada on the other hand, over the last decade, has had a growth model basically based on population growth. We add more workers, that increases GDP, but that doesn't make any individual or family necessarily better off. It's like, yeah, the pie is getting bigger, but it's also getting sliced among more people. So it all tends to net out. And in fact, in many cases, having more workers can actually suppress wages, particularly when those workers are often non-permanent residents who have fewer enforceable rights.

So it's a long-winded way of saying some of this is data issues, but some of it is real. And I think that the real parts of it come from differences between how the United States tries to grow their economy versus how Canada tries to grow ours.

Sabrina Maddeaux: Yeah, that's really fascinating.

Well, something else that really caught my eye, was a recent piece in The Logic. And it said that Canadian tech workers in Toronto are making around $106,000 a year, while their counterparts in San Francisco are making more like $260,000 a year. That's a huge difference, obviously. So I know San Francisco is expensive. But again, that's just so big. Does the cost of living really explain away these huge salary gaps?

Mike Moffatt: Yeah, I don't think it does. And I actually don't think it has much to do with the cost of living because we see these gaps when we compare Canadian tech hubs to say Houston. And Houston has a much lower cost of living than Toronto or Vancouver, or at least a bunch of lower-cost housing. And it's the same thing. You've got your Austin, Texas. You've got your Dallas. You've got…Miami is becoming a tech hub and has, I have to argue, much better weather than either Toronto or Vancouver. Right? So I don't think those wage differences are as simple as just saying, “Silicon Valley is really expensive, so they’ve got to pay their workers more.” I think there's more to it than that.

There are data issues as well, measurement issues. Sometimes, depending on the study, you can define a tech worker differently. Let's say your internet service provider could be your cable company, or your phone company, your internet goes down and you call up somebody for tech support. Are they a tech worker or not? Right? Depending on how the study classifies them, that's really going to affect the wages. Because we know those jobs tend to be lower paying than somebody who's an executive at a tech firm or something like that.

I don't want to suggest this effect isn't real because it absolutely is. We know that the Bay area tends to attract the best and brightest. It's the big leagues. And unfortunately that has meant traditionally some of our tech hubs have been the farm team.

So a lot of Canadian talent has found its way down there, which has an impact. And I know there's a lot of really great tech entrepreneurs in Vancouver and the Toronto-Waterloo corridor. Here in Ottawa, where I am, they're trying to change that, right? They want to be in the big leagues as well. And I wonder if some of this might just change organically with more remote work. It's a lot easier now to work for a Silicon Valley firm and live in like a Guelph or a Woodstock than it was a decade ago.

So I'm suspecting that some of these salaries may end up converging somewhat - where the big US tech firms start, you know, hiring tech talent here in Canada at much lower wages because they get more bang for the buck - but if they keep doing that, that's going to raise wages here and you might get a convergence effect.

If we go back to this obvious question around brain drain - my question for you is: do you think we'll see escalating brain drain in future years?

There's this old line about economists, you know, having two hands - on the one hand, but on the other hand. And I am a classic two-handed economist. Because on the one hand, part of me says, “Yes, you know what? This is going to escalate. Look at our $0.70. I look at the fact that in much of the United States, they're building more family-sized housing than we have in Canada. Young people are going to be attracted to that.

So yeah, I think on the one hand we do need to worry about that. But on the other hand, I think, “Well, you know what? The United States, at least politically, is a bit of a mess right now.” And regardless of what you think about the Trump administration, I think we all have to admit it's a country that's very divided, even more so than Canada. The U S seems to be dialling back on immigration. So Canadians just may be less welcome there. Right? It's not just going to be people from other countries who are going to be impacted by reduced US immigration, it's going to be Canadians as well. And then there's all the social issues, the gun crime and what have you. California and Florida, while they're absolutely lovely, are getting whacked by the effects of climate change. And, as I mentioned before, if remote working continues to be a thing, I can see a lot of skilled workers deciding, “Yeah, I want to go work for a big Silicon Valley tech firm, but I want to continue living here in Southwestern Ontario.”

So that was a very long-winded question that had a lot of views in it, but I'd love to get your take. Do you think we're to see more brain drain or less brain drain in the coming years?

Sabrina Maddeaux: Well, like you said, it is complicated. There are so many factors at play. My tendency is to think that we will see more, especially from younger Canadians, just because that economic gap is so big. So the temptation of the wages and especially the housing issue - when people are looking to start families, that's really attractive to a lot of people. At the same time though, like you said, it might not even be a Canadian's decision if immigration controls continue to tighten in the States and things like H-1B visas go away, that's going to complicate pathways for a lot of people or get rid of them entirely.

What concerns me is the ability of the best and brightest and a lot of our most crucial workers to immigrate and make that jump, because the US is always going to want some sort of legal pathways for those people that can boost their economy. And that can often mean doctors for one thing. We already are seeing a lot of doctors go south of the border and we're not in a position to lose more, especially if the US decides to make a push to incentivize them in some way. Tech workers but not just tech workers, entrepreneurs, and small business owners who are attracted to the states for various reasons. And then we're not just losing that individual worker themselves, we're losing all the jobs that they could potentially create here and that economic boost we'd get from them. So, I do think brain drain is a major issue that we need to be aware of.

I agree with you that the political climate right now is obviously very uncertain and what happens with Trump and tariffs could have a lot of play. We're seeing a huge boost in patriotism at the moment. But I've also noted that in some initial surveys coming out of the last few weeks, it seems like baby boomers are the ones with the biggest patriotic surge and they're reacting the most ferociously to this threat. Perhaps part of that is that they're a little bit more comfortable economically, where young people might, at the end of the day, look at the situation in both countries and say, “yeah, I have issues with a lot of these things, but I need to be able to feed my family and afford a home and raise kids.” And when you're talking about those basic economic needs, people might make some tough decisions that they otherwise wouldn't.

But, I do want to talk about solutions. We hear a lot about Canadian companies not investing in workers and productivity. Do they need to be encouraged to spend more money that's just sitting on their balance sheets to help boost Canadian wages? And if so, what are some potential policy fixes here?

Mike Moffatt: I think we need to boost productivity, that there's no sustainable wage increase unless we're more productive. I would say that housing probably fixes about two-thirds of this. It really all does come back to housing because that puts more money in young people's pockets. If they're not paying all of this money in rent and ownership it allows younger people to be more entrepreneurial if they have a little bit of money socked away.

You know, I started a company with a couple of friends back in 2005. That was just a year after I bought my first house. But I could do so because I wasn't house-poor. I wasn't paying all of my money to my mortgage. So I do think fixing housing does address this. It allows people to live in our most productive cities, but I think it actually goes beyond housing. I think we have this real inability in Canada to build things.

I am a self-described supply-side progressive, right? I think the government does have a role in helping the markets build things, whether that be housing, roads, ports, what have you. I think we have a real shortage of productive assets here. That also includes intellectual property, right? It's not necessarily just just tangible goods.

So, you can look at policy prescriptions around really wonky stuff like changes to accelerated capital cost allowances to incentivize some of those firms from sitting on that cash and instead invest in a new piece of equipment, machinery, factory, that kind of thing, allowing for more permissions to build. I think it comes back to this lack of investment. We don't invest in this country in a variety of things in a way that Americans do. So I think we need to look at those barriers.

I'm more on the progressive side so I’d like to get your take on this question: what would you like to see happen in order to increase middle-class wages here in Canada?

Sabrina Maddeaux: So as you know, I'm a small-c conservative, so I like to approach things a lot of the time [through the lens of] getting government out of the way. For me, a big thing to look at would be becoming more competitive on tax policy. Whether that's taxes on workers themselves so that we're not taking away so much of their paychecks, or taxes for companies to entice them to start investing here or stay here or invest in innovation.

At the same time, I think that there's a lot we can do - and we've talked about this in previous episodes, Mike - on the competition front to encourage businesses to compete more and invest in productivity and innovation and workers rather than being so comfortable in their oligopolies or monopolies as the case may be. So there's a lot we can do there and just generally getting rid of excess bureaucracy and red tape for entrepreneurs, those are all big things.

Obviously, on the doctors and nurses front, there's a lot more we can do to be more attractive to medical workers in this country, starting with opening up even more spots in our medical schools so they don't have to go away for schooling and then they can actually start their careers here. And we have to look at competitive wages for them as well.

So there's so much for our politicians and policymakers to tackle. And I do think it will be a major challenge for them over the next decade, or so, and something that we'll find ourselves talking about quite a bit.

Thank you so much for watching and listening. And thank you to our fantastic producer, Meredith Martin.

Mike Moffatt: If you have any thoughts or questions about living in upstate New York, please send us an email to [email protected]

Sabrina Maddeaux: And we’ll see you next time.