Not only is the size of Canada’s income gap between the wealthiest and most vulnerable demographics reaching all-time highs in 2025, but Statistics Canada reports that the speed of that growth is itself accelerating. The result is a compounding disparity that negatively impacts lower-income groups, especially Indigenous Peoples. Recent studies show that solutions for income inequality lie not only in broad-based policies to reduce income inequality, but also in targeted policies that slow its growth.

For policymakers, it’s important to be precise about addressing the problem at hand.

Two diverging trends in household wealth

StatCan data from the first quarter of 2025 highlight two trends. First, the net worth of Canadians is increasing. On average, middle-income and lower-wealth households are improving their economic wellbeing and capacity to manage debt, despite weaker economic and housing market conditions.

Second, the average disposable income for Canada’s highest income earners (those in the top 20 per cent of the income distribution) increased at the fastest pace of any income group.

These trends are echoed in a recent consumer credit report that shows a widening debt divide, especially among younger Canadians who are facing financial strain with a slower job market and rising costs. So while the overall size of the pie is growing, a small group of Canadians are eating a bigger piece before most Canadians can even get to the table.

This trend is not new to researchers who study Canada’s most vulnerable groups, especially the Indigenous demographic where income levels are rising more slowly than that of other Canadians.

Why the income growth gap matters

Although the income gap and the income growth gap are interrelated measures of inequality, they are distinct, albeit related, policy problems. The income growth gap considers the compounding factors that affect inequality over time. In cases where there is an existing income gap and one group’s income grows at a faster rate than another group’s, the absolute disparity in income will increase over time. Conversely, different rates of income growth can lead to the development of an income gap between demographic groups even if their starting incomes are similar.

Canada addresses income inequality through a combination of policy levers that include direct income supports, tax policies and social programs like the Canada Child Benefit, the Guaranteed Income Supplement and the National Housing Strategy. These measures support low- and middle-income Canadians, reduce poverty and promote economic wellbeing. However, federal programs have not consistently delivered sustainable and inclusive growth, or eliminated systemic barriers. And even if policies succeed in eliminating the persistent inequalities in the income gap, that doesn’t mean that the income growth gap disappears.

The compounding effects of income growth inequality are well documented in research showing that inequality can reinforce itself. This ultimately leads to less intergenerational social mobility and, if left unchecked, places vulnerable groups like Indigenous Peoples at an increased risk of being trapped in a cycle of poverty.

Debating the right mix of reforms

Experts increasingly call for far-reaching policy reforms to address thegrowth of income inequality, although interviews with more than 70 politicians, bureaucrats and economists revealed little consensus about which policy strategies are most promising. As Atkinson and Mou report, while strong economic growth with low interest rates is often viewed as the default solution, some experts favour addressing wealth inequality through redistribution policies, ranging from taxes and transfers to a universal basic income.

While broad-based policy approaches can have a substantive impact on income inequality, research on Indigenous income points to the promise of combining macro- and micro-level policies to more effectively tackle growth of income inequality. To illustrate, let’s consider education.

Education and income are closely intertwined. Indigenous Peoples in Canada have seen remarkable gains on both counts. The latest census data show that more Indigenous people are graduating with high school diplomas, entering the workforce, and increasing their income — but not at the same rate as people in other Canadian demographic categories. Understanding the uneven pace of these gains matters because that is where growth in inequality has its biggest effect.

A study of recent graduates suggests that broad‑based policies can potentially narrow the Indigenous/non‑Indigenous income gap, particularly by expanding university attainment among Indigenous Peoples. Data from the 2020 and 2023 National Graduates Surveys shows that the widening gap is largely driven by the underrepresentation of Indigenous students in advanced degrees and fields of study with higher earnings. Consequently, increasing the number of Indigenous individuals who attend university will reduce current income disparities, but its effect on slowing the growth of inequality will be more pronounced if Indigenous students graduate with master’s and doctoral degrees.

Another study using the same dataset also indicates that income inequalities manifest differently across demographic groups and regions, such as Indigenous and non-Indigenous individuals who graduate with equivalent educational credentials but receive different income. Such income inequity could be influenced by structural or systemic differences (such as labour market barriers or discrimination) that lead Indigenous graduates’ characteristics to be valued differently in the labour market than those of their non-Indigenous counterparts.

Combining broad and targeted approaches

To reduce variations in income growth across groups, macro‑level policies that equalize starting conditions can be combined with targeted micro‑level interventions that shape individual earnings trajectories. The latter include policies that raise the labour market payoffs to credentials that Indigenous graduates already hold, as well as context-specific policies that align credential supply with regional demand. Knowing which policies to prioritize requires a detailed understanding of the longer-term mechanisms that drive inequality among vulnerable populations.

Addressing inequality is not only about reducing income gaps. It also requires addressing factors that accelerate the rate at which gaps widen. For policymakers, it isn’t either/or; both are linked. A deeper understanding of the differentiated workings of inequality and of inequality growth can help policymakers make informed choices about how to combine policy options.