Navigating the Coming Sea Change: Searching for Economic Growth Amid Population Aging

By Jock Finlayson and Kristine St. Laurent

For the first time in Canadian history, the number of seniors (aged 65 years and over) now exceeds the number of people aged 15 to 24. Fifty years ago, for each person approaching retirement (between 55 and 64 years of age), more than two were either just entering or within a few years of joining the labour force (aged 15 to 24).

Flash forward to 2016, and the 15 to 24 cohort (4.3 million) is smaller than the 55 to 64 age group (4.9 million). Looking ahead, workforce exits are projected to significantly outpace new entrants. For Canada, this represents a sea change in the evolution of the job market.

People Shortfalls Loom
An aging population has sobering implications for economic growth, which is destined to slow amid a contracting or barely increasing labour pool. For many employers, this will translate into greater difficulty in finding qualified staff to fill job openings. And while advances in technology may address some of the “people shortfalls” facing business, not all industry sectors will be equally affected by the spread of artificial intelligence or the onward march of digitization.

How, then, can policy-makers and employers respond to the looming demographic crunch?

Facing the Demographic Crunch
This important question was recently taken up by the federal government’s Advisory Council on Economic Growth. The Council was established to develop ideas to keep Canada’s economy on a solid growth trajectory at a time of far-reaching demographic change and heightened global competition for talent, capital and high-value business activity. Specifically, the Council was asked to come up with a menu of proposals which, if implemented, would lift real median household income in Canada by $15,000 by 2030, relative to the current baseline projection—a tall order, to say the least.

So far, the Council has devoted much of its attention to analyzing challenges around human capital. Its recommendations in this area fall into two main categories.

Seeking Skilled, Working-Age Immigrants
First, and most controversially, the Advisory Council urges the federal government to quickly ramp up immigration from 300,000 per year to 400,000 or more, with a primary focus on recruiting additional skilled, working-age immigrants. This, it argues, is the best way to inject added dynamism into an economy at risk of sclerosis due to unfavourable demographics, lower levels of entrepreneurial activity, and chronically sluggish productivity growth.

Among all advanced economies, Canada stands out for welcoming unusually large numbers of immigrants relative to population size—an inflow equal to almost 1 per cent of the country’s population every year. The data show that many of these newcomers struggle to find suitable work and to integrate into the economy and society. Unless and until the economic performance of the average immigrant improves, it is doubtful that rapidly expanding Canada’s already ambitious immigration program would be politically feasible.

Tapping Underutilized Home Talent
Second, the Council emphasizes the need to broaden workforce participation by more efficiently tapping into the economic potential of the existing population. Here, it offers recommendations touching on historically under-utilized talent, including First Nations, working-age mothers, those with limited educational qualifications, and people aged 55 to 69 willing to delay retirement. According to the Council, the following gains could be achieved through better use of human capital:

  • The Council estimates that bringing labour force participation among Aboriginal Canadians up to the level of the overall population would add $7 billion to the country’s GDP, with the Western provinces reaping the biggest proportionate gains;
  • Similarly, if Canadian women with children under the age of 16 participated in the workforce to the same extent as do women in Quebec, the labour force would grow and the value of national economic output would rise by $13 billion. This argues for expanding child day care services, particularly for lower- and middle-income families;
  • Almost one-third of Canadians aged 25 to 54 lack educational qualifications beyond upper-secondary school. Compared to the general population, they have lower average incomes and are less active in the workforce. Raising labour force participation rates among lower-income Canadians could boost GDP by up to $20 billion. The Council believes that progress in this area requires modifying the Employment Insurance system and augmenting the Working Income Tax Benefit program; and
  • Finally, if Canada were able to match the best-in-class industrial economies—namely, Sweden, Norway, Japan, and New Zealand—in workforce participation rates among people aged 55 to 69, our economy would be larger to the tune of $56 billion.

Thinking Big to Bring Dividends
The Advisory Council was asked to “think big,” and it has not disappointed. Its report shines a light on the continued under-representation of some demographic groups in the workforce, and identifies ways the economy can benefit by leveraging the untapped potential of the Canadian population. The transition to an older workforce is upon us. The Council’s recommendations may inspire inform strategies that help to manage the stormy seas ahead.

Jock Finlayson is executive vice-president and chief policy officer, and Kristine St. Laurent, a policy analyst, with the Business Council of BC.

(PeopleTalk Summer 2017)

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