I first wrote about Canada’s aging population problem just slightly over four years ago. Then I focussed on the potential benefits to seniors if they remained in the workforce longer. Specifically, they would earn more and there was a good chance that the effects of increased physical and mental activity would extend their longevity.
I also noted that more seniors in the workforce would boost government tax revenues and potentially slow the growth of government spending on health care.
To put some perspective on the aging of Canada’s population, over the past 20 years the percentage of the population over 55 years of age has increased from 20% to just over 30%. Since the vast majority of employed Canadians remain in the workforce into their sixties, it is not surprising that the participation rate of individuals 55 and over in the labour force has also risen from 32.2% in 1996 to a record high of 37.7% in 2016.
It is worth noting that while the participation rate of over 55’s has steadily accelerated since 1966, a steady shrinkage in the number of individuals aged 15 to 24 entering the labour force since 2008 (-192,100) has caused the participation rate of this group to retreat from a record high of 67.3% to 63.7% in 2016. Moreover, this shrinkage in the labour force occurred despite a 2.8 million net inflow of international migrants to Canada.
Faced with rapidly aging workforces and a concomitant decline in the ratio of workers to retirees (known as dependency ratio), a majority of high income OECD countries recognize that the combination of an increasing population of seniors with higher health care and pension costs, the persisting costs of education and child care benefits and a shrinking revenue base will severely strain their finances.
According to recent research by the C.D. Howe Institute, the impact of higher spending fuelled by an escalation of the population of retirees and weaker growth of revenues due to slower growth of the workforce will cause the share of Canada’s gross domestic production spent on social programs to steadily increase from 15.5% of GDP in 2016 to 24% in 2066. The Institute estimates that in order to avoid raising taxes to finance this increase in spending it would be necessary to set aside $4.5 trillion now.
In order to help offset the looming fiscal crisis stemming from the increase in spending on seniors-related social programs, eighty percent of high income OECD countries including the G7 (ex Canada) are raising the age of eligibility for public retirement programs.
Canada appears to have adopted a different strategy. Going in the opposite direction to most developed countries, in 2015 the government reversed a 2012 reform that would have increased eligibility for Old Age Security and the Guaranteed Income Supplement to age 67 by 2029.
The fact that all G7 countries except Canada are actively attempting to address their aging population challenge suggests that Canada’s “if we ignore it, it will go away” approach is not sustainable. In order to deal with this potential crisis, we should resolve to reintroduce plans to raise the age of eligibility for public retirement programs. In addition, we should eliminate restrictions on retirement saving after a certain age that penalize older workers who want to remain in the work force.
Growth of Labour Force – 55 years and over vs 15 to 24 years
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