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September 5, 2011

Canada: Population shifts demand policy shifts

The Canadian Charger

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Statistics Canada has issued an eye-opening report on the shifting age structure of the country, with serious policy implications for the workforce. However, since the projections go out to 2031, do not expect the government to do anything much about the report. After all, 2031 is several elections away.

Here in a nutshell is what Statistics Canada is telling us. 

Between now and 2031, the rate of participation in the workforce (persons 15 and older) will drop from a current 67% to between 59.7% and 62.6%.  Ten years earlier, almost a fourth of those in the workforce will be 55 plus.  Hence, they will be a stone’s throw from that magic age of 65.  By 2031, close to a third of those in the labor force will be foreign-born, in significant numbers people from Asia.

Another way of looking at the shift is to identify the ratio of people in the workforce to retirees.

In 1981, there were five workers per retired person, declining to four in 2005 and to a bit over two by 2031. If we add those under 15 to the equation, then 61% of the population will be supported by those in the workforce. The implications for maintenance of social programs and in fact for all programs of the government, as well as for the running of the economy, are challenging. 

There are a number of aspects to the challenge posed by this population shift.  Here we will touch on four: the role of First Nations, birth rate considerations, immigration, and retirement policy.  Let us begin with the First Nations.  Indian, Métis, and Inuit populations are young and rapidly growing.  However, they are given grossly inadequate attention if they are to take their place in the Canadian economy.

Education and health status of First Nations people are seriously deficient.  Part of the reason is the past policy of Canada to destroy their cultures and disrupt family patterns.  The consequences have been disastrous.  Yet, rather than taking the necessary remedial measures, on-reserves expenditures for education and child welfare services are actually below those for the general population.  Services for those off the reserve (most First Nations people) are also inadequate to bring them into the economic mainstream.  Conditions on many reserves and for Inuit communities are comparable to conditions in the Third World.  The ongoing failure of government to address these conditions means that Canada will not make full or even adequate use of the potential talents of this youthful segment of the population.

If one were to identify the major factor leading to the aging of the country and of the workforce, it would be the low birth rate.  For Canada just to sustain its population, in needs an average of 2.1children per female during her fertile years. Currently, the figure is 1.58. In Quebec, which historically had a very high fertility rate, a rate that fell spectacularly below the Canadian level, we see an increase.  It now sits at 1.65.  The reason for this slight reversal may well be due to deliberate policy initiatives by the Quebec government. 

Quebec has established more generous parental leave programs than elsewhere in Canada and has pioneered $7-a-day child care.  Unfortunately, there are substantial waiting lists for the child care.  Were the province to make the program truly universal, it might increase its birth rate further.  In any case, the implications are clear: Government can act in ways to increase the birth rate. 

Statistics Canada’s 2031 projection of close to a third of the workforce being made up of immigrants puts the spotlight on immigration policy.  We need more immigration and we need the necessary services to assist them.  Incidentally, while the fertility rate of immigrant groups gradually falls toward the Canadian average, it often starts out higher. 

Finally a word about retirement policy.  65 is the “normal” retirement age in Canada, though the median age of retirement in 2009 was 61.6.  Early retirement with Canada and Quebec Pension is 6o.  However, more people thinking about when they will retire are, according to a Sun Life study, expecting to retire later than 65. 

It used to be that people thought we need to get the old-timers out of the workplace to give young people a shot at it.  However, the new reality is that we will be short of the youngsters.  We need those old-timers.  How can we get them to stay on?  There are two options, the carrot and the stick.

A certain amount of attention has been given to use of the stick: raise the age at which the Old Age Pension, CPP, and other pensions can be received.  That approach would lead to a lot of resistance because many people do want to retire by 65.  The carrot approach is, on the other hand, not confrontational.

Why not give the Old Age Pension at 65 regardless of whether a person is in the workforce or not?  Currently, if a person on the Old Age Pension works, there is a claw back, which could be in the thousands of dollars.  In order to entice people to stay in the workforce, the government could simply eliminate the clawback.  The senior would then be taxed on his income, including the Old Age Pension.  As it is, there is a disincentive, a penalty imposed on the senior who works and earns substantially.

It is not too soon for the politicians to think about what needs to be done to mitigate the problems ahead that will be faced with the graying of the population.  Whatever is done, the problem will still be there.  The question is how serious it will be. 

Given the level of imagination exhibited by the Tory government and its fixation on prisons and the military, it would be best not to expect much from them. The problem will simply continue to fester at least until it becomes more acute.  By then it may well be too expensive to fix.  The manpower may not be available to pay to remedy the situation.

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