The future of jobs in Canada

Skills mismatch may mean 1.5 million vacancies by 2016

March 19, 2013

On a recent February evening, Karl Eve received an emergency call from a restaurant owner in Canmore, Alta. The busy eatery had suddenly found itself with no hot water, even though the basement hot water tanks appeared to be working fine. A plumber with 10 years’ experience, Eve eventually traced the problem to a malfunctioning dishwasher and got the hot water flowing again—much to the owner’s relief.
It’s the sort of detective work Eve says he loves about his job. He also likes that his plumbing business, which he runs with his wife in nearby Exshaw, provides his family with a comfortable middle-class lifestyle. But it was a career he very nearly missed. Never a fan of textbooks, Eve ended up toiling in a southern Ontario gypsum mine after high school. It was only after moving to Alberta years later that he considered a career in the trades. A chance meeting at a church potluck led to a ride-along with a local plumber and, ultimately, an apprenticeship. “I discovered there was a lot to learn, especially when it came to math,” Eve says of his four years of training, which included eight weeks a year in a classroom. “The amount of education was very surprising to me, but in a positive way. I grasped it with both hands, so to speak.”
Eve’s story is more rare than it should be in Canada. Many consider the trades to be low-paying, go-nowhere jobs, if they consider them at all. But it’s a perception not grounded in reality, as Eve’s healthy hourly rate of $90 to $135 suggests. Nor is it one Canada can afford to maintain. Numerous studies warn Canada is facing a massive shortage of skilled workers over the next few decades as millions of baby boomers hit retirement age and exit the workforce.

At the same time, the nature of work itself is changing as the country transitions to a so-called knowledge economy that relies on a well-trained and highly educated workforce to produce value-added products and services. Those without the necessary skills could soon find themselves unemployable. The Canadian Chamber of Commerce estimates there will be 550,000 unskilled workers who won’t be able to find work by 2016. By 2021, it says, the number could be well over a million. At the same time, it’s estimated there will be 1.5 million skilled job vacancies in 2016, and 2.6 million by 2021.
Economists call it a skills “mismatch.” The country is in dire need of engineers, health workers and skilled tradespeople. Yet tens of thousands of students continue to pursue degrees in the arts and humanities. The result is an unemployment rate that refuses to fall below seven per cent (about 13.5 per cent among youth), while employers increasingly complain about vacant jobs that promise good wages—particularly in Western Canada, where the oil, gas and mining industries are booming. “The new phenomenon here is that we’re going to be seeing pockets of persistent high unemployment existing right alongside serious worker shortages in particular industries,” says Perrin Beatty, a former member of Parliament and the chamber’s CEO.
Hence, Canada not only needs to encourage more people to enter the workforce, but to ensure everyone will be productive once they get there. That’s a tall order in a country where, incredibly, nearly half of all adults don’t have the necessary literacy and numeracy skills to participate in a modern economy. As a result, experts say a dramatic rethink of how our post-secondary system works is in order. Though Canada’s universities are among the best in the world, critics argue for a much greater focus on colleges and polytechnic universities, since the latter are better plugged into the business community. Others say the country needs to do a better job of informing young people about the breadth of high-paying career opportunities in a modern economy.
The trend toward “people without jobs, jobs without people” poses the single biggest long-term threat to Canadian economic growth, exacerbating Canada’s already lagging productivity and innovation, according to one recent report. But attempts to head off calamity are so far being met with the usual obstacles. Companies complain about the additional cost of training employees; unions are wary about foreign workers taking local jobs; and parents continue to try and steer their children into a few prestigious professions. Something has to give. “We have a skills problem well on its way to becoming a crisis,” Beatty says. “And you need only look at the demographic wedge that we’re confronting to see that the problem is only going to get worse.”
A recent report by the Canadian Imperial Bank of Commerce suggested as much as one-fifth of Canada’s labour market already suffers from too few qualified workers, particularly in the health care, mining, business services and advanced manufacturing sectors. The average unemployment rate for those jobs is just one per cent, while workers in those positions are seeing wage gains of nearly four per cent annually, more than double that of the broader economy—a telltale sign of a labour shortage.
At the same time, the CIBC report noted a surplus of employees in occupations such as food services, clerical work, sales and recreational guiding—a group that collectively accounts for about 16 per cent of the workforce. Another study, released last week by the C.D. Howe Institute, noted that the mismatch is especially problematic in the Western provinces of Alberta, Saskatchewan, Manitoba and British Columbia.
Evidence of the shortage is already popping up in day-to-day life. In Alberta, the booming oil sands have sucked workers away from dozens of other occupations, some of which—like policing—were already experiencing shortages. As a result, Calgarians who get pulled over by the police are just as likely to be questioned in a British or Scottish accent following a U.K recruitment drive several years ago. Other provinces, meanwhile, are preying on foreign countries that are still recovering from the 2009 global crisis. Saskatchewan is targeting Ireland, which required a bailout from the European Union and International Monetary Fund, for a fresh supply of heavy duty mechanics, welders, engineers and machinists.
But such cross-border shopping for talent threatens to become a problem in its own right. A survey of 38,000 companies in 41 countries last year by Milwaukee’s ManpowerGroup found that one-third were unable to find enough workers with the right skills, suggesting a global shortage is emerging. One country’s gain can quickly become another’s loss. “Highly skilled people are extremely mobile,” explains Beatty, adding that it creates disincentives for employers and government to pour money into training programs, lest all those newly skilled workers get poached.
The flip side of Canada’s skills mismatch—all those bartenders and baristas with expensive university degrees—is also troubling. Not only are underemployed Canadians contributing below their full potential, they’re creating a domino effect by taking jobs away from those without skills who can’t find work. The economic impact is potentially huge. At a time when the Bank of Canada is trying to juice business activity with continued record-low interest rates, CIBC chief economist Avery Shenfeld argues that Canada’s “labour market mismatch is big enough not only to reduce the effectiveness of monetary policy, but also to limit the growth potential of the labour market and the economy as a whole.”
In a recent speech, Diane Finley, the minister of human resources and skills development, compared the situation to a man listening for an oncoming train by putting his ear to the tracks. “Well, folks, it’s time to stop listening for the train, because it’s bearing down on us,” she said, citing a PricewaterhouseCoopers survey that found two-thirds of CEOs ranked the lack of key skills as the biggest threat to their growth prospects. “Canada’s economy is changing, the workplace is changing and we all have to change with it.”
Nor is the problem simply constrained economic growth. Although there’s some debate about when the full force of the baby-boomer retirement wave will hit—many Canadians are working past the age of 65 and the lingering effects of the 2009 recession have caused many businesses to hold off on hiring—some experts are forecasting a profound shift in the way the entire economy works. As Canadians get older, on average, they’re expected to spend less money while putting a greater strain on health care, pensions and old-age security. Those services, in turn, will be supported by a declining number of working-age Canadians. “We’re going to be in a hell of a problem unless we find ways to increase the size of the workforce and encourage higher participation rates,” says Rick Miner, the president of Toronto consulting firm Miner & Miner, which published a report on Canada’s labour challenges last year. “We’re not going to have the resources to provide ourselves with the services we’ve come to think of as normal, whether it’s health care or anything else.”
Ottawa is taking the threat seriously, and one of the biggest weapons in its arsenal is the country’s immigration system. The federal government has already announced changes, to take effect this spring, that would place a greater emphasis on younger workers and speed up the process employers must go through to hire new Canadians in occupations where there are immediate labour shortages.
But immigration alone won’t be a panacea. Many new immigrants tend to settle in big cities like Toronto and Vancouver, where there are big ethnic communities and established social networks. By contrast, many of the most acute labour shortages are in the country’s hinterlands, where oil and mining companies’ operations are based. There are also problems with the recognition of foreign credentials and language skills, which has traditionally led to a much lower workforce participation rate for first-generation immigrants. Whereas roughly 82 per cent of Canadians between the age of 25 to 54 have historically participated in the labour force, the corresponding number for recent immigrants is just 63 per cent, according to Statistics Canada. It remains to be seen whether policy changes that target workers with high-demand skills will be able to dramatically narrow this gap.
Individual industries face their own problems with foreign workers. Beatty, for example, notes that the trucking industry is suffering a critical shortage of drivers, which could have an outsized impact on the economy, given the importance of truck transport to North American supply chains. “Increasingly, we’re having to look at new immigrants to fill those jobs,” he says. “But that poses a problem because security requirements at the border limit the countries drivers can come from if they want admission to the United States.” There’s also the risk of a backlash if foreign workers are perceived to be favoured for jobs that might otherwise go to Canadians. In B.C., a mining company recently found itself the target of a union lawsuit after it hired about 200 foreign temporary workers from China. They’ve since been sent home.
Finding more workers is only one side of the equation. “We also need to look at the educational side,” says Miner. “That’s where the real payoff is.” Despite Canada’s solid public schools and high-quality post-secondary institutions, 48 per cent of adults lack sufficient literacy skills “to function well at work and in daily living,” according to Human Resources and Skills Development Canada. While Canada actually scores relatively high—about fifth out of 20 developed countries— on basic reading, or “prose” literacy, it falls to the middle of the pack on “document” or “quantitive” literacy skills, which involve things like reading charts and graphs or balancing a chequebook. All of which suggests that many Canadians are increasingly ineligible for the occupations of today, let alone the jobs of tomorrow.
High-tech skills are becoming a prerequisite for many jobs. “Everything we do is heavily laden with technology—even down to drywall installation,” says James Knight, the president of the Association of Canadian Community Colleges. “I don’t know if you’ve watched this recently, but it’s all done with lasers bouncing around the room.” He estimates nearly 75 per cent of jobs now being created in Ontario require a post-secondary education, but that only about 58 per cent of the population has one. “The people we need require a much more sophisticated level of education,” he says. “And we’re simply not there yet.”

Click on the chart to enlarge (Created by Lauren Cattermole)

Also key is making sure Canadians receive the right training. Miner, for one, argues that government efforts to encourage innovation by pumping billions into university research over the past 30 years may have actually exacerbated the country’s labour woes. While all that money has resulted in exciting discoveries and publications in elite journals, it hasn’t necessarily done a great job in preparing graduates for the workforce. “You have parents that desperately want to make the right decision for their kids. And you can’t fault them if they want their kids to go to university,” Miner says. “But what parents don’t realize is that you can get a great career through college, and better earning potential. But the status just isn’t there.” Universities, on the other hand, cite stats that show graduates have filled 1.3 million of the 1.5 million new professional and management positions created over the past two decades.
Knight says it’s ultimately a question of finding the right balance. He argues that colleges are particularly well-suited to bridging the divide between academics and training because they already work closely with industry to develop their programs. He cites a four-year degree at B.C.’s Selkirk College that focuses on geographic information systems, including GPS applications used heavily by the forestry and mining industries. “Where in a university calendar would you find anything about GPS?” he says. “At a time when the principal constraint on economic growth in this country is a shortage of human capital, we really have to think about what we’re emphasizing and where we put our resources.” He adds that the post-secondary system would benefit immensely if students could move more seamlessly between colleges and universities, noting that as many as 20 per cent of college applicants already have a university degree. “Obviously, it’s not efficient to spend six years in post-secondary education when considerably less might have done the job,” he says.
Another limitation of the current system, according to a recent study by the Organisation for Economic Co-operation and Development, is that Canadian university research, though top-notch, has a poor track record of finding its way into the commercial sphere. In contrast, colleges are developing a niche for themselves by having faculty and students work closely with smaller companies to develop new products and services—applied research that can be immediately implemented in the marketplace. Nobina Robinson, the CEO of Polytechnics Canada, which represents 11 colleges and institutes of technology, says the trend not only promises to boost Canada’s innovation across a variety of sectors, but will equip future employees with skills that employers need to be successful. “The knowledge economy is always saying we need more M.B.A.s and Ph.D.s,” Robinson says. “But to come up with big discoveries and innovative breakthroughs, you actually need people who can make, design and build things, too.”
Among the recommendations Polytechnics Canada has put forward to Ottawa: more government support for applied research and commercialization programs; more focus on apprenticeship and pre-apprenticeship programs; and a requirement that bidders on government contracts create apprenticeship positions as a condition of their bids. Fewer than half of Canadians who register as apprentices every year actually go on to become certified. The reasons are many and vary across provinces and industries, but Robinson cites a general unwillingness among many employers to take on apprentices—possibly because they fear rivals will steal their newly trained workers. A study last year by the Conference Board of Canada showed that investment in employee training among Canadian companies has fallen nearly 40 per cent since 1993. “We need to reward employers through the tax code who invest in training,” Robinson says. She adds that governments could also do a much better job of making the apprenticeship process more attractive. “The philosophical issue is that when you pay an apprentice through [Employment Insurance] to do their in-class portion of their study, they’re being treated as an employee, not a learner,” she says. “If we want more skilled tradespeople, we’ve got to change.”
Back in Exshaw, Karl Eve’s wife, Michelle, a former teacher who, incidentally, has two university degrees, says Canadians who believe that university education is the only path to prosperity are selling themselves short. She recalls her own initial feelings when her husband announced he wanted to become a plumber. “I just had that sense, which we’re all a bit guilty of, I think, that the more capable people go to university and the less capable people end up in technical schools,” she says. “But when I saw what Karl was doing, the level of mathematics really impressed me. It’s stuff that most people just don’t know.” And unless more people make a similar discovery, Canada is going to have a lot more to worry about than leaky pipes.
Where are all the jobs?
Despite persistent high unemployment in Canada, many occupations are expected to face serious shortages of qualified workers over the next decade. The following shows the percentage of job openings that are forecast to go unfilled in each occupation, with more vacancies than actual job seekers.
Technical sales specialists, wholesale trade 23%
Logging and forestry workers 27%
Finance and insurance administrative occupations 28%
Stationary engineers and power station and system operators 28%
Cleaners 30%
Service station attendants, grocery clerks and shelf stockers 31%
Administrative and regulatory occupations (e.g., court officers) 34%
Transportation officers (e.g., pilots, air and marine traffic controllers) 34%
College and other vocational instructors 34%
Insurance and real estate sales workers and buyers 35%
Mine service workers and operators in oil and gas drilling 36%
Managers in protective services (e.g., police, fire, armed forces) 38%
Positions in agriculture, horticulture and aquaculture 38%
Administrative support clerks 40%
Logging machinery operators 40%
Technical jobs in libraries, archives, museums and galleries 45%
Supervisors in mining, oil and gas 58%
Secretaries, recorders and transcriptionists 71%
Supervisors in logging and forestry 100%
Beware: jobs expected to have too many workers in the next 10 years:
Managers in art, culture, recreation and sport
Security guards
Athletes and coaches
Fishing vessel skippers
Cashiers
Computer and information system professionals
Chefs and cooks
Pulp and paper machine operators
Physicists and astronomers
Geologists

http://www.macleans.ca/work/jobs/the-future-of-jobs-in-canada/
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ENTREVESTOR: MentorCamp makes debut in Cape Breton

PETER MOREIRA
Published August 1, 2016 - 2:22pm

MentorCamp, the event that brings together entrepreneurs and mentors for intense training sessions, will take place in the Sydney area this month — the first time it’s been held in Cape Breton.

Founder Permjot Valia launched MentorCamp in Halifax in 2011 and has since held the event in such locations as Arkansas, South Africa, and Manitoba. He recently became the Entrepreneur-in-Residence at the Island Sandbox, an innovation program for post-secondary students in Cape Breton, and has therefore decided to hold the 2016 event on the island.

“I’m looking forward to bringing in the mentors and introducing them to Cape Breton — both for the mentors, to show then what Cape Breton has to offer, and for the local companies,” said MentorCamp Chief Operating Officer Carolyn Clegg in an interview last week.

MentorCamp was formerly an annual event in the region and is now held every second year. It has been held five times in the region, always in Halifax, and the big change this year is it is being held in Cape Breton for the first time. It’s the first time Sydney will host a startup event aimed at companies from beyond the local startup community.

Sydney boasts one of the fastest growing startup communities in the region. As of the end of 2015, there were 32 startups on Cape Breton and 21 were less than two years old. The local incubator, Navigate Startup House, has recently received federal and provincial funding and is working to stage more events for startups based in Cape Breton and elsewhere.

The MentorCamp event will bring together an array of mentors from Atlantic Canada and outside the region who are experts in a range of disciplines.

They include: Arkansas entrepreneur Carol Reeves, who has been profiled in such publications as Forbes; Michael Sikorsky, the CEO of Calgary startup Robots & Pencils; Mark MacLeod, the founder of SurePath Capital Partners of Toronto; and April Dunford, a Toronto-based specialist in startup sales, marketing and customer support.

As well as startups from all four Atlantic Provinces, the companies attending MentorCamp include promising startups from other areas so all participants — mentors and entrepreneurs — can compare the local companies with those from elsewhere.

The eight companies attending MentorCamp are: Airbly, Argyle Shore, PEI; Campfire Union, Winnipeg; Empowered Homes, St. John's, ReadyPass, Fredericton; Treatsie, Fayetteville; Ubique Networks, Sydney and Toronto; WellTrack, Fredericton; and Woods Camp, Mahone Bay.

The event spans two days. On Monday, Aug. 15, the eight invited companies will spend the day with the mentors.

The next day, about 20 companies from Sydney’s burgeoning startup community will be invited to attend one-on-one sessions with the mentors attending the event.

Clegg said the MentorCamp organizers will decide after the event whether to hold it in Cape Breton again or to return to Halifax or try another part of Atlantic Canada. She added the team is impressed with the energy they’re finding in the Sydney area, and Valia hopes to be involved in many other events in the area.

“They’re eager, and there’s definitely skill there,” said Clegg. “And what’s happening now is they’re pulling it all together, and we’re really seeing the support happen.”

Peter Moreira is a principal of www.Entrevestor.com, a news and data site for Atlantic Canadian startups.

Entrevestor.com produces daily news reports on the Atlantic Canadian startup community. It is financed through the sale of advertising and analytic reports to clients in the private and public sectors. This support is specified whenever the name of a client appears.

http://thechronicleherald.ca/business/1384650-entrevestor-mentorcamp-makes-debut-in-cape-breton

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NowNS: Bureaucracy needs to embrace innovators

PETER MOREIRA

Last Updated August 1, 2016 - 5:40pm

There are a few things that investors don’t like to hear from entrepreneurs who are pitching them for money, and one is that the startup plans to sell mainly to government.

Selling to government is difficult. The sales cycle is long — so long the startup can run out of money waiting for an answer. Bureaucracies often resist change, which interferes with the adoption of new technology. If the technology saves money, unions worry about job losses.

There’s no ideology or bias in these statements. It is simply the result of observation of several startups that have tried to sell to government, often with disastrous consequences. Yes, there are exceptions, but overall, mentors and investors worry about startups targeting government.

So if there were a single thing that the Nova Scotia government could do to improve innovation in both the private and public sectors, it would be to improve its process of adopting new home-grown innovation. Such a policy would have two effects: it would create an early market for young companies and help them to refine their products; and second it would improve productivity within government.

High-growth companies (we call them startups but some are decades old) are the cornerstone of an innovative economy. Atlantic Canada has a lot of the components needed to develop these companies – abundant talent, access to capital, lots of universities, stable government. And the provincial and federal governments have some tremendous programs to fund and nurture startups.

What we don’t have is a lot of private industry. The best startup communities have big corporations that spin off startups, offer entrepreneurs experience in industry, and work with startups to develop their products. There are some of these in Atlantic Canada, but not enough.

Government in the Maritimes makes up a larger portion of the economy than in other provinces or in U.S. states. It would be a huge help to Nova Scotian startups — which are the vanguard of modernizing our economy — if government filled the void left by the lack of big business in the region.

Sadly, it hasn’t.

The rule of thumb is that if your business model depends on selling to government, change your model. Biotech companies selling in Canada have to sell to the public sector, but many if not most have go-to-market strategies that target other jurisdictions.

What’s needed is an adopt-an-innovation program in specific departments, something akin to an adopt-a-highway program in some jurisdictions. The government should name a couple of departments that will initiate programs to buy technology from Atlantic Canadian startups. The Departments of Health and Education seem obvious candidates as they’re big and there is a lot of innovation that improves performance without threatening staff levels.

These departments should create panels to hear pitches, and the panels have to include both senior management (who can make fast decisions) and rank-and-file staff (who can address difficulties in implementing the technology). The program should be open to young companies that have new products and also established companies that have sold their products elsewhere but not in Nova Scotia. Once the panel selects a company, it remains in place to help with the implementation.

Obviously, the winners in this situation would be the startups themselves. But Nova Scotian citizens would also benefit from access to the improved performance of new technology.

Peter Moreira is a principal of www.Entrevestor.com, a news and data site for Atlantic Canadian startups.

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http://thechronicleherald.ca/business/1384651-nowns-bureaucracy-needs-to-embrace-innovators

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What the United States Can Learn from Canada's Express Entry ...

www.theatlantic.com/business/archive/2016/06/the-philosophical-differences-on-immigration-between-canada-and-the-us/488534/

Jun 24, 2016 ... The Philosophical Differences on Immigration Between Canada and the U.S. ... want to emigrate to Canada fill out online profiles with their age, resume, ... Skilled workers in the United States are waiting anywhere from five to ...

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Archived - Economic and Fiscal Implications of Canada's Aging Population

Archived information
Archived information is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.

Note to Readers

The historical Canadian economic data in this document are taken from the March 2, 2012 release of the National Income and Expenditure Accounts, except where otherwise noted.
The starting point for the long-term economic and fiscal projections presented in this document is the projection for the 2012 to 2016 period presented in Budget 2012: Economic Action Plan 2012—A Plan for Jobs, Growth and Long-Term Prosperity.

Introduction

In 2006, the Government launched a comprehensive economic plan to foster strong, sustainable, long-term economic growth, building on Canada’s key economic advantages. The Government followed through by implementing broad-based tax reductions, paying down debt, and investing in knowledge and infrastructure.
These actions put the Canadian economy on a solid foundation for sustainable, long-term economic growth. They also placed Canada in a stronger position than most other countries to respond quickly and effectively during the 2008–2009 global recession to support the economy and protect Canadian jobs.
The fundamental strength of the Canadian economy was reflected in the fact that Canada fared better than other Group of Seven (G-7) countries in the face of the global recession and during the recovery. The strength of the economy has also been reflected in a strong economic performance over the past six years, with Canada recording the strongest growth in income per capita among G-7 countries, compared to the weakest growth performance in the 1990s.
A key factor behind Canada’s strong economic performance has been its strong employment performance, with almost 1.4 million jobs created since the beginning of 2006, the strongest employment growth in the G-7. As a result, Canada now has the highest employment rate—the percentage of the population employed—in the G-7.

Growth in real per capita disposable income from 2006 to 2011 - For details, refer to the previous paragraph — Note: Monthly data for Canada (July 2009 to February 2013), the U.S. (February 2010 to February 2013), Germany (July 2009 to January 2013), Italy (at its lowest as of January 2013) and Japan (December 2012 to January 2013). Quarterly data for France (2009Q4 to 2012Q4) and the U.K. (2010Q4 to 2012Q4).

Growth in employment from 2006 to 2011 - For details, refer to the previous paragraph — Notes: Base year for calculations is 2005. The cut-off date for data included in this chart is the week of October 15, 2012.

Going forward, however, demographic changes will make it increasingly difficult to continue to improve the income and standard of living of Canadians through increases in the employment rate. Projections show that, as a result of population aging, the proportion of the population of working age (15 to 64) will shrink over the coming decades, which will lead to an inevitable fall in the employment rate.
Faced with an aging population, the first imperative is to redouble efforts to boost productivity growth so that Canadian workers can produce more and better goods and services and be better paid. To increase productivity growth, Canada will need to continue to invest in the key drivers of productivity: innovation, human capital and business investment. These three drivers interact with each other to improve productivity. For instance, skilled workers using modern equipment with the latest technology complement and reinforce each other. At the same time, corporate structure and culture, as well as business workplace organization, also have a significant impact on productivity. While most of the investments in the drivers of productivity result from private decisions by individuals and businesses, the Government can strengthen its policy framework to encourage these investments.
The second imperative is to ensure that an increasing number of Canadians have the necessary skills and the incentives to fully participate in the workforce. This will help mitigate the impact of population aging on Canada’s economy. While Canada’s labour force participation rate is higher than in most other advanced countries, there is room for improvement. For example, Canadians aged 55 and over are less active in the labour market than in many other advanced countries and workforce participation is a challenge for a number of Canadians, including Aboriginal people, recent immigrants, less-skilled individuals, young people, and persons with disabilities.
Indeed, building on Government actions taken since 2006, Budget 2012: Economic Action Plan 2012—A Plan for Jobs, Growth and Long-Term Prosperity announced a number of important structural economic initiatives to create an environment conducive to higher productivity and support the participation of Canadians in the workforce. The payoff from starting to pursue these structural initiatives now is potentially very large as these policies will tend to reinforce each other over time.
At the same time, ensuring that public finances are sustainable is one of the best ways that governments can contribute to long-term economic growth and job creation. Sustainable and responsible fiscal management put Canada in a position of strength when it came time to combat the effects of the global recession, as it enabled the Government to respond quickly through the stimulus phase of Canada’s Economic Action Plan. Going forward, maintaining fiscal sustainability and flexibility as the Canadian population ages will require returning to balanced budgets over the medium term and putting the public debt-to-GDP (gross domestic product) ratio on a downward track.
As a first crucial and necessary step to guarantee long-term fiscal sustainability, the Government has taken measured actions since the end of the recession to ensure a return to balanced budgets over the medium term, including bringing federal public sector compensation in line with that of other public and private sector employers and restraining growth in direct program spending. In addition, these actions have been supplemented by measures to preserve social programs. Combined, these actions will help ensure the sustainability of Canada’s public finances and social programs over the longer term.
Indeed, the projections contained in this document suggest that these actions should be sufficient to ensure long-term fiscal sustainability based on current demographic and economic trends. However, like any projection that extends over the long term, the “status quo” fiscal projections presented in this document, as well as the underlying demographic and economic projections, are subject to considerable uncertainty. In particular, the baseline economic and fiscal projections do not take into account the likelihood that Canada could be hit by other recessions. This is why the Government will follow through on its plan to return to balanced budgets over the medium term by restraining growth in operating spending and ensuring that existing spending is as efficient as possible. Achieving this goal will provide the Government with the flexibility to respond to unexpected economic shocks.
This document describes the demographic transition that is underway, discusses the economic and public finance implications of this transition, and identifies public policy directions that will help Canada deal with the consequences of an aging population.
A central conclusion of the document is that acting and planning now to prepare for the challenge of an aging population will support long-term economic growth and avoid the need to take drastic or inequitable actions in the future, such as significant tax increases or service reductions.
This document is structured as follows:

The demographic challenge: Population aging will be a key challenge over the coming decades as the share of the population aged 65 and older increases and the share of the population of working age falls.
Economic implications: Unless productivity growth and labour market participation improve, population aging is expected to lead to lower growth in output and income and increase the possibility of labour shortages. While most decisions determining productivity growth and workforce participation are made by individuals and businesses, governments can play an important role by putting in place public policies that encourage productivity-enhancing investments and workforce participation. In this respect, the Government has implemented and announced a number of important structural economic initiatives to create an environment conducive to higher productivity and support the participation of Canadians in the workforce, which should help offset some of the impacts of population aging.
Implications for public finances: Through slower economic growth, population aging is expected to reduce the growth rate of government revenues, thereby limiting the capacity of governments to continue to finance growth in public expenditures at rates as high as in the past. At the same time, population aging will put upward pressure on public expenditures, notably for age-related programs such as health care and elderly benefits. With the Government’s plan to return to balanced budgets over the medium term and to ensure the sustainability of public finances over the longer term, Canada is better prepared than most countries to adjust to the demographic changes now underway.

Chapter 1 - The Demographic Challenge

Highlights

As a result of significant improvements in life expectancy and a significant drop in the fertility rate, the Canadian population has gradually become older over the past decades.
However, with the oldest members of the large baby boom generation now reaching retirement age, the aging of the Canadian population is soon set to accelerate.
Indeed, the ratio of the elderly to the working-age population is expected to nearly double over the next 20 years.
While population aging is a worldwide phenomenon, Canada is expected to age more rapidly than most other countries.
As a result, while Canada currently has a lower ratio of elderly to working-age population than most other countries in the Organisation for Economic Co-operation and Development (OECD), accelerated population aging is expected to push the ratio in Canada above the OECD average by 2030.
A higher fertility rate and higher levels of immigration could help slow population aging but would not prevent it.

Population growth is on a declining trend

Population growth - For details, refer to the following paragraph — Sources: Statistics Canada; Department of Finance calculations.

The growth rate of Canada’s population has been on a declining trend since the late 1950s, reflecting a gradual decline in the fertility rate.^[1]
The fertility rate in Canada has rapidly decreased from a high of 3.9 children per woman in 1959 to 1.7 in 1979, and has stayed close to this level ever since. The fertility rate has been declining to varying degrees in most advanced economies.
In the late 1950s, at the peak of the baby boom, Canada’s population grew by 2.8 per cent a year. Since then, annual population growth has gradually declined and now stands at about 1 per cent annually.
This downward trend is expected to continue in coming decades, with population growth projected to gradually fall to 0.7 per cent per year by 2050.^[2]

Substantial changes are also occurring to the age structure of the population

Changes in the age structure of the population - For details, refer to the following paragraph — Source: Statistics Canada.

Combined with falling fertility rates, positive developments in longevity, whereby Canadians have seen their life expectancy increase by about 20 years since the 1920s, have resulted in the Canadian population gradually growing older.
- In the early 1970s, Canada’s population stood at about 22 million, with an age pyramid consisting of a wide base, reflective of a young population.
- Today’s population stands at almost 35 million, with an age distribution that is no longer pyramidal.
- In 2030, with a projected population of more than 40 million, the age structure is expected to have an even narrower base, as a greater share of the population will be in older age groups.
Age pyramids allow us to see the influence of the baby boom generation (people born between 1946 and 1965) on the structure of the population. The importance of this generation is discernible (the darker shaded area of the age pyramids).
Until now, the baby boom generation has slowed the pace of population aging. However, as baby boomers move into retirement, the opposite effect is expected to take hold, accelerating the pace of population aging.
As the baby boom generation enters retirement age, the ratio of the elderly (65+) to the working-age (15 to 64) population is expected to almost double from its current level of about 21 per cent to 37 per cent in 2030^[3].

Population aging is a worldwide phenomenon…

Ratio of the 65+ to the 15 to 64 population - For details, refer to the following paragraph — Note: Selected countries.
Sources: United Nations, *2010 Revision* of the *World Population Prospects*; Statistics Canada.

Aging is not unique to Canada. It is a global phenomenon that is affecting or is expected to affect all advanced countries, as well as some developing ones, notably China.
In OECD countries, the elderly to working-age population ratio is projected to increase, on average, from 23 per cent in 2011 to 35 per cent in 2030.
At 37 per cent in 2030, Canada’s elderly to working-age population ratio is projected to be: slightly above the OECD average but still slightly under the G-7 average (41 per cent); higher than that of the United States and the United Kingdom; close to the elderly ratio in France; and below that of Germany, Italy and Japan.
The Chinese population is also projected to age significantly over the coming decades and is expected to be as old as the Canadian population by 2050.

…but Canada is expected to age more rapidly than most other countries

Change in the 65+ to the 15 to 64 population ratio, OECD countries, 2011–2030 - For details, refer to the following paragraph — Note: OECD average based on 34 countries.
Sources: United Nations, *2010 Revision* of the *World Population Prospects*; Statistics Canada.

While all advanced countries are expected to age over the coming decades, the Canadian population is projected to age more rapidly than that of most other OECD countries, based on estimates of the United Nations.
Over the next two decades, the ratio of elderly to working-age Canadians is projected to increase by 16 percentage points, close to 4 percentage points above the OECD average.
Five other OECD countries (Slovenia, Finland, Germany, the Netherlands and South Korea) are expected to record similar or larger increases in their elderly to working-age ratio over the same period.
As a result, while Canada currently has a lower ratio of elderly to working-age population than most other OECD countries, accelerated population aging in Canada is expected to push this ratio slightly above the OECD average by 2030.
This relatively rapid aging of the population means Canadians and their governments will have to deal with the economic and public finance implications of population aging in a shorter period of time.

Raising fertility and immigration rates could help slow population aging but would not prevent it

Share of the 65+ in total population - For details, refer to the following paragraph — Sources: Statistics Canada; Department of Finance calculations.

Reasonable changes in the underlying determinants of population growth, such as immigration and births, could help slow the pace at which the population is expected to age, but they would not prevent it.^[4]
For instance, even if the fertility rate were to rise to the replacement level of 2.1 or net immigration (immigrants plus returning emigrants minus emigrants) levels were doubled, the share of the elderly in the total population would still increase sharply by 2050. By that time, the share of the elderly in the total population would be reduced by a little more than 3 percentage points under the higher fertility scenario, and by less than 2 percentage points under the higher net immigration scenario.
Furthermore, as illustrated below, raising the fertility rate to 2.1 or doubling net immigration levels would both be challenging, given the low fertility rates in almost all OECD countries and given that Canada already has one of the highest immigration rates in the industrialized world.

Fertility rates are below the replacement level in almost all OECD countries

Total fertility rate, OECD countries, 2010 - For details, refer to the following paragraph — Note: OECD average based on 34 countries.
¹ Or latest available year.
Source: OECD Family Database, 2012.

A common trend in almost all OECD countries is declining fertility rates. In 1970, the average fertility rate in OECD countries stood at 2.7 children per woman. This rate had declined to 1.7 in 2010.
At close to 1.7 children per woman in 2010, Canada’s fertility rate was similar to the OECD average, but below the replacement level of 2.1.
Only Israel (3.0) had a fertility rate significantly above the replacement level, while a few countries had a rate at about that level in 2010 (Iceland, New Zealand, Ireland and Mexico).
Among G-7 countries, France (2.0), the United Kingdom (2.0) and the United States (1.9) had a fertility rate that is relatively close to the replacement level of 2.1.
The Government of Canada already has a number of policies in place to assist families with the costs of raising children, such as parental benefits, the Universal Child Care Benefit, the Canada Child Tax Benefit, and tax deductions for child care expenses.

Canada already has one of the highest immigration rates in the industrialized world

Inflow of permanent immigration as a share of total population, OECD countries, 2010 - For details, refer to the following paragraph — Notes: Figures presented here are standardized across countries using the OECD definition of permanent-type migration, which includes migrants who arrive in the receiving country with (a) a permit for permanent residence or (b) a temporary residence permit that normally leads to permanent residence. However, due to differences across countries in how residence permits are granted, these figures are not completely comparable. OECD average based on 23 countries.
Source: OECD, International Migration Outlook, 2012.

Canada already has the highest immigration rate in the G-7 and one of the highest in the industrialized world.
In a context in which many countries will be considering increasing immigration rates to help offset the impacts of population aging, it is unlikely that all countries will be able to attract skilled immigrants in large numbers.
If Canada were to significantly increase immigration, more rapid integration of immigrants into the labour market would be required.
While stronger population growth through higher immigration rates would not prevent the aging of the Canadian population, public policy has an important role to play in improving the immigration system so that it is more effective and better aligned with the needs of the Canadian labour market.

Chapter 2 - Economic Implications

Highlights

The aging of Canada’s population will soon slow labour force growth.
Over the next 20 years, the number of working-age Canadians for every senior will fall from about 5 today to 2.7 by 2030.
Unless productivity growth and labour market participation improve, population aging is expected to lead to significantly slower increases in real output and income and increase the possibility of labour shortages.
The Government has implemented and announced a number of important structural economic initiatives to create an environment conducive to higher productivity and support the participation of Canadians in the workforce, which should help offset some of the impacts of population aging.

Over time, population aging will dramatically reduce the share of the population that is of working age

Share of the working aged (15 to 64) in total population - For details, refer to the following paragraph — Source: Statistics Canada.

With the oldest members of the large baby boom generation now reaching retirement age, Canada is at a demographic tipping point.
2008 marked a record high in the share of the population that is of working age.
From the early 1920s until the mid-1960s, about 60 per cent of Canadians were of working age. Over the past three decades, the baby boomers have boosted this share to nearly 70 per cent.
Going forward, this share is expected to decline rapidly, returning close to its mid-1960s levels by 2030.

By 2030 the number of working-age Canadians for every senior will fall by almost half

Ratio of working-age (15 to 64) population to population aged 65+ - For details, refer to the following paragraph — Source: Statistics Canada.

In the mid-1960s, most Canadians not of working age were children. In the future, most people who are not of working age are expected to be seniors (65 or over).
As a result, while there are currently about 5 Canadians of working age for every senior, by 2030 this ratio is expected to drop to under 3 and by 2050 it will be under 2.5.

Population aging is expected to increase the share of older workers, who have lower rates of labour force participation...

Labour force participation rate by age group, 2011 - For details, refer to the following paragraph — Source: Statistics Canada.

Population aging is also expected to result in an increase in the share of older age groups in the labour force (the labour force includes those aged 15 and over who are either working or actively seeking a job).
As shown above, labour force participation rates are low when individuals are young (ages 15 to 24), reach peak levels between the ages of 25 and 54 and begin to decline starting at age 55.
- The participation rates of young (ages 15 to 24) and prime-age (ages 25 to 54) workers have been relatively stable since 2000 and are expected to remain close to current levels in coming decades.
- On the other hand, labour force participation rates of older workers (age 55 and over) have increased by over 8 percentage points since 2000 as Canadians with a greater attachment to the labour market entered that age group.
- While participation rates of older individuals are expected to continue to increase, they are expected to remain well below rates seen among younger age groups.

...which is expected to reduce the aggregate labour force participation rate

Aggregate labour force participation rate - For details, refer to the following paragraph — Sources: Statistics Canada; Department of Finance calculations.

As a result, an increasing number of older workers are expected to lead to a reduction in the overall rate of labour force participation.
The impact of the shift toward an older population is already being felt, as the overall participation rate has already reached its peak.
- This impact is anticipated to continue to weigh on labour force participation, particularly over the next two decades, with the overall participation rate expected to decline by approximately 6 percentage points from its current level by 2050.^[5]
As discussed at the end of this chapter, the Government has implemented and announced a number of structural economic initiatives to support the participation of Canadians in the workforce that will help offset some of the impact that population aging is expected to have on the overall rate of labour force participation.

Reduced labour market participation, combined with slower growth in the 15+ population, is expected to reduce future labour supply growth

Growth in labour force and hours worked - For details, refer to the following paragraph — Sources: Statistics Canada; Department of Finance calculations.

Over the past four decades, strong increases in the population aged 15 and older and rising labour force participation rates resulted in growth in the labour force of just under 2 per cent a year.
However, slower growth in the 15+ population, along with the projected reduction in labour force participation due to an older workforce, means labour force growth is projected to slow dramatically in coming years, falling to an average of just 0.6 per cent a year between 2017 and 2050.
The expected reduction in labour force growth is expected to dampen growth in labour supply, or hours worked, with growth in hours worked expected to average just over 0.5 per cent per year over the 2017–2050 period, less than one-third of its pace over the 1972–2011 period.

Slower labour supply growth may exacerbate labour shortages

Share of firms reporting labour shortages - For details, refer to the following paragraph — Note: The cut-off date for data included in this chart is the week of October 15, 2012.
Source: Bank of Canada.

The anticipated slowing in labour supply growth could contribute to larger labour shortages.
The share of firms reporting labour shortages is expected to rise in coming years as the economy continues to recover from the global recession and the unemployment rate returns to pre-recession levels.
However, unlike previous periods in which relatively strong labour supply growth could help offset underlying labour shortages, the slower expected growth in labour supply could exacerbate these shortages.
This underscores the need for public policies, such as the structural economic initiatives implemented and announced by the Government (discussed at the end of this chapter), that encourage labour force participation, particularly of under-represented groups, increase the mobility of Canadians, and support skills development and training.

Unless productivity growth and labour force participation increase, slower labour supply growth will reduce GDP growth

**Growth in GDP and income**
Average annual growth rates
per cent, unless otherwise indicated
	1972–2011	2012–2016	2017–2030	2031–2050
Real GDP growth	2.9	2.3	1.6	1.8
Contributions of (percentage points):
Labour supply growth	1.7	1.1	0.4	0.6
Labour productivity growth	1.2	1.2	1.2	1.2
Addenda:
Nominal GDP growth	7.4	4.4	3.6	3.8
Real income growth	3.0	2.4	1.6	1.8
Real per capita income growth	1.8	1.3	0.6	1.0
Note: Real income is defined as gross domestic income. Sources: Statistics Canada; Department of Finance calculations.

This expected slowing in labour supply growth will have significant implications for real and nominal GDP growth, unless productivity growth and labour force participation increase.
Real GDP growth, in simple terms, arises from growth in either labour supply (hours worked) or labour productivity (real output per hour worked).
As shown above, real GDP growth averaged 2.9 per cent per year over the 1972–2011 period, with over half of this growth resulting from increases in the labour supply.
Going forward, if labour supply growth slows as expected, and labour productivity growth remains at its average pace of 1.2 per cent per year over the 1972–2011 period, real GDP growth would slow to less than two-thirds its historical pace over the 2017–2050 period.
Slower real GDP growth would result in significantly lower growth in nominal GDP, the broadest single measure of the tax base, assuming that economy-wide prices grow by 2 per cent annually on average.

…which would significantly dampen growth in income

Real per capita income - For details, refer to the following paragraph — Sources: Statistics Canada; Department of Finance calculations.

Slower real GDP growth would imply that per capita income growth of Canadians would slow to about 0.9 per cent per year, just half its historical annual average growth of 1.8 per cent. By 2050, per capita income would be over $85,000 in constant (2002) dollars if its growth was unaffected by population aging and it continued to grow at its historical average of 1.8 per cent per year.
However, after accounting for the impacts of aging (and assuming no improvement in productivity growth from its historical average and baseline labour force participation), per capita income is projected to be about $60,000—$24,900, or close to 30 per cent, lower than would be the case without population aging.
In this context, policies aimed at increasing labour supply through higher labour force participation, and, more importantly, boosting Canada’s labour productivity growth, such as through structural economic initiatives implemented and announced by the Government (discussed at the end of this chapter), will be critical to achieve per capita income growth closer to its historical average.

Canada’s labour force participation compares well internationally…

Labour force participation rates, OECD countries, 2011 - For details, refer to the following paragraph - For details, refer to the following paragraph — Notes: Participation rates are for all individuals aged 15+ years except for: Finland (15 to 74 years); Iceland, Norway and Sweden (16 to 74 years); and United Kingdom and United States (16+ years). The OECD average, which is based on 34 countries, is not adjusted for age differences in participation rates across countries.
Source: OECD.

An aging population will significantly reduce the proportion of Canadians participating in the labour market. In this context, it will be important to ensure that all Canadians that can and want to participate in the labour market have the opportunity to use their knowledge and experience to their full potential.
By international standards, the rate at which Canadians participate in the workforce is high. In 2011, about two-thirds of Canadians aged 15 and over were engaged in the labour force. This rate was the sixth highest among OECD countries.
Canada’s high levels of labour force participation are observed for both men and women, but participation among Canadian women is particularly strong compared to women in other OECD countries.
This high level of labour force participation reflects the high quality of the Canadian workforce and its capacity to adapt to changing economic circumstances. Canada needs to maintain and build on this strength.

… but there is room for improvement, particularly among older Canadians…

Labour force participation rates for people aged 55 and over, OECD countries, 2011 - For details, refer to the following paragraph — Notes: Participation rates for all individuals aged 55+ years, except Finland, Iceland, Norway and Sweden (55 to 74 years). OECD average, which is based on 34 countries, is not adjusted for differing population coverage.
Source: OECD.

Indeed, more can be done to increase workforce participation by a number of groups in Canada. One of these groups is older Canadians.
In 2011 Canada ranked 12^th out of 34 OECD countries in terms of workforce participation of those aged 55 and over. Participation rates among older Canadians are low compared to rates in countries such as Norway, Sweden, New Zealand, Japan and the United States.
To raise the level of workforce participation of older workers, it is important that older Canadians who want to work are not confronted with institutional and financial disincentives to doing so.
The Government has taken a number of steps to address this situation. For example, it has taken steps to ensure that Canada’s retirement income system adequately accommodates the changing needs of older Canadians, including by providing them with a variety of retirement transition options. The Government has also implemented measures to ensure that the skills of older workers match the changing needs of the labour market. In addition, it has removed institutional obstacles that prevent willing older workers from remaining in the labour market, for example by prohibiting most federally regulated employers from setting a mandatory retirement age and allowing the voluntary deferral of the Old Age Security pension.

…and under-represented groups

Labour force participation rates for selected under-represented groups of Canadians, 2011 - For details, refer to the following paragraph — Note: Participation rates are for 2011, except for Aboriginal people (2010) and Canadians with disabilities (2006).
¹ Population aged 25-54 with high school graduation or less.
² Population aged 25-54 who came to Canada in the last 10 years.
³ Aboriginal population aged 25-54, excluding people living on reserves and in the territories.
⁴ Population aged 25-54 with disabilities.
Sources: Statistics Canada Labour Force Survey and Participation and Activity Limitation Survey.

Participation in the workforce is also a challenge for a number of Canadians, including recent immigrants, Aboriginal people, persons with disabilities, and less-skilled individuals, who have labour participation rates that are below those of other 25-to-54 year-old Canadians.
These segments of the population represent an important resource, and increasing their workforce participation has the potential to boost Canada’s labour force growth and help minimize labour shortages in years to come.
Building on Government actions taken since 2006, a number of structural economic initiatives recently announced in Budget 2012 to support the participation of Canadians in the workforce will help meet this challenge (see the discussion at the end of this chapter).
Bringing the workforce participation rate of under-represented groups more in line with that of other Canadians will also help ensure that there is opportunity for all Canadians to contribute and share in Canada’s future prosperity.

Improving Canada’s productivity performance will be key

Average annual productivity growth, G-7 countries, 2000–2011 - For details, refer to the following paragraph — Note: OECD average based on 34 countries.
Sources: OECD; Haver Analytics.

Expanding Canada’s workforce by making it more inclusive represents a great opportunity to boost economic growth and the income of Canadians. Going forward, however, demographic changes will make it increasingly difficult to continue to improve income through increases in the employment rate. This means that improvement in the living standards of Canadians will increasingly have to come from productivity growth.
While Canada has had one of the strongest economic performances among advanced countries in recent years, it needs to improve its productivity performance.
On average, Canadian businesses have not improved their productivity performance over the last decade and continue to lag a number of G-7 and OECD peers, ranking, respectively, sixth and 28^th among them.
Building on Government actions taken since 2006, Budget 2012 announced a number of important structural economic initiatives to create an environment conducive to higher productivity performance (see the discussion at the end of this chapter).

Higher productivity and labour market participation would help meet the aging challenge

Improving productivity growth and encouraging as many Canadians as possible to participate in the workforce would help to offset the challenge of an aging population.
The benefits from higher participation rates among older Canadians and under-represented groups are not negligible.
- Indeed, raising Canada’s labour force participation among individuals aged 55 and over to the level of high participation rate OECD countries and bringing the labour force participation of under-represented groups to the national average would increase Canada’s labour force participation rate by about 6 percentage points by 2050 and income per capita by 11 per cent (or $6,500).
But more importantly, the aging gap could be reduced substantially if Canada achieves higher productivity growth than the 1.2 per cent assumed under the baseline projection.
- Increasing productivity growth to 1.9 per cent per year, in line with the average of the top G-7 performer (the United States) over the past decade, would increase real income per capita by another $18,900, or 28 per cent, by 2050.
The combined positive impact on real income per capita from these increases in labour force participation and productivity ($25,400 in 2050) would offset all the expected negative impact of Canada’s aging population on income under the baseline projection presented in this document.

Key decisions driving productivity and labour force participation are made by individuals and businesses…

The building blocks of income growth - For details, refer to the following paragraph

Most decisions that will drive higher income growth through increased productivity growth and workforce participation are made by individuals and businesses across Canada.
Fundamental to achieving higher productivity and labour force participation is to ensure that Canadian businesses and individuals improve their performance in the areas of skills and education, business investment and innovation.
Over the medium term, a number of underlying economic forces and challenges may provide the impetus to increase productivity and labour force participation:
- For instance, the anticipated slowing in labour supply growth could contribute to larger labour shortages and upward pressure on wages as firms compete for relatively fewer workers. This should induce individuals to participate more in the labour market and businesses to invest more in capital.
- Rising competitive intensity of emerging-market firms and the relatively strong Canadian dollar, which reduces the cost of imported machinery and equipment, should also encourage businesses to become more productive in order to compete internationally.

…but sound public policies can foster higher productivity growth and labour force participation

Low and stable inflation
Prudent fiscal planning and balanced budgets
Competitive tax systems
Excellence in post-secondary education and labour market training
Leadership in innovation and science and technology
Modern, world-class infrastructure
Openness to trade and foreign investment
Free flows of trade, investment and labour among provinces
Well-functioning capital markets and an efficient financial sector
Flexible labour markets and a sound pension system
An efficient immigration system

For their part, governments can play an important role by putting in place policies that encourage productivity-enhancing investments and facilitate workforce participation.
Maintaining low and stable inflation and prudent fiscal planning with low debt and balanced budgets are among the best ways governments can contribute to creating an environment conducive to higher productivity growth and job creation. In this respect, the Government has:
- Repaid over $37 billion in debt from 2006 to 2008, contributing to a low net debt position that allowed Canada to respond forcefully to the 2008–2009 global recession.
- A plan to return to balanced budgets over the medium term and ensure the sustainability of Canada’s public finances over the longer term.
Through a number of structural initiatives, Canada has also made progress in recent years to support productivity and participation in the workforce, including:
- Reducing corporate income tax rates and improving the efficiency of the business tax system.
- Providing, through the Building Canada plan, major support for infrastructure investments in areas such as highways, roads, bridges, public transit and broadband.
- Introducing the Working Income Tax Benefit and the Tax-Free Savings Account.
- Providing additional resources to support basic research and education.
- Introducing a new approach to support innovation in private sector businesses.
- Modernizing the regulatory regime for major economic projects.
- Opening new markets for Canadian businesses.
- Developing a faster and more flexible economic immigration system.
- Expanding opportunities for under-represented groups to fully participate in the economy.
- Improving the Employment Insurance program.

Chapter 3 - Public Finance Implications

Highlights

Through slower economic growth, population aging is expected to reduce the growth rate of government revenues, thereby limiting the capacity of governments to continue to finance growth in public expenditures at rates as high as in the past.
At the same time, population aging will affect public finances by putting upward pressure on public expenditures, notably for age-related programs such as health care and elderly benefits.
Fiscal pressures from population aging will occur against a backdrop of elevated public indebtedness among many advanced economies.
Fiscal sustainability and flexibility will require returning to balanced budgets over the medium term and putting debt-to-GDP ratios on downward tracks.
Canada is better prepared than most countries to achieve these goals and to adjust to the demographic changes now underway.
Government actions to return to balanced budgets over the medium term and preserve social programs will help ensure that public finances remain sustainable, while maintaining flexibility to respond to unexpected economic shocks.

Public debt in major advanced economies is at historically high levels and rising

Gross government debt in G-7 economies - For details, refer to the following paragraph — Note: Weighted on a puchasing power parity basis.
Source: International Monetary Fund.

Population aging across advanced economies will take place against a backdrop of elevated public indebtedness.
At close to 120 per cent in 2011, the average gross debt-to-GDP ratio of G-7 economies is now higher than in the early 1950s.^[6]
While G-7 countries have plans to reduce their deficits and stabilize their debt ratios, continued significant deficits in a majority of these economies are expected to further increase this average debt ratio over the next five years.

Population aging is expected to exert additional fiscal pressures

Historical and projected public health and pension spending in advanced economies - For details, refer to the following paragraph — Note: Weighted averages of all advanced economies as defined by the International Monetary Fund for which data is available.
Source: International Monetary Fund.

Through slower economic growth, population aging is expected to reduce the growth rate of government revenues, thereby limiting the capacity of governments to continue to finance growth in public expenditures at rates as high as in the past.
At the same time, in the absence of cost control, population aging is expected to affect the public finances of advanced economies by putting upward pressure on public expenditures, notably for age-related programs such as health care and public pensions.
An important trend observed in advanced economies over the past four decades has been the steady rise in health spending as a share of GDP. As populations in these economies become older, these spending pressures are expected to intensify, compounding the ongoing trend.
Similarly, in many advanced economies, as large cohorts of baby boomers continue to reach retirement age, additional increases in public pension spending are projected over the next 20 years.

Government actions will be required to restore and maintain fiscal sustainability

Eliminate deficits over the medium term
Put debt-to-GDP ratios on downward tracks
Focus on spending growth reductions
Initiate actions as soon as possible

Significant fiscal adjustments will be required in many advanced economies to bring budgetary balances and debt ratios back to more appropriate levels over the medium term before the full impacts of population aging materialize.
In general, fiscal consolidation has been found to be more effective when it is achieved largely through expenditure restraint, rather than through government revenue-raising measures, while at the same time preserving or enhancing measures aimed at promoting long-term economic growth.^[7]
In many cases, additional actions will be needed to ensure that deficits do not re-emerge and that debt-to-GDP ratios stay on downward tracks as fiscal pressure from population aging intensifies over the next two decades.
In many advanced economies, actions toward stabilizing public spending associated with health care and pensions in relation to GDP, and therefore government revenue, will be key to ensure long-term fiscal sustainability.
International experience shows the importance of taking early action, rather than delaying. Indeed, because of the build-up of vulnerable fiscal positions over time, many euro-area members have had to start drastically reducing transfers and services provided to their citizens.

In Canada, Government actions to return to balanced budgets have largely focused on responsible expenditure management

Wind down the stimulus phase of Canada’s Economic Action Plan
Reduce departmental spending
Bring federal public service compensation in line with other public and
private sector employees

For its part, Canada has a plan to return to balanced budgets over the medium term and is better prepared than most countries to adjust to the demographic changes now underway.
The Government’s plan to return to balanced budgets over the medium term, as implemented in recent budgets, has largely been focused on responsible expenditure management. In particular:
- The Government has followed through on the “exit strategy” that was built into the stimulus phase of Canada’s Economic Action Plan, which ensured that temporary stimulus measures ended as scheduled.
- Early targeted actions were taken to restrain the growth in direct program spending, including: restraining growth in defence spending, capping the International Assistance Envelope, and freezing department operating budgets for two years and the salaries of all Members of Parliament and Senators until 2013. In addition, Budget 2012 announced the results of a comprehensive review of departmental spending, which identified a number of opportunities to enhance the efficiency and effectiveness of government operations, programs and services.
- Building on the Expenditure Restraint Act, which limited the increase in annual wages for the federal public administration to 1.5 per cent per year through 2011, the Government eliminated the accrual of severance benefits for resignation and retirement, and proposed adjusting the Public Service Pension Plan so that public service employee contributions equal, over time, those of the employer. Comparable changes will be made to the contribution rates for the pension plans for the Canadian Forces, the Royal Canadian Mounted Police and Parliamentarians. In addition, for those employees who join the federal public service starting in 2013, the normal age of retirement will be raised from 60 to 65.

Modest spending restraint will bring the program expenses ratio back to its pre-recession level…

Program expenses-to-GDP ratio - For details, refer to the following paragraph — Sources: Department of Finance; Statistics Canada.

The stimulus phase of Canada’s Economic Action Plan, which was designed to be temporary, supported Canadians and the Canadian economy during the 2008–2009 global recession, while resulting in only a temporary increase in the program expenses-to-GDP ratio.
Measured actions taken by the Government since the end of the recession to restrain the growth in program spending will ensure that the program expenses-to-GDP ratio continues its downward trend and returns to its pre-recession level.
These spending restraint measures are modest compared to those that are being, or will need to be, pursued by many countries around the world to improve their fiscal positions over the medium term.
In addition, major transfers to persons, including those for seniors, children and the unemployed, and transfers to other levels of government in support of health care and social services were not included in the exercise to restrain spending.

…which will help ensure a return to balanced budgets over the medium term

Budgetary balance - For details, refer to the following paragraph — Source: Department of Finance.

Combined with measures taken to close tax loopholes and improve the fairness and integrity of the tax system, spending reductions will contribute to a projected return to balanced budgets over the medium term.^[8]
The gradual return to budgetary surpluses is expected to bring Canada’s federal debt in relation to the economy to its pre-recession level (28.5 per cent of GDP) by 2016–17.
As a result, it is expected that Canada will achieve, well ahead of schedule, its G-20 commitments to halve deficits by 2013 and stabilize or reduce total government debt-to-GDP ratios by 2016, as agreed to by G-20 leaders at their summit in Toronto in June 2010.
This will allow Canada to maintain a fiscal advantage over other G-7 economies. The International Monetary Fund projects that Canada’s total government net debt-to-GDP ratio (which includes the net debt of the federal, provincial/territorial and local governments, as well as the net assets held in the Canada Pension Plan and Québec Pension Plan) will remain the lowest among G-7 countries, falling to 36.3 per cent in 2017.

The Canada Health Transfer has been put on a sustainable track…

Federal funding for health care through the CHT will continue to grow:
- at 6 per cent past 2013–14; and
- at the rate of growth of nominal GDP or 3 per cent, whichever is greater, starting in 2017–18.
The new CHT growth path beyond 2013–14 will provide certainty and stability to the provinces and territories as they take action to put their respective health care systems on sustainable spending paths.

Government actions to return to balanced budgets over the medium term have been accompanied by measures to ensure that public finances and social programs remain sustainable over the longer term.
The legislation governing the CHT was set to expire in 2013–14. There was no legislated growth path after that date. In December 2011 (and confirmed in Budget 2012), the Government announced the growth path of the CHT beyond 2013–14: it will continue to grow at 6 per cent per year until 2016–17, and then starting in 2017–18, it will grow in line with a three-year moving average of nominal GDP growth, with funding guaranteed to increase by at least 3 per cent per year. This means that federal funding for health care will continue to grow past 2016–17, but at a rate that is no longer significantly above the rate of growth of nominal GDP or government revenue.
Combined with growth in the Canada Social Transfer for 2014–15 and subsequent years, and Equalization and Territorial Formula Financing that will continue to grow based on their current formulas, this new CHT growth path beyond 2013–14 will provide certainty and stability to the provinces and territories as they take action to put their respective health care systems on sustainable spending paths.

…and the age of eligibility for the Old Age Security program will be gradually increased

Elderly benefits - For details, refer to the following paragraph — Sources: Statistics Canada; Office of the Chief Actuary; Department of Finance calculations.

The Old Age Security (OAS) program is the single largest program of the Government of Canada. It was put in place at a time when Canadians were not living the longer, healthier lives that they are now and was thus designed for a much different demographic future than Canada faces today.
Over the next five years alone, costs associated with the OAS program, which is available to most Canadians aged 65 and older, are projected to increase by more than $10 billion as the first baby boomers start reaching retirement age.
To help ensure that Canada’s social programs remain sustainable over the long term and are reflective of ongoing demographic realities, Budget 2012 announced that, starting in April 2023, the age of eligibility for OAS and Guaranteed Income Supplement (GIS) benefits will be gradually increased from 65 to 67, with full implementation by January 2029. In line with this increase in the age of eligibility, the ages at which the Allowance and the Allowance for the Survivor are provided will also gradually increase from 60-64 today to 62-66 starting in April 2023.
As a result of these changes, OAS expenses as a share of the economy are expected to be 0.3 percentage points of GDP lower than they would have been by the end of the 2020s, the years during which aging pressures on the OAS program are expected to be the strongest.
Starting on July 1, 2013, Budget 2012 also announced the voluntary deferral of the OAS pension, for up to five years, allowing Canadians the option of deferring take-up of their OAS pension to a later time and receiving a higher, actuarially adjusted, annual pension. While this measure will not produce fiscal savings on an ongoing basis, it could help meet the aging challenge through higher labour force attachment and participation.
In addition, Budget 2012 announced that the 2010–2012 triennial review of the Canada Pension Plan (CPP) confirms the financial sustainability of the Plan, as reported by the Chief Actuary of the CPP, for at least the next 75 years at the current contribution rate.
Combined with recent changes to the OAS program, a sustainable CPP will ensure that Canada’s public retirement income system remains strong in the future.

Tuesday, August 2, 2016

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Archived - Economic and Fiscal Implications of Canada's Aging Population

Note to Readers

Introduction

Employment and income have grown faster in Canada than in any other G-7 country since 2006

Chapter 1 - The Demographic Challenge

Highlights

Population growth is on a declining trend

Substantial changes are also occurring to the age structure of the population

Population aging is a worldwide phenomenon…

…but Canada is expected to age more rapidly than most other countries

Raising fertility and immigration rates could help slow population aging but would not prevent it

Fertility rates are below the replacement level in almost all OECD countries

Canada already has one of the highest immigration rates in the industrialized world

Chapter 2 - Economic Implications

Highlights

Over time, population aging will dramatically reduce the share of the population that is of working age

By 2030 the number of working-age Canadians for every senior will fall by almost half

Population aging is expected to increase the share of older workers, who have lower rates of labour force participation...

...which is expected to reduce the aggregate labour force participation rate

Reduced labour market participation, combined with slower growth in the 15+ population, is expected to reduce future labour supply growth

Slower labour supply growth may exacerbate labour shortages

Unless productivity growth and labour force participation increase, slower labour supply growth will reduce GDP growth

…which would significantly dampen growth in income

Canada’s labour force participation compares well internationally…

… but there is room for improvement, particularly among older Canadians…

…and under-represented groups

Improving Canada’s productivity performance will be key

Higher productivity and labour market participation would help meet the aging challenge

Key decisions driving productivity and labour force participation are made by individuals and businesses…

…but sound public policies can foster higher productivity growth and labour force participation

Chapter 3 - Public Finance Implications

Highlights

Public debt in major advanced economies is at historically high levels and rising

Population aging is expected to exert additional fiscal pressures

Government actions will be required to restore and maintain fiscal sustainability

In Canada, Government actions to return to balanced budgets have largely focused on responsible expenditure management

Modest spending restraint will bring the program expenses ratio back to its pre-recession level…

…which will help ensure a return to balanced budgets over the medium term

The Canada Health Transfer has been put on a sustainable track…

…and the age of eligibility for the Old Age Security program will be gradually increased

Under “status quo” assumptions, recent Government actions would put the federal debt ratio on a downward track…

http://www.fin.gc.ca/pub/eficap-rebvpc/report-rapport-eng.asp

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