Growth and Resilience
In my last blog, I highlighted the aging of Canada’s workforce and the fact that the participation rate in the Canadian labour market is projected to decline from 65% today to between 61% and 63% in the not too distant future.
While the labour market participation rates were in the low 60%’s prior to the 1980’s, it peaked at close to 68% in the early part of this century – with the baby-boomer generation in their prime working years and an increasing percentage of women joining the labour force. Now, as the population ages, policy makers are becoming increasingly concerned on whether a labour force participate rate in the low 60%’s will have the ability to provide all the goods and services needed to grow the economy, and they are looking for ‘solutions’.
When a solution is not a solution
Some policy makers tout an expansion of early child-care as a viable solution. Unfortunately, I am less convinced.
It is accurate to note that one of the key successes of Quebec’s early child-care policy was that the province’s female participation rate increased higher than other regions in Canada – going from below the national average in the mid-1990’s to above the national average today.
However, the labour market is different today than it was 20+ years ago – and expanding the Quebec model throughout the country in today’s environment is unlikely to have the same impact the policy had in Quebec a generation ago. In particular, the female labour participation rates are hovering around 85% for prime working age females (i.e. females between ages 25 and 55), which is notably higher than the 77% participation rate just before the turn of the century, and fairly close to the 92% labour participation rate for prime working age males. Thus, we should not expect that a policy to nationalize the Quebec early child-care model to produce the same returns it generated over the last 20+ years.
For clarity, I believe there are reasons why expanding early child-care may be a worthwhile investment. But as a society, we need to ask, “what is early child-care for?” Is it to allow parents with young children to work, is it to provide more children with access to early childhood education, or is it simply a subsidy for parents with young children? If you are interested in these questions, I would recommend this recent podcast from the BBC.
A more viable solution
In my view, a better policy response would be to encourage Canadians to work a little bit longer and retire a little bit later.
I understand that this is a huge ask – especially as so many of us plan for and look forward to retirement. But hear me out…
At this stage, you are probably expecting that I advocate for the elimination of early retirement subsidies in defined benefit pension plans, or deferring the eligibility for government benefits/pensions such as the Old Age Security or Canada Pension Plan. While I believe some of these arguments have merit, that is not what I am going to advocate for in this article.
Instead, I would strongly encourage each Canadian to develop a personal strategy to allow them to better ‘transition’ into retirement. Transitioning into retirement will mean different things to different individuals. For some, it may entail a gradual decline in working hours at their current employer as they transition from full-time to part-time to retirement (aka ‘Phased Retirement’). While for others, it may mean leaving a high-stress demanding job for something that is less demanding, or more flexible.
It is also worth acknowledging that employers have a role to play in this transition – and by supporting near retirees in their journey to retirement, there is an opportunity to ease their demand for workers.
By delaying retirement, and drawing some income later than originally anticipated, Canadians can put themselves in a better position to have a more resilient retirement. There are numerous strategies that can make this work, but one that is often worth considering is deferring the commencement of one’s CPP or OAS benefits. Over the years, we’ve spoken about this topic in various blogs, but I believe this is worth repeating.
An outside the box solution
Another potential solution to increasing the size of the Canadian workforce, would be to get Canadians into the workforce at a younger age. In generations now long past, the barriers to entry for certain careers did not require the same level of education and credentialing as they do today. Personally, I do not know if this trend can be reversed, or if this is a symptom of educational industrial complex for which we find ourselves living in today. But as the labour market becomes more competitive, perhaps we will see a few brave employers, or professions, place more value on training and actual work experience, and less on the accreditation process.
Nevertheless, I acknowledge that this may simply be wishful thinking in a knowledge-based economy whereby employers have a high standard just to qualify for an interview.
Of course, another solution to this problem is increased productivity. Undoubtable, certain sectors of the economy will see dramatic increases in productivity due largely to technological progress. However, I for one am unsure if we will be able to obtain sustained long-term increases in productivity in some of the service-based sectors of the economy.
What does this all mean
As our population ages, Canadian policy makers will undoubtably be focused on ensuring we can continue to grow our economy. At the same time, individual Canadians should be thinking of ways to build a more resilient retirement. By willing to delay retirement in some capacity, we may just be able to make some progress on both of these fronts.