Chart 1 Population and employment estimates and projections 1976-2050
Source(s): Statistics Canada and Finance Canada estimates and projections
As noted in a previous post (see Family Tax Cut), the impact the demographic shift will have on labour supply is likely overstated. Its ill-advised use of Kijiji data aside, the Finance Canada Jobs Report published last February included labour market projections. 2014 was projected to be the last year with employment growth of 1.0 percent or higher, and the binding constraint on future growth was projected to be labour supply. The first projection missed out of the gate, and the limited data available suggests the second may not prove any more reliable.
In addition to the employment projections published last February by Finance, updated population projections were published last September by Statistics Canada. Combining the employment projections with the baseline (M1) population projections, a few interesting trends appear that may shed some light on the labour supply question.1
Chart 1 shows a projected decline in the employment-population ratio for working age 15-plus from 59.8 to 56.3 percent between 2014 and 2050 – a rate not seen since the late 70’s (when female labour market participation was lower).
While clearly a policy concern for numerous reasons, the decline in that ratio does not necessarily indicate the demographic shift will be a labour supply constraint. Looking at the employment-population ratio again, this time defining working age as 15 to 64 years, yields a projected rise from 73.7 to 79.5 percent between 2014 and 2050.
For context, the Canadian labour underutilisation rate for those age 15 to 64 years was 14.1 percent in 2014, according to Labour Force Survey (LFS) estimates published by Statscan.2 Assuming that every worker retires upon reaching age 65 and that the projected employment and population figures are in the ballpark, a decline of 5.8% in the 15 to 64 employment-population ratio would not significantly impact labour supply given the remarkable labour underutilisation that’s not reflected in the official unemployment figures.
But just how reliable are the projected participation rates for Canadians age 65+ and projected employment growth rates?
Despite noting that “…population aging will be a key challenge as the share of the population aged 65 and older increases and the share of the working-age (15-64) population falls”, the 2014 Jobs Report only provided a projected participation rate for the broader working age group that includes Canadians age 65-plus, projecting it to decline from 66.7 to 60.9 percent between 2014 and 2050.
A number of recent polls (e.g., CARP, Ipsos Reid) have suggested half of workers at or nearing traditional retirement age 65 anticipate remaining in the labour force thereafter. This is reflected in the (recently revised) LFS estimates of labour market participation. Between 2004 and 2014, the participation rate for age 65-plus nearly doubled, from 7.7 to 13.4 percent. Considering that the ‘baby boomer’ generation only started reaching age 65 in late 2011, that’s a remarkable rise in such a short time. Over the same period, the participation rates for youth (15-24) and prime working age (25-44) steadily declined, from 66.8 to 64.2 percent and 87.3 to 86.6 percent, respectively.
The 2014 Jobs Report notes: “Unless labour force participation improves, this could contribute to larger skills and labour shortages and increase the economic impact of mismatches.” Yet it doesn’t provide any meaningful analysis to substantiate this concern.
The last somewhat detailed Canadian labour force projection by the federal government appears in a June 2007 article published in the Canadian Economic Observer, a since-discontinued Statscan publication. The projections were based on 2005 data. Among the article’s now dated projections was that the participation rate of men and women age 65-plus would rise to 13.1 and 5.6 percent, respectively, by 2031; those rates were estimated to be 18.2 and 9.4 percent, respectively, in 2014, well ahead of the 2031 projections.
The 2014 Jobs Report presented employment projections with greater confidence than it did labour force projections. Unfortunately, they were largely based on projected rapid expansion in resource extractive industry: “Resource-related investments have become more important as a share of business investment in most provinces and territories… The outlook is particularly optimistic for the mining, oil and gas industry, with several resource-related projects under way or planned across Canada… with projections suggesting a cumulative demand of 300,000 workers for the energy, mining and forest sectors by 2021.”3
For context, during the remarkable resource boom starting in 2000, ‘Mining, quarrying, and oil and gas extraction’ employment nearly doubled by 2014, from 159,300 to 307,500, according to (recently revised) LFS estimates. That Finance projected employment in the sector would double again in half the time was rather optimistic, even prior to the industry downturn.
As it turned out, the 2014 employment projections didn’t even hold up to the end of the year. Finance had projected relatively modest 1.0 percent employment growth for the year; Statscan’s (recently revised) LFS data estimated the actual growth at an even more modest 0.6 percent. The Finance report projected 2015 would be the last with 0.8 percent employment growth, with the figure falling to a low of 0.4 percent by 2019 and averaging 0.6 percent through 2050.
Given the relatively weak future employment projections were largely based on remarkable expansion in resource extractive industry, it’s difficult to see how the Finance employment projections for 2021, let alone 2050, can hold up. It will be interesting to see if another Jobs Report is published concurrently with the upcoming 2015 Budget, and what if any revisions will be made to last year’s projections.
As things stand, it appears the dated labour force participation rates forecast for those age 65-plus were significantly understated and, barring a remarkable reversal of fortune in the near term, the already modest employment growth projections were overstated.
The demographic shift under way is a concern on a number of policy fronts, e.g. its effect on productivity and demand on the health care system. However, the impact on labour supply, in particular the notion that mass retirement of the ‘baby boomer’ generation will be the binding constraint on future employment growth, appears overstated at best. While more up-to-date labour force projections are needed, the current trends suggest employment demand rather than shifting demographics will prove the greater constraint on employment growth going forward.
1. ‘Methodology’: Since both the Statscan population estimates and projections are centred on July 1st, Finance employment growth estimates and projections were likewise centred on the July 2014 LFS-estimated total employment figure. Readers may note there were issues with the Statscan LFS release that month which resulted in the data being withdrawn and re-released.
2. The referenced labour underutilisation rate is author’s own tabulation. LFS estimates of unemployment, persons who wanted work but were classified as not actively looking and persons classified as involuntarily working part-time were used to estimate an equivalent of labour underutilisation rate U-6 reported by the US Bureau of Labor Statistics (BLS). The measure was restricted to those age 15-64 for context; doing so also yields a more representative measure because Statscan – unlike the US BLS – statistically retires those age 65-plus who are not actively engaged in the labour force.
3. As Finance notes in its 2014 report, the projected 2021 energy, mining and forestry sector employment demand is based on the Canadian Occupational Projection System (COPS) maintained by Employment and Social Development Canada (ESDC, formerly HRSDC). The COPS Occupational Projection Methodology – October 1999 is not available for review.