Defusing the Demographic Time Bomb

Commentary, Economy, Les Routledge

The Financial Post ran a fairly alarmist article outlining the potential negative impacts of demographic trends that are present in Canada.  Quotes in the article include:

Christopher Ragan, economics professor at McGill University, said the Baby Boomers’ exit from the labour force would pose a “significant drag” on growth.

Kevin Page, the parliamentary budget watchdog, has projected the economy’s potential output — the level of goods and services the economy can produce without triggering inflation pressures — will drop to 1.3% by 2020 from 2.1% in 2010 and 3.7% in 2000.

The C.D. Howe Institute, a Toronto think-tank, has warned the unfunded liability in the pension plan for federal public-service workers is actually $65-billion larger than what Ottawa has accounted for on its books.

As laid out in the budget, government spending on elderly benefits is set to surge 30% from 2010-11 levels to 2015-16, with annual increases of between 4.9% and 5.8%, well above projected rates of Canadian economic growth.

The greying of Canada means the country will go from a position of surplus labour to labour shortage.

If the predictions are to be believed, it looks like Canada is headed towards a slow-growth future like Japan has experienced due to its aging and soon to be shrinking population.  Simple math would appear to suggest that if the rate of workforce shrinkage exceeds the rate of productivity improvement per worker, the total Gross Domestic Product and by extension less revenues that can be collected by government.

Instead of following Japan down this path, perhaps Canada should look at ramping up the rate of immigration by skilled, working age adults to replace the bubble of people retiring from the work force.  Permitting more in-bound migration of skilled, working aged people could eliminate work force shortages and the predicted constraints on economic growth.  It could even be argued that increasing the proportion of foreign trained employees such as health sector workers could free up scarce public sector funds required to support pensions and service delivery to retired people.

If developing countries such as the Philippines where there is a labour force surplus are prepared to invest in training people so they can work in Canada, why are we not partnering with them to develop the people that we need to maintain a vibrant economy?