With the pace of retirement accelerating, the impact of Canada’s aging population on the workforce is expected to ramp up in the years ahead. While increased immigration is intended to help offset that trend, ensuring a good match in skills will be essential, suggests TD Economics.
In a new report, the bank’s economists examined the growing impact of demographics on Canada’s economic future.
“With each passing year, this slow-moving train intensifies, promising to leave a massive mark on consumer spending patterns, government health-care costs and housing development,” it said. “But the most acute effect of people leaving their prime earning years and entering retirement will no doubt be on the availability of workers and any resulting skills mismatch to the needs of employers.”
Recently, retirements have lagged the underlying aging of the population, the report noted.
“By our calculations, the willingness of Canadians 60 and older to remain in the workforce has resulted in nearly 1.1 million more workers than what would have been the case if participation rates of the early 2000s were kept constant,” it said.
The report cited a number of factors for the slower pace of retirements, including improved health in older workers, the end of mandatory retirement in various provinces and the increase in service sector jobs.
More recently, the pandemic, the resulting rise in inflation and a drop in the value of financial assets may be delaying retirements, as workers face increased uncertainty about the adequacy of their retirement savings.
“Given the rise in the cost of living and volatility in financial markets, there may be both near-term cyclical and longer-term structural reasons for the trend increase in the labour force participation of older age cohorts,” the report said.
However, it also noted that there are signs that retirements are starting to accelerate.
“By 2025 we expect to see the number of people 65 and older grow by 1 million,” it said. “Based on current participation rates, that means nearly 900,000 workers will leave their jobs in the next three years. That is a 50% increase in the average number of retirees each year compared to the average of the last 10 years.”
This trend will pose a growing challenge for Canadian firms, as the preference for working longer among some workers “can only slow and not offset the reality of more and more workers moving into older age cohorts where participation rates decline sharply.”
Governments are seeking to cushion the impact of this trend by subsidizing daycare to facilitate greater labour force participation, and by increasing immigration targets.
However, companies don’t just need more workers, they need more workers with the right skills, the report noted.
“With so many older workers having to be replaced by younger ones, firms could face a deficit in experience and institutional knowledge,” it said.
Increasingly, matching workers’ skills with available jobs will be essential.
“Although high immigration targets will support the ability for the prime working age population to offset the wave of retirees, ensuring that Canada’s labour supply has the skills needed to fill the jobs demanded by businesses will be a defining challenge for the economy,” it said.
The report called for policy action.
“Recognizing foreign credentials and experience is crucial to the ‘seamless’ integration of new Canadians into the job market,” it said.
“The time has come to not tiptoe on breaking barriers across all areas of the labour market,” it concluded. “The aging of Canada’s existing population is opening the door to make the structural changes necessary to bring in, integrate and support all current and future Canadians.”