Canada would need sustained recession lasting 20 years to cope with demographic crunch: Report

Canadian HR Reporter
March 23, 2009 

Sarah Dobson

While the recession has meant gloomy stories of layoffs and rising unemployment, the much-talked-about labour shortage cannot be forgotten, according to a paper published by the Atlantic Institute for Market Studies (AIMS). In fact, Canada would need a sustained recession over some 20 years to cope with the demographic crunch ahead, said author Jim McNiven, a professor emeritus at Dalhousie University in Halifax.

This issue is like a necktie that was loose a few years ago, is comfortable now but pretty soon is going to get uncomfortably tighter, he said.

“It’s going to be a whole new world,” said McNiven. “It’s going to start to happen and it’s not going to go away.”

What’s worrying about the economic downturn, from a public policy perspective, is the focus is going to be on job creation and significant spending on infrastructure, but “when the larger demographic takes hold, we will have nobody to do the jobs,” said Charles Cirtwill, executive vice-president of AIMS in Halifax.

“(The market downturn) actually gives us a little bit of a breathing room to deal with the real demographic problem because, prior to the recession, we were actually seeing the first signs of significant negative impacts of labour shortage,” he said. “The downside of the recession is it’s now, for a short period, going to mask those.”

In the 1970s and 1980s, the Canadian economy was restructured to meet the challenges of the entry of the huge baby-boom generation into the employed labour force. Initiatives such as mandatory retirement “had some of their impetus from the sheer pressures of finding jobs for people back in those days,” said McNiven.

“You wanted to clear out the older worker and maybe ignore some of the marginalized groups in hopes of taking care of the big mass that were trying to get in there at the same time. Well, we don’t have that problem today and, as we go along, increasingly, we’re going to have to find people in these ­other groups to bring them into the mainstream.”

But with the demographic changes that have taken place since then – a declining fertility rate and declining numbers of future labour force entrants – this design is no longer working, he said.

In modelling the effects of demographic shifts out to 2026, Nova Scotia would see an aging, declining population, dwindling numbers in the traditional labour force ages of 15 to 65 and lower labour force participation rates. And most of the developed world will face similar challenges that amplify with global competition, said McNiven.

Three-part solution

To close the gap between demand and labour supply, the most practical solution involves a mixture of three approaches: Find more people, increase labour productivity and increase the labour participation rate, states the AIMS report The Developing Workforce Problem.

Applying a mix of these three approaches requires a change of business and government policies, it states, in areas such as education, certification, pensions, pay practices, benefits and capital investment.

The danger lies in trying to identify one of these tactics as being better than the other two, said Cirtwill. Over the last few years there has been “a laser-like focus” on immigration as the silver bullet, which is “just naive in the extreme,” he said. But it’s also understandable because it’s the easiest approach while the other two involve the government taking away benefits, “and politicians hate doing that kind of thing,” he said.

Right now government programs such as employment insurance, social welfare and training programs are structured to either penalize people for taking better training or discourage them from moving from welfare to work, he said.

“So, as a result, we’re going to have to take a serious look at all of these government programs and fix them so we support people in the workplace,” said Cirtwill.

When it comes to boosting the people supply, the birthrate is unlikely to change and would only have an impact 20 years from now, said McNiven, so the best approach is immigration. But looking at the numbers just for Nova Scotia, that could require adding as much as one-half of the existing population, which is “a little hard to conceive of.”

The birthrate question is also expensive, said Cirtwill. While Quebec has demonstrated that subsidized daycare and generous leaves can encourage people to have kids, it took 10 years before this had a real impact “and it is ridiculously expensive,” he said.

Increasing productivity would mean encouraging the growth of higher-paying industries at the expense of low-productivity (and largely low-wage) industries, improving business practices and processes, and increasing the skills and education levels of the workforce, says the report. It can also mean more self-service and online initiatives, said McNiven.

As for the participation rate, older workers should be encouraged to stay longer in their employment or return to work while employers should be discouraged from mandatory retirement. Another way to boost participation is among segments of the population with historically lower participation rates in Nova Scotia, such as Aboriginals, African-Canadians and people with disabilities.

More flex hours and a reduction in the workweek should also happen, along with “a lot of pressure on the concept of supplying support to employees who have special needs or are looking to raise a family or looking to train while on the job,” said Cirtwill. “All of those programs and benefits, from an employee’s perspective, are going to be enhanced because, from an employer’s perspective, it’s better to have half a person than nothing.”

Reference: Canadian HR Reporter