The need to address Canada’s demographic crunch

Canadian Chamber of Commerce

The irony for Canada, thought of as a relatively young country in historic terms, is that it is a rapidly aging one. Since Confederation, until just a few decades ago, Canadians were a youthful population owing to a total fertility rate that was well above the replacement level of 2.1 childbirths per woman. Canada was also a young society in-the-making, one built through the hard work, entrepreneurship and pioneering spirit of its people—those born on these shores and millions of new Canadians hailing from overseas.

The expansion of Canada’s workforce as a result of its demographic vitality, matched with the increasing quality of that workforce due to high standards of education, have propelled Canada’s social development and transformed it into one of the world’s most prosperous nations, with a fine quality of life.

But like other industrialized nations, Canada will face the challenge of an unprecedented demographic crunch within the present decade. Its population is rapidly aging, and so is its workforce, as the baby boomer generation prepares to retire. The number of people over the age of 60—by far the fastest growing age-segment of the population—is expected to soar from a little less than a fifth of Canada’s total population in 2009 to just under a third by the 2020s. Our country’s total fertility rate of 1.6 childbirths per woman is one of the lowest in the world—below those of industrialized countries like the United States.

This raises the question of what Canada must do to ensure it has enough people to replenish its workforce. Many businesses are already facing difficulties in finding the talented people they need. Left unmitigated, the demographic crunch will harm the competitiveness of Canadian businesses, which need skilled people to drive their growth in a globalized, knowledge-based economy. It will result in declining economic growth, lower per-capita output, a lesser quality of life for Canadians, and will place a large fiscal burden on younger generations.

Concerted efforts by governments and the private sector are called for to mitigate the impact of the demographic crunch. The way in which businesses adapt is as important as the policy leadership governments provide.

To examine the complex issues at hand, the Canadian Chamber of Commerce, as the voice of Canadian business, has consulted with the wider business community and thought leaders. In our latest report, Canada’s Demographic Crunch: Can underrepresented workers save us?, we suggest the course of action needed to address the looming demographic crunch, structured around three pillars.

First, Canada will need to draw far more extensively on underutilized sources of labour within its borders—large segments of the population that are relatively underrepresented in the labour force, or whose average unemployment rates are significantly higher than that of the general population. These include young people, older workers, the Aboriginal population and people with disabilities.

Ways need to be found to allow young people to work, although not at the expense of post-secondary studies and training, upon which their long-term employability will depend. Then there are many older Canadians who live longer and healthier lives, and want to continue working. With their wealth of skills, knowledge and experience, older workers are tremendous assets for businesses in their day-to-day operations and in the transferring of human capital to younger workers. Aboriginal peoples are the fastest growing segment of the Canadian population, and yet overall, they continue to suffer from a lower economic standing and higher unemployment rates than non-Aboriginal Canadians.

Second, given that the underrepresented workforce is finite, Canada must continue to draw from talent beyond its borders. Immigration—responsible for virtually all growth of the Canadian workforce—will remain an important facet of Canada’s strategy to replenish its skilled workforce.

However, it is no panacea, as the age profile of new Canadians is rapidly converging with that of the Canadian-born population. Canada needs to continue enhancing its immigration system so as to respond to current and longer-term workforce needs.

Canada must do more to ensure that recent, well-educated immigrants secure work that optimizes their productive potential. Official languages barriers and shortcomings in foreign qualification recognition are part of the problem. Also, Canada’s immigration system must continue to improve its programs to more closely match the profiles and qualifications of newcomers with employers’ needs, and to ensure timely processing of applications. Promoting Canada as the preferred destination for skilled immigrants is also essential, as international competition for the best and the brightest is fierce. If the immigration application process is not shortened, Canada will lose highly qualified people to more efficient jurisdictions.

Third, with fewer skilled workers to rely on, it will be essential for Canadian businesses to boost their labour productivity—in other words, the efficiency of each hour worked. This is made all the more imperative in that Canada’s overall record on business sector productivity is dire compared to other advanced economies. It was 78 per cent of that of the United States in 2008, down from 90 per cent in the early 1980s.

Boosting labour productivity does not entail people working longer or harder hours. Rather, it means that more Canadian businesses need to undertake investment in capital equipment and new technologies, research and development (R&D), adopt international best practices and develop employee skills in the workplace, to boost the efficiency of work. The federal government and the provinces and territories have undertaken ambitious initiatives to incentivize companies to boost their labour productivity. While more needs to be done on the policy front, the onus is on businesses to respond to the incentives provided.

It is our hope that Canada’s Demographic Crunch: Can underrepresented workers save us? will encourage more debate nationally on the pressing challenge of an aging workforce and assist Canadian governments, businesses and other stakeholders in addressing the issues.

Mathias Hartpence is Director of International Policy, Skills and Immigration at the Canadian Chamber of Commerce