Aging Populations and the COVID-19 Baby Bust: Canadian Implications Associated with Current Population Trends
Canada’s Population Outlook:
An aging population affects many aspects of Canadian society and in conjunction with the COVID-19 Baby Bust, Canada faces an interesting demographic shift in the foreseeable future. The aging population is a challenge Canada has been facing, as have many other developed countries in the last few decades. With the instability of employment caused by the COVID-19 pandemic, birth rates have fallen, causing a shift in the Canadian population. An aging population and shrinking labour force propose a variety of challenges for current and future Canadians including lower tax revenue, increasing health care costs, and a lower labour force participation rate. The purpose of this article is to explore how Canada’s aging population will impact the labour force and any subsequent effects it may have. A mini case study of Japan’s similar situation and their current plan to combat this challenge will also be explored, along with the current Baby Bust trend.
Seniors in Canada’s Labour Force:
Many Canadians exit the labour force at an average age of 63.5 years, and contribute to the declining labour force. However, in recent years there has been a dramatic increase in older Canadians remaining in the labour force into their senior years. In fact, over the last four years, from 2016 to 2020, the average retirement age for all Canadian retirees has increased from 63.6 to 64.5 (Statistics Canada, 2021). A statistic from the government of Canada reports that in just over a decade, the participation rate of seniors in the Canadian labour force has more than doubled, increasing from 6% in 2000 to 13% in 2013 (Statistics Canada, 2021). Research has shown that older adults who work past the age of 65 were approximately 3 times more likely to report being in good health and about half as likely to have serious health problems like cancer or heart disease which reduces the strain on the Canadian health care system (Harvard Health Publishing, 2018). This increase in the number of seniors choosing to participate in the labour force does not make up for the drop Canada is expecting in the foreseeable future. As a result, Canada’s labour force is expected to fall by 4% from 2017 to 2063 (Fraser Institute, 2017).
The Canadian Labour Force Aging and Tax Revenues:
As the population ages, there is some support behind the thought that an aging population will lower labour force participation rates and savings rates, hindering economic growth (Bloom, Canning & Fink, 2011). The declining labour force has implications on income tax collection as well. As the older group of Canada’s population transfers out of the workforce, income tax revenue collection will likely fall. There is the potential to have a temporary period where income tax collections increase, where Canadians choose to remain in the labour force past the typical retirement age, where wages rise with time spent in the workforce, and the potential to collect a higher income tax revenue increases (Byrs & Colin, n.d.). This could aid in offsetting the effect of exiting participants from the Canadian labour force. However, this effect is only temporary, until the older demographic entirely exits the labour force.
Although some OECD countries have increased earnings with work experience, in Canada hourly earnings increase with work experience, reaching a maximum for those with 25 to 29 years of experience and then plateaus after that point (Luong & Hurbert, 2009). Meaning the older Canadians remaining in the labour force past the average retirement age will likely not result in higher wages and hence not contribute to the temporary increased income tax revenue. This also leads to the idea that potential higher wages from older Canadians in the workforce will likely not offset the high number of Canadians exiting the labour force. Tax revenues are an important aspect of government revenue, especially with projected increases in health care expenditure in the foreseeable future.
Government Expenditure on Healthcare:
Healthcare costs are significantly higher for seniors, and with an aging population, there is a strong possibility to believe a higher rate of resources are going to be allocated towards this demographics’ healthcare. To meet the needs of the changing health care demands in Canada, in 2018 The Conference Board of Canada found that over the next 10 years an additional $93 billion of health care funding will be required (The Conference Board of Canada, 2018). The average annual per capita health care costs for seniors are 4.4 times larger than the 15-64 years demographic, at $11,625 according to data from 2014 (Fraser Institute, 2017). As Canadians age, health care costs become staggeringly higher; this is a relatively new occurrence that is essential to factor into planning.
The COVID-19 Baby Bust Contributing to Canada’s Aging Population:
The labour force in the future may have a direr outlook with the low birth rate caused by the COVID-19 pandemic. Coined as the COVID-19 Baby Bust, rough projections of recent evidence coupled with historical trends from past pandemics and economic crises have shown that in the U.S. there are projected 300,000 fewer births in 2021 compared to the previous year (Brookings, 2020). Research also shows that in Canada alone, based on patterns from B.C. and Quebec, nationally there were 2900 fewer births in December 2020 and 2300 fewer births in January 2021 than what would typically occur in those months (CTV News, 2021). With uncertain financial stability caused by the pandemic, fear of getting adequate medical attention during pregnancy, and lack of child care options, among many other factors have contributed to people putting off having children (Brookings, 2020).
Demographers have predicted that the dip in the birth rate is likely to continue, and be more than a temporary trend if the pandemic and its economic consequences continue (Wall Street Journal, 2021). The current fall in the birth rate across many advanced economies has intensified the demographic crisis of an aging population. The low birth rates due to the pandemic, in conjunction with the aging population, do not leave high prospects for an increase in the labour force in future years.
Japan Case Study:
Japan has taken innovative steps to cope with the aging population and maintain its birth rate. To support households, the Japanese Prime Minister, Yoshihide Suga, has pledged to extend the Japanese health insurance to partially cover IVF treatment, a common yet costly fertility treatment (The Guardian, 2020). The falling birth rate in Japan is a complex issue with many contributing factors, including changing preferences and job instability for young people, making experts unsure if this initiative will be effective. Estimates show that the Japanese population in 2053 will fall below 100 million, coming down from the current population of 126 million (The Guardian, 2021). Japan has also invested heavily in industries to support the aging population. Government incentives have been directed at the medical technologies industry to create better-decentralized home care to provide the necessary care to the large demographic of Japanese seniors. One initiative in particular that Japan launched was a public-private partnership, “Realizing the Robot Revolution”, which intends to bring robotics into nursing care and advance medical robots (Mckinsey, 2018).
Canada’s Action on the Aging Population and Falling Labour Force:
Assuming the projections of Canada’s aging population are accurate, government finances are projected to be significantly negatively impacted. The Canadian government can finance the increased healthcare costs for Canadian seniors through borrowing, an adjustment on spending, or higher taxes (Fraser Institute, 2017). With Canada’s aging population and falling birth rate, the labour force is projected to shrink and the Canadian government will need to find innovative ways to support increased health care expenditure and the societal effects of a potentially declining labour force.
References
Age and earnings. Statistics Canada: Canada's national statistical agency / Statistique Canada: Organisme statistique national du Canada. (2015, November 30).
https://www150.statcan.gc.ca/n1/pub/75-001-x/2009101/article/10779-eng.htm.
Bloom, D., Canning, D., & Fink, G. (2011). Implications of Population Aging for Economic Growth. National Bureau of Economic Research.
Brys, C. C. B., Colin, C., & Brys, B. (n.d.). Population ageing and sub-central governments: Long-term fiscal challenges and tax policy reform options: Ageing and Fiscal Challenges across Levels of Government: OECD iLibrary. OECD instance. https://www.oecd-ilibrary.org/sites/f749fcd0-en/index.html?itemId=%2Fcontent%2Fcomponent%2Ff749fcd0-en.
Cain, P. (2021, March 6). Nine months after the pandemic arrived, births fell sharply: data. Coronavirus. https://www.ctvnews.ca/health/coronavirus/nine-months-after-the-pandemic-arrived-births-fell-sharply-data-1.5335809.
Canada’s Aging Population and Implications for Government Finances. Fraser Institute. (2017). https://www.fraserinstitute.org/sites/default/files/canadas-aging-population-and-implications-for-government-finances.pdf.
Government of Canada, Statistics Canada. (2021, January 25). Retirement age by class of worker, annual. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410006001.
Guardian News and Media. (2020, November 6). Japan to help cover IVF costs in attempt to avert demographic crisis. The Guardian. https://www.theguardian.com/world/2020/nov/06/japan-to-help-cover-ivf-costs-in-attempt-to-avert-demographic-crisis.
Kearney, M. S., & Levine, P. B. (2021, January 7). Half a million fewer children? The coming COVID baby bust. Brookings. https://www.brookings.edu/research/half-a-million-fewer-children-the-coming-covid-baby-bust/.
NAGARAJAN, N., TEIXEIRA, A., & SILVA, S. (2016). The impact of an ageing population on economic growth: An exploratory review of the main mechanisms. Análise Social, 51(218), 4-35. Retrieved April 8, 2021, from http://www.jstor.org/stable/43755167
Raviscioni, M., Sato, K., Sato, K., Overbeeke, J. van, & Yanagisawa, H. (2018, January 25). The medtech opportunity for Japanese companies. McKinsey & Company. https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/the-medtech-opportunity-for-japanese-companies.
Stancati, M. (2021, March 4). The Covid-19 Baby Bust Is Here. The Wall Street Journal. https://www.wsj.com/articles/the-covid-19-baby-bust-is-here-11614853803.
Comments