Canada’s aging population will reduce labour force participation, slow economic growth, and exacerbate government budget deficits

The Implications of Slowing Growth in Canada’s Labour Force

Summary

• Most projections show that the growth of Canada’s labour force will continue to slow for years, with growth dependent on immigration as our population ages.
• However, the pandemic has reinforced the fact that projections about the future are inherently uncertain. Already, immigration fell sharply in 2020. The pandemic’s effect on the long-term course of labour force participation of all workers and the human capital formation of youths are unknown but likely to be negative.
• Slower labour force growth underscores the importance of adopting measures that boost investment and productivity to sustain economic growth in the long run. Canada can no longer rely on labour force growth to offset its poor investment and productivity record of recent years. A slowdown in economic growth would aggravate the difficulty of lowering government deficits, which have soared during the pandemic.
• Even before the pandemic, young people faced increasing difficulties getting established in the labour market and in their adult lives. Employment rates have fallen, partly as a result of higher minimum wages and partly from declines in the labour force participation rate. This is the opposite of what Canada needs to offset the accelerating aging of our population.