Study: Labour force projections in Canada

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Canada's labour force will continue growing, but the overall participation rate will fall sharply, during the next quarter century in the wake of the nation's low fertility and the retirement of millions of baby boomers, according to a new study.

The study, published today in the Canadian Economic Observer, show results of the labour force population projections. These projections combine population growth assumptions to two assumptions of future evolution of participation rates by age.

The study found that in three of the four scenarios, Canada's labour force should continue growing uninterrupted until 2031. Only in scenario 1, a "low-growth" projection, the labour force would peak in 2017 and subsequently begin to edge down.

However, in all four scenarios, the overall participation rate would decline sharply during the next 25 years.

This overall participation rate is the proportion of the total population aged 15 and over actively in the labour force. It is an indicator of the extent of an economy's working-age population that is economically active, and provides an indication of the relative size of the supply of labour available for the production of goods and services.

This decline in the overall participation rate is mainly due to the aging of the population, a result of low fertility over the last three decades and the steady rise in life expectancy. The aging of the population will be exacerbated starting in 2011, when the first baby boomers will reach the age of 65.

The expected slowdown in labour force growth might have numerous consequences for the Canadian economy and society.

This study suggests that future economic growth may have to depend less on employment growth and more on higher productivity, which could offset the consequences of a slowdown, or even decline, in the labour force.

The labour force will continue to grow in three of the four scenarios

The study found that in three of the four scenarios combining assumptions on future population growth and participation rates by age, the labour force should continue to grow uninterrupted until 2031.

For example, according to scenario 2, which reflects recent population growth and participation trends, the labour force would reach 19.4 million in 2031, up 9.0% from 17.8 million in 2005. If participation rates, especially for workers aged over 50, continue to rise (scenario 3), the labour force could reach 20.6 million in 2031, an increase of 15.8% from 2005.

However, under the high-growth scenario (scenario 4), the labour force would hit 21.8 million in 2031, a 22.9% surge from its 2005 level.

Only scenario 1, the low-growth projection, does not generate an outlook for steady increases until 2031. According to this scenario, the labour force would peak at 18.6 million people in 2017, then fall slightly to 18.1 million in 2031. However, this number would still be higher than the labour force of 17.8 million in 2005.

All four scenarios showed that only three provinces (Ontario, Alberta and British Columbia) will see a larger labour force in 2031 than in 2005. These are also the only provinces currently experiencing population growth near or above the Canadian average.

In contrast, three of the Atlantic provinces (Newfoundland and Labrador, Nova Scotia and New Brunswick) along with Saskatchewan, would have a smaller labour force in 2031 than in 2005 in all of the scenarios.

The labour force could be either lower or higher, depending on the scenario, in Prince Edward Island, Quebec and Manitoba.

Sharp decline in overall participation rate in all four scenarios

The overall participation rate gives a better idea of the scope of coming changes. This rate drops sharply by 2031 under all of the projection scenarios.

In 2005, about 67% of the total population aged 15 and over was in the labour force. In scenarios 1 and 2, in which the participation rate stays at its recent level, it would fall to about 58% in 2031.

If participation rates continued to rise at the rate observed over the last decade (that is, under scenarios 3 and 4), the decline would be less pronounced, to 62% in 2031. The study also found that a continued increase in the participation rate by age has the potential to delay by a few years the decline in the overall participation rate.

Regionally, the overall participation rate would fall between 2005 and 2031 in all provinces, under all scenarios. Scenarios 1 and 2 would result in the lowest levels in 2031, at about 45%, in Newfoundland and Labrador. This suggests that more than one person in two aged 15 years and older would not be in the province's labour force.

In contrast, Alberta in 2031 would see an overall participation rate close to that for Canada in 2005 in all scenarios.

Significantly fewer working persons for every inactive senior in 25 years

The study found that in all the scenarios, the number of workers for every retired person aged 65 or older would be reduced by half between 2005 and 2031, falling from about four today to slightly more than two in 2031. In 1981, this ratio was more than five workers per inactive senior.

These findings also suggest that neither a rise in fertility, nor increased immigration, nor even the continued rise in participation rates could reverse the downward trend.

Again, the shift from working to retirement of the large baby boom generation and the proportionately fewer number of young adults largely explains this phenomenon.

There is another challenge on top of the inevitable drop in the overall participation rate of the Canadian population: the aging of the workforce. This phenomenon can be measured by the percentage of older workers in the labour force, those 55 and over, who are close to retirement age.

The proportion of the labour force in this age group is expected to reach between 18% and 20% in 2021, about double what it was during the mid-1990s.

In other words, about one worker in five in 2021 will be aged 55 or older, compared to about one in seven in 2005.

The study also found that that the rapid aging of the labour force will continue to have an impact on the labour market at least until the early 2020s. This represents a major challenge for employers in terms of managing and renewing their labour force. The increased number of older workers could also affect labour productivity in the future.

The study "Labour force projections for Canada, 2006-2031" is now available from the Publications module of our website. The study is also included in the June 2007 Internet edition of Canadian Economic Observer, Vol. 20, no. 6 (11-010-XWB, free). The monthly paper version of Canadian Economic Observer, Vol. 20, no. 6 (11-010-XPB, $25/$243) will be available on June 21.

For more information about the Canadian Economic Observer, click on our banner ad from the Publications module of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Laurent Martel (613-951-2352; laurent.martel@statcan.gc.ca), Demography Division.