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The labour force in Canada and its regions: Projections to 2036

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by Laurent Martel

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Introduction

From 1960 to 2010, the Canadian labour force—which includes persons who are employed or unemployed—grew faster than the population aged 15 and over. As a result, the weight of the labour force in the population aged 15 and over—also known as the overall participation rate— progressively increased during this period, reaching a peak of 68% in 2003 and 2008.

The rapid growth of the labour force over these 50 years was fuelled mainly by the arrival of the larger baby-boom generation (those born between 1946 and 1965) at working ages, and also by the increase in women’s labour force participation and an equally rising level of education among the population.

In recent years, however, the overall Canadian participation rate began to decline, from 68% in 2008 to 66% in 2017. This is due to the fact that the population aged 15 and over is now growing faster than the labour force, although the latter is also still growing, but at a slower pace.

This trend reversal has occurred despite the fact that, since the mid-1990s, there has been a significant increase in labour market participation of people aged 50 and over. For example, the participation rate of people aged 60 to 64 who are close to retirement rose from 43% in 1995 to 61% in 2017 among men, and from 23% to 49% among women during the same period.

Population aging—principally, the aging of the large cohort of people born during the baby boom era—is the dominant factor currently putting downward pressure on the labour force participation rate. These individuals began leaving the workforce a few years ago to retire.^Note The last generation of baby boomers will reach the age of 65 in 2031.

Is it therefore inevitable that the overall participation rate will decline in the coming years? Could the size of the labour force decrease in absolute numbers? To what extent are other factors likely to influence future trends, such as immigration and a possible further increase in labour force participation rates among older workers?

The future development of the labour force is important for several reasons. An abundant supply of labour contributes to economic growth and the tax base on which many government programs are based. The number of people in the labour force relative to those who are economically inactive is an important element in the balance of some programs, including public pension plans. Finally, the ethnocultural composition and future age structure of the labour force are also of great interest to employers across the country—for the planning of programs that focus on topics such as knowledge transfer, immigrant integration and employment equity.

It is in this context that Canada’s labour force projections represent a useful planning tool for decision making. After two series of projections released earlier by Statistics Canada (in 2007^Note and 2011^Note ), this article presents new projections about Canada’s labour force through 2036 using Demosim, a microsimulation population projection model. This article analyzes projected national trends in the size, growth, demographic weight, age structure and ethnocultural composition of the labour force. For the first time, results at the regional level are presented—for 18 major metropolitan and non-metropolitan areas of the country—in order to illustrate the large regional variations that could characterize the country in 2036.

The Demosim model used to produce these projections is described in detail in a methodological report published in 2017 by Statistics Canada.^Note The assumptions for the five scenarios developed for these labour force projections are detailed in the Data sources, methods and definitions section and are summarized in Table 1. These scenarios are intended to provide a plausible range for the future evolution of the labour force, and to reflect the uncertainty inherent in any projection exercise.

The growth of the labour force will slow in the coming years

In terms of absolute numbers, all scenarios indicate that the number of Canadians in the labour force should increase over the next few years (Chart 1). According to the reference scenario, this number could increase from 19.7 million people in the labour force in 2017 to 22.9 million in 2036. Depending on the scenario, the number of people in the labour force could vary from 21.1 million (low-growth scenario) to 24.2 million (high-growth scenario).

Four out of five scenarios, however, suggest that labour force growth could slow in the coming years (Chart 2). Only the high-growth scenario, which assumes a gradual increase in the annual immigration rate to about 1% of Canada’s population by 2022 and stabilization thereafter, suggests that this growth could increase sligthly from its current level (about 0.8% per year). The reference scenario suggests labour force growth that would stabilize at around 0.7% per year in 2021.

The low-growth scenario, which assumes an immigration rate of 0.5% in 2022 and stabilization thereafter, expects labour force growth to reach near zero by 2026. This scenario underlines the importance of immigration. In fact, in the absence of immigration in 2018 and after (first year of projection in the model), Canada’s labour force would begin to contract in 2022 and would fall below 19 million people by 2036 (scenario not presented).

Results obtained based on other scenarios, which have different assumptions about future labour force participation rates by age group—“constant rates,” “trends from 1995 to 2017,” and “50% growth” scenarios—differed little from the reference scenario.

Overall participation rate decreases in all scenarios

Despite having decreased in recent years, Canada’s overall participation rate in 2017 (66%) was the highest among the G7 countries according to data from the Organisation for Economic Co-operation and Development (OECD).^Note The United Kingdom (63%), the United States (63%), Germany (61%), Japan (61%), France (56%) and Italy (50%) all had lower rates. The average for OECD countries was 60%.

One of the reasons for Canada’s high rate is its past demographic history: the baby boom phenomenon was particularly strong in Canada during the 1950s and 1960s, and many baby boomers were still in the labour market in 2017.

All projection scenarios indicate that the decrease that began recently could continue in the coming years (Chart 3). By 2036, the overall labour force participation rate could vary from 61%, according to the “constant rate” scenario, to 63%, according to the reference scenario. The reference scenario assumes that the upward trends in participation rates observed among people aged 50 and over will continue.

The results of scenarios proposing variations in the components of population growth (high- and low-growth scenarios) were very similar to those of the reference scenario. These results suggest that, even though the overall participation rate will decline as a result of population aging, the magnitude of that trend could be more impacted by changes in labour force participation than by changes in the components of population growth (fertility, mortality, migration).

That being said, the ongoing increase in labour force participation rates beyond the age of 50 is not expected to fully offset the effects of the aging of the labour force.

By 2036, Canada could have fewer than three people in the labour force for every person aged 65 and over who is not in the labour force

In the early 1980s, when the vast majority of baby boomers were in the labour market, Canada had six people in the labour force for every person aged 65 and over who was not in the labour force. By 2017, this ratio had declined to four people in the labour force for every person aged 65 and over who was not in the labour force. Under all projection scenarios, this ratio could be less than 3 to 1 in 2036 (Chart 4).

All scenarios provided similar results, which suggests that neither an increase nor a decrease in immigration levels, nor further increases in labour force participation rates for people aged 50 and over, could change the projected trend.

In 2036, 1 in 4 people in the labour force could be 55 or over

In 2021, the year in which the last baby boomers will reach the age of 55, 23% of the labour force could be aged 55 or over. This proportion could continue to increase slightly, to 25% in 2036 (Chart 5, reference scenario). The more modest increase in this proportion in the years after 2021 than in years prior is related to the arrival of smaller generations—particularly Generation X (people born from 1966 to 1980)—at these ages.

All labour force scenarios show a strong increase in ethnocultural diversity

In 2016, just over one in four people in the labour force (26%) were born outside Canada (Chart 6). This proportion has been increasing since the mid-1990s because of sustained levels of immigration to Canada.

According to the reference scenario, by 2036 this proportion could reach 34%, or just over one in three people in the labour force. Because they propose variants on future immigration levels, the high- and low-growth scenarios lead to different results: the proportion would reach 37% according to the high-growth scenario, and would not exceed 30% according to the low-growth scenario.

Over the past 25 years, the majority of Canadian immigrants who came to Canada were born in Asia. As a result, the proportion of members of visible minority groups in the labour force has also increased rapidly over the past 20 years (Chart 7). This proportion was 22% in 2016 and could reach 36% in 2036 according to the reference scenario, or more than one in three people in the labour force. This proportion could be lower (33%) in the low-growth scenario, and could reach 38% in the high-growth scenario, which suggests an immigration rate of 1% as of 2022, and a similar distribution of immigrants across countries of origin.

The visible minority population is growing not only because of immigration, but also because of immigrants already settled in Canada having children. As a result, the proportion of people belonging to visible minorities groups born in Canada is also increasing. Combined with the fact that Canadian-born visible minorities people tend to have higher levels of education than the rest of the population^Note —an element taken into account in the projection model—the proportion of Canadian-born visible minority members within the labour force is also rising rapidly. Among labour force participants who were part of a visible minority group in 2016, 20% were born in Canada and, therefore, were likely educated in Canada. By 2036, this proportion could reach 26% according to the reference scenario, 24% in the high-growth scenario and 30% in the low-growth scenario. The higher proportion in the low-growth scenario is explained by the fact that the concentration of foreign-born individuals within the labour force would be lower because of a lower level of immigration.

Results vary considerably from one region to another

The national situation masks significant regional differences. The Demosim microsimulation projection model projects the population and its characteristics on a sub-provincial scale, mainly for the country’s major metropolitan areas and non-metropolitan areas (see the section on Data sources, methods and definitions). Since the structure of the economy is often different between urban and rural areas, it is important to understand regional variations in projected labour force trends.

Labour force characteristics for 18 regions were projected, with some groupings required because of smaller population sizes: in the Atlantic, (1) the Halifax, St. John’s, Saint John and Moncton metropolitan areas combined, and (2) non-metropolitan areas; in Quebec, (3) the Montréal metropolitan area, (4) other metropolitan areas (Sherbrooke, Québec, Trois-Rivières and Saguenay combined) and (5) non-metropolitan areas; in Ontario, (6) the metropolitan areas of Ottawa–Gatineau, (7) the Toronto metropolitan area and (8) the Sudbury and Thunder Bay metropolitan areas combined, which are both located in Northern Ontario, (9) the other metropolitan areas (Brantford, Oshawa, Kitchener–Cambridge–Waterloo, Barrie, Guelph, Kingston, Hamilton, London, Peterborough, St. Catharines–Niagara, Windsor combined) and (10) non-metropolitan areas; in Manitoba and Saskatchewan, (11) the Winnipeg, Regina and Saskatoon metropolitan areas combined, and (12) non-metropolitan areas; in Alberta, (13) the Calgary and Edmonton metropolitan areas combined, and (14) non-metropolitan areas; in British Columbia, (15) the Vancouver metropolitan area, (16) the other metropolitan areas (Kelowna, Victoria, Abbotsford–Mission combined), and (17) non-metropolitan areas; and (18) the three territories (Nunavut, Northwest Territories and Yukon) considered together.

Projection results by region based on the reference scenario are presented in Table 2. However, given the uncertainties about the future of the Canadian labour force, readers are invited to also consider results from alternative scenarios.^Note

According to the results of the reference scenario, labour force growth would remain positive in most Canadian regions, with the exception of Thunder Bay and Sudbury (combined), Quebec outside the census metropolitan areas (CMAs), and the Atlantic region outside the CMAs, where it would be negative. As is currently the case, total population growth should remain higher in metropolitan areas than in non-metropolitan areas by 2036. In fact, all regions outside Canada’s CMAs should have negative or near-zero population growth by 2036.

These results are largely related to the projected geographic distribution of immigrants admitted to Canada^Note and regional differences in the age structure.

Even though the participation rate is projected to decrease in all Canadian regions by 2036, the decline is expected to be more pronounced in eastern Canada than in western Canada. In 2036, according to the reference scenario, the lowest overall participation rate (53%) could be observed in the Atlantic non-metropolitan areas, and the highest in both Alberta metropolitan areas (Calgary and Edmonton combined) and the territories (71%). Specifically, 18 percentage points would then separate the participation rate for these regions; in 2017, the maximum difference between these two regions was 15 percentage points.

Some regions stand out from others, such as the Montréal and Toronto metropolitan areas, which are the only ones in eastern Canada that would see little change in their overall participation rates (from 68% in 2017 to 65% in 2036 for Montréal, and from 67% to 66% for Toronto). This is mainly because of the importance of immigration in these two major urban areas.

The regional analysis of the results in the five scenarios developed (the reference scenario and the other four scenarios presented in the Supplementary Information section) shows conclusions similar to those prevailing at the national level. The scenarios that vary the assumptions for the components of population growth (“reference,” “high-growth” and “low-growth” scenarios) lead to quite different results for the size and growth of the labour force, but similar results for the projected trends in the overall participation rate. Differences in the overall participation rate arise in the scenarios that propose different trends in projected labour force participation rates for different age groups (especially beyond age 50) (“trends from 1995 to 2017,” “constant rates” or “50% growth” scenarios).

In all regions, aging and increasing ethnocultural diversity of the labour force are expected to continue

In the reference scenario, the aging of the labour force would continue in all regions of Canada, but to varying degrees. In general, the proportion of people in the labour force that are aged 55 and over should be higher in 2036 in non-metropolitan areas than in metropolitan areas.^Note

For example, in 2017, non-metropolitan areas in the Atlantic, Ontario, Manitoba, Saskatchewan and British Columbia had the highest proportion of people aged 55 and over, with 25%. By 2036, this proportion could exceed 30% in the Atlantic, outside the CMAs. Conversely, this proportion could remain below 25% in the Montréal and Ottawa–Gatineau metropolitan areas; in the metropolitan areas of Manitoba, Saskatchewan and Alberta; and in the territories.

The ratio of the number of people in the labour force for each person not in the labour force aged 65 and over should also decrease in all regions of Canada by 2036. In 2017, the ratio was lowest in the Atlantic non-metropolitan areas (2.5), and highest in Alberta’s metropolitan areas (6.1) and in the territories (9.6). By 2036, six regions could have fewer than two people in the labour force for every person not in the labour force aged 65 and over: the Atlantic, Quebec, Ontario and British Columbia non-metropolitan areas, and the metropolitan areas of Quebec (with the exception of Montréal), and Sudbury and Thunder Bay combined. This ratio would remain above four in two regions: the territories (5.6) and Alberta’s metropolitan areas (4.6).

With sustained levels of immigration in Canada in the future—according to the reference scenario—the proportion of people in the labour force that are foreign-born or members of visible minority groups should increase in all regions. Already very different from one region to another in 2017, regional variations could be even larger by 2036. For example, more than 50 percentage points separated the Toronto metropolitan area (53% of the labour force born outside Canada) from the Quebec non-metropolitan areas in 2017 (3%). By 2036, the gap between these two regions could be nearly 53 percentage points, according to the reference scenario.

These gaps would be even larger with regards to the proportion of people in the labour force that are members of a visible minority group, since the fertility of immigrants already living in Canada contributes to the growth of the visible minority population.

Thus, in 2017, about 50 percentage points separated the Toronto metropolitan area (where 51% belonged to a visible minority group) from the Quebec non-metropolitan areas (1%) in 2017. The gap between these two regions could increase to 63 percentage points in 2036, according to the reference scenario.

Overall, the ethnocultural^Note diversity of the labour force would remain significantly lower in all non-metropolitan areas of the country, compared with metropolitan areas. For example, the proportion of people in the labour force that belong to a visible minority group could reach 13% in Atlantic metropolitan areas by 2036, compared with 6% in Atlantic non-metropolitan areas. In British Columbia, this proportion could reach 62% in the Vancouver metropolitan area, 24% in other metropolitan areas of the province and 9% in non-metropolitan areas.

Finally, the other scenarios developed in this exercise also indicate an aging workforce in all regions of the country. However, the extent of this aging would be more dependent in the future on changes in labour force participation rates across age groups, particularly those aged 50 and over, than on changes in the components of population growth.

Conversely, ethnocultural diversity is expected to increase, regardless of the scenario. The magnitude of this increase would be smaller in the low-growth scenario, which assumes lower levels of immigration, than in the reference or high-growth scenarios.

Conclusion

Several observations emerge from the projection results presented in this article. On the one hand, the decrease in the overall participation rate, the continued aging of the labour force and the increase in its ethnocultural diversity for all regions of the country seem inevitable, with the five projection scenarios leading to these results, to varying degrees. These results are also consistent with labour force projections previously released by Statistics Canada^Note ,^Note .

On the other hand, fertility, mortality and especially immigration levels will have a significant impact on the size, growth and ethnocultural diversity of the Canadian labour force in the coming years. The future evolution of labour force participation rates by age group could, at least in part, prevent a rapid decline in the overall labour force participation rate, but this effect is not expected to be strong enough to compensate for the aging of the labour force.

In 2017/2018, 80% of Canada’s population growth came from migratory increase, and only 20% came from natural increase (births minus deaths). In recent years, several Atlantic non-metropolitan areas have experienced more deaths than births within their populations. These projections show that, if these trends continue in the future, Canada’s labour force will become increasingly heterogeneous across the country by 2036. Many metropolitan areas may see their labour force continue to grow, with a slower decline in the number of people in the labour force for each person not in the labour force, and a sharp increase in ethnocultural diversity. However, several non-metropolitan areas may see their labour force decline in the coming years, and may maintain a low level of ethnocultural diversity. In some cases, the ratio of the number of people in the labour force for each person not in the labour force could even be less than two to one.

In this context, these projections show that labour force issues in Canada are expected to become increasingly regional, as labour demand also affects the demographic evolution of regions.^Note This situation may pose challenges, particularly in terms of regional and sectoral labour shortages, and the maintenance of services for specific populations.

Laurent Martel is director of Demography division at Statistics Canada.

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