Demographic Shifts and Labour Force Participation Rates in Canada

Labour force participation rates vary greatly by age, with persons 55 and over having much lower participation rates than younger persons. Consequently, changes in the demographic composition of the population can exert a long-run effect on aggregate participation rates. In the third article of the symposium, Bob Dugan and Benoît Robidoux examine the impact of demographic shifts on labour force participation in Canada. They use an accounting framework and plausible trend participation rates for 16 demographic groups with source population estimates to estimate an aggregate structural participation rate for Canada. They find that the ageing of the population has already started to exert downward pressure on the aggregate participation rate in Canada due to longer life expectancy and the resulting growing proportion of the population in the low-participation rate 65 and over age group. The movement of the baby boom generation into the 65 and over group in coming years will intensify this trend. Between 1989 and 1997 they find that the demographic composition effect reduced the aggregate participation rate by almost 1 percentage point, and that from now to 2030 it will reduce the participation rate by an additional 8.5 points. Of course, greater than expected trend increases in labour force participation rates by older age groups could offset some of this composition effect. The authors point out that changes in demographic composition had virtually no effect on the participation rate in the 1990s in the United States as the share of the population 65 and over was stable. This situation reflects the fact that the United States became an “older” society earlier than Canada due to an earlier and smaller baby boom and a higher average age for immigrants. Dugan and Robidoux calculate a trend participation rate of 66.2 in 1997, 1.4 percentage points above the actual rate of 64.8 per cent. Based on this rate they conclude that about one half of the 2.7 point decline in the participation rate in the 1990s was structural and one half cyclical.