The boomers are coming

The baby boom generation of Canadians – those born between 1951 and 1966 – make up a large demographic in the nation’s workforce and the clock on their working lives seems to be ticking louder than ever before. With lots of noise being made in media and government about the imminent retirement of so many people from the labour market and associated costs of government benefit programs and health care, the aging population is getting lots of attention.
The question for students looking to enter the working world is what this shift means for their futures.

Perhaps it is encouraging then, according to now-retired University of Waterloo professor of statistics and actuarial science Robert L. Brown, that the topic of what happens when boomers stop working is nothing new. “It’s going to be a challenge, but it’s not a crisis and it’s been known for years,” he said, reached between golf games in balmy British Columbia. “There’s probably been more research [in this] than any other Canadian topic, going back 25 years.”

A key component of this discussion is Old Age Security (OAS), the government program that provides a monthly contribution to those 65-and-older.

A recent study by Sun Life Financial lends to the idea that working life doesn’t just end at 65 though, with more than two-thirds of Canadians polled expecting to not be fully retired by 66. With the average life expectancy far greater than it was when the age threshold of 65 was brought in, an extension to 67 to be brought in by 2020 is being considered by the federal government.

“I’m not sure that it’s inevitable,” said Brian Lee Crowley, managing director of the Macdonald-Laurier Institute, a nonpartisan think-tank in Ottawa. “But I think it’s prudent to do it.”

The idea has drawn fire from some organizations including the Canadian Association of Retired Persons (CARP), who say that such a move would push some seniors below the poverty line.

“You can accommodate almost any kind of program as long as you’re willing to give up other things,” Crowley continued, noting that OAS and its partner GIS, the Guaranteed Income Supplement, will rise from 15 per cent to a full quarter of federal government spending in the coming decades. “Is that sustainable?” he asked. “Sure, you’ve just got to get people to agree to stop spending ten per cent on something else.”

The legacy of such a large cohort of people in the workforce is that perceptions of what working life and retirement should be like are maintained by younger generations as well.

“Part of the problem in people understanding this is that we’re all stuck with the image of the last 50 years,” Crowley said. “Everyone including older workers will have a very strong interest in keeping older workers in the workforce as long as we can,” he said, noting that much of what has underpinned Canada’s economic growth and stability for the past few decades can be attributed to that generation making Canada’s labour force the largest relative to the number of ‘dependents’ — children and the retired — among large industrialized nations.
The costs associated with an aging population can be mitigated by creating conditions that don’t encourage people to retire early simply because they have reached a certain age, he said.

“I personally think that extending the working life of Canadians is very much going to be in the interests of young people as well as older people.” If most of the population plans on working longer anyway, Crowley said, the benefits for both Canada’s production of wealth and the public costs of supporting those that are ready to retire would be substantial.

I can has jobs?

Whether the OAS age is raised to 67 or not, baby boomers will continue to retire, progressively more so as we near the next decade.

“The hope is, with the retirements among the baby boom age population, that will open up job opportunities,” said Morley Gunderson, the CIBC chair of youth employment at the University of Toronto’s Centre for Industrial Relations and Human Resources. “Not that someone at 65 retiring will have someone fill that exact slot but other people will.”

It seems inevitable that because of retirements, cake-cutting and watch-gifting, recent graduates should be in higher demand as more slots open up. Crowley said that while there is some uncertainty as to how all this will play out, signs will start to emerge in the short term.

“The impact of the population aging on the workforce and number of people available to work has not really started to hit home yet because there is a five-year period where we make the transition from the baby boom generation in the workforce,” he said, adding that once this transition period is over, things will have changed considerably.

“Over the next 50 years the workforce will barely grow, I think it’s supposed to grow 11 per cent over those 50 years whereas it grew 200 per cent over the previous 50 years,” he explained.

“One of the consequences in my view is clearly going to be that the value of workers is going to go up, the wages are going to rise and employers are going to try and do everything they can to keep people in the workforce rather than see them retire.” Whether this means more job opportunities for young people is not assured, but it certainly cannot hurt.

Gunderson left some question as to whether labour shortages will be as endemic in the market as some have forecast, but there will be challenges. “It’s not clear that young people can expect the kinds of jobs their parents had,” he said. “Almost invariably now people will start out with a limited term contract or contract job if they get one at all — that’s in a sense the new probationary period. Some of those will turn into permanent jobs and some will be something to work while you look for a more permanent job.”

Recent graduates who either moved back in with their parents or struggled to find secure jobs can certainly attest to this reality, but will things change? Gunderson said that there has been a paradigm shift from working a secure job from graduation until retirement the way previous generations often did.

“The jobs their parents had were often blue-collar manufacturing, well-paying blue collar jobs, now it is more extreme,” he said. “Some jobs are high paying that people can move into but the big issue is the middle where the job distribution has kind of fallen off and hollowed out. If you start off at the bottom end, working in a service job or flipping burgers, things like that, it’s possible you could be stuck there for a while. Those middle jobs aren’t there as much right now.”

Fortunately, and perhaps annoyingly so, the old adage that education is the best investment one can make seems to still apply, and is also encouraging some students to remain in school longer until the job market stabilizes.

“In general, getting more education still seems to keep paying off – perhaps somewhat surprisingly given the large numbers entering higher education such as universities,” Gunderson continued. “Yet, those returns seem pretty high, though they vary considerably by field of study.”

Return on investment can vary, he said, from a five-per cent dividend made up in increased salary for each dollar spent on education to more than 15 per cent in some professional programs like engineering.

There is a legacy impact on when graduates enter the labour market to consider as well, he added, as shown in a study by his colleague Philip Oreopoulos at U of T. The study showed that when people enter a job market in a recession or find work that is lower-paying, the impact on their earnings over time lags behind those who began during a boom.

“We have moved to a knowledge economy and even people in fine arts and things like that get a reasonable return [on investment in education],” he said. “It’s much lower but that’s a love of labour, it’s what they want to do.”
So, the short answer is not unexpected. Things will improve and there very well might be more jobs available for graduates once the baby boom cohort retires, but there is still a lot of uncertainty surrounding the situation.

What about when I want to retire?

With longer working lives seen even among the baby boomers, by the time twentysomethings decide to stop the 9-to-5 and enjoy their golden years the situation will have likely changed again. In 40 years, when a current student would be in their late 50s or early 60s, demographic studies lead Brown to believe that the situation will have normalized.

“If you’re retiring after 2050, you’d be coming back into a period of stability,” he said. “Students now will be retiring just on the cusp of the end of the bad times and the beginning of the next demographic dividend-paying period.”

“The baby boomers will just about be gone by 2050,” he explained. “The baby boom created its own cycle and was followed by the baby bust. There’s a tidal wave of shifts in dependency ratios and producers and retirees. It’s been fairly constant for the past 25 years so the period from 2050 to 2075 should be pretty predictable and it will be an easier time than from 2030 to 2050.”

Nevertheless, with possibilities for both private and public-sector pensions and benefits not as assured as they once were, adjustments will need to be made to prepare for when the next generation looks to retire.

The health question

Along with mechanisms like OAS, a common cause for concern when discussing an aging population is health care. Raisa Deber, a professor at the Institute of Health Policy, Management and Evaluation at the University of Toronto explained that while there are some difficulties, Canada’s public health care system as a whole should weather the storm.

She said that any doomsday scenarios have largely been debunked by studies into the costs associated with aging and what such a large demographic of aging people might mean. “In every single age-sex group, people are pretty healthy and they don’t account for a whole lot of health care costs,” she said.

“Where it gets a little bit tricky is that a lot of costs are associated with the time right before death.” All things being equal, the cost of health care per person does not necessarily increase because they are older, it remains relatively stable in most cases until very close to the end of a person’s life, when there may be an increase.

Deber explained that extrapolating the health care costs to apply to the baby boomers makes little difference if people are working longer and living longer in general, simply extending the age they die.

“In fact, if you have someone who is aging and becomes very sick, the odds are the hospital isn’t going to throw everything at them in the same way they would if it was a younger person,” she said.

“There are a lot of reasons to be worried in terms of costs but the evidence is pretty solid that what’s driving the increased cost is more what you pay providers.”

She said that private-sector concerns like home care and nursing homes, many of which are not-for-profit private institutions, will be in greater demand as the population ages, but that largely falls to families or private insurance to cover costs. While health care as a provincial expenditure is increasing, she said that it does not draw the viability of the system into question.

“Maybe one or two per cent of the cost increase is coming from [having an aging population]. The question is whether that is the big cost driver that is going to make the system ‘unsustainable,’ and the answer to that is no, not from the data anyone is looking at.”

Between drugs, home care and nursing homes, Canada’s population will see increased money spent in the coming years, just as it is now, but on a broad level things seem as though they should work out reasonably well. “It’s not that those aren’t real costs,” Deber said, “You’re looking at who is picking up those costs.

Prognosis

Brown chose to explain the situation on a very basic level. “It doesn’t matter how much money a person has, what the legislation says, it doesn’t matter how you label different generations, the point is that people need to produce goods and services in order to be consumed,” he said.

“Someone is out there so I can go golfing and go to a movie and have a steak for dinner and for you so you [students] can eat Kraft Dinner. Those things need to continue to be produced.”

He said that while the system may take some time to right itself, things should balance out when considering factors like women in the workforce – which wasn’t always the case to the degree it is now – as well as skilled immigration and people working longer.

“The point is that we have to produce goods and services before they can be consumed, that’s the bottom line. You can play games with everything else; pensions, money supply, it doesn’t matter.”

So there you have it, kids. There is no doubt that the baby boom generation’s gradual aging will impact Canada and younger Canadians.

Thankfully, the signs point to more possibilities for younger people in the labour market – even if it means they will be saddled with some of the burden of caring for baby boomers as they age.