As workplaces and industries digitize and automate work, economies will have to reckon with the reality that while robots may be able to replace certain employees, they can’t replace consumers.
After all, robots don’t buy stuff.
Machines and equipment can improve productivity in the workplace, but they don’t pay taxes, nor do they contribute to the money supply by buying goods and service or by investing dollars in savings accounts, stocks and bonds.
So, if Canadian policymakers and business leaders plan to address Canada’s low productivity problem—recently described as a “crisis” by Bank of Canada deputy governor Carolyn Rogers—it will need to take demographics into account, because an unprecedented churn of human capital is underway.
“Regardless of what immigration level we choose, we are in population decline with regards to the Boomers that we have right now, and that is going to pose some significant challenges to lots of areas, and the economy is just one of them,” said Lisa Lalande, CEO of the Century Initiative, a think-tank that promotes the idea of boosting Canada’s population to 100 million by the end of this century.
In a recent speech, Rogers noted that Canada’s business sector productivity is “more or less unchanged from where it was seven years ago.”
More investment in equipment, machinery and innovation is just one thing that is needed to improve business productivity, she said. Improved skills training and education can also lead to improved labour productivity.
But there’s no escaping the fact that Canada, like most other industrialized countries, is facing a long-term shrinkage in human capital due to the retirement of the Baby Boomer generation.
Like many industrialized nations, Canada has a negative fertility rate and a large aging population that has turned its population pyramid into a bloated blob teetering on an ever-shrinking base—with Generation Z simply too small to sustain the weight of it all.
In Canada, there were 9.2 million Boomers born between 1946 and 1964, according to Statistics Canada, followed by 7 million Gen Xers, 7.9 million Millennials and just 6.7 million Zoomers (Gen Z).
To maintain its population, Canada needs a fertility rate—or replacement rate—of 2.1 children per couple. In 1960, Canada’s fertility rate was 3.9. Today, it’s just 1.3.
Without immigration, Canada’s population would be like that of Japan—aged and shrinking. Japan’s population peaked at 128 million in 2008 and has since dropped to 125 million people.
The world’s population overall is still growing and is not expected to peak until 2080, at around 10.4 billion. But population numbers can be deceptive.
To drive an economy, it’s not the total number that counts, but the number of working-age citizens who earn wages, buy homes and cars and refrigerators, pay taxes and invest. And like all other industrialized economies, Canada is developing an inverted demographic pyramid that will pose challenges for the economy.
Canada’s dependency ratio—the proportion of children under 15 and seniors over 64 to working-age Canadians—was 44 per cent in 2010, 52 per cent in 2021 and is projected to reach 59 per cent by 2027.
The great herd of humanity that is the Baby Boomer generation is moving into their golden years and taking a Golden Age with them, according to global strategist Peter Zeihan.
The last half-century has been one of the most prosperous periods in history, he notes, thanks to globalized trade and a massive population increase in the post-war period. So, what impact will an aging and shrinking population have on that prosperity?
As Zeihan points out, when people retire, an economy doesn’t just lose workers, it also loses a pool of investment capital, because retirees tend to convert stocks and bonds into things like registered retirement investment funds and start to draw on their savings.
They also tend to consume less and spend less, except when it comes to health-care services.
Because people are living longer, and because the Baby Boomer generation is relatively so huge, their retirement from the workforce will have a massive impact not only on labour capital, but on actual capital as well. And a shrinking pool of capital may make investing in productivity all that more challenging.
“The fact that they’re no longer earning incomes, but rather drawing on their incomes, on their savings, that is definitely going to have an impact,” said Pedro Antunes, chief economist for the Conference Board of Canada.
“If we lose that cohort, that’s high income, and they’re no longer working,” he said. “If you stop working and you’re living on your savings, that no longer contributes to GDP.”
One quarter of Italy’s population is aged 65 or older, and the same is true for 29 per cent of Japan’s population. At the current trajectory, Canada could be where Italy is now in about 12 years.
Canadians aged 65 years or older accounted for 18.8 per cent of the country’s population in 2022. By 2036, they will make up 25 per cent of Canada’s population, according to the Conference Board of Canada.
The Fraser Institute last year produced a study that estimated Canada’s aging population could lower per-person income by $11,200 over the next 20 years.
Canada has been addressing its demographic decline with increased immigration. Despite a negative fertility rate, the country’s population has grown to 40 million as a result.
But recent high immigration levels have led to other problems, notably adding strain to an already-acute housing availability and affordability issue.
“You can’t just grow immigration without having corresponding investments in other areas like infrastructure and housing, otherwise it just doesn’t work,” Lalande said.
The Century Initiative urges government to implement policies that would increase Canada’s working-age population through immigration and programs like childcare to support families having more children.
“Research has shown that, if parents have access to child care, that it might actually ease the burden and encourage them to consider having additional children,” Lalande said.
But increasing fertility rates alone will not address eventual population decline, she added.
“The reality is we have to rely on immigration.”
