Dated: May 23, 2012
Emeritus Professor of Sociology
Western University, Canada
Age and sex: 2011 as a dividing line
We have known for at least 30 years that the period 1981-2011 would be a rather ideal time, as aging was producing an increased proportion of the population at labour force ages. Until about 2011, aging was also paired with an increasing employment rate (employed as proportion of the population aged 15+).
The 2011 Census is likely to show an all time high in the proportion of the population that is at ages 15-64. Even as people retire later, the future aging is likely to bring declines in the employment rate.
The big picture: 20th and 21st Centuries
The 20th Century was one of immense population growth, in the world and also in Canada. The world population increased four fold (from 1.6 billion to 6.1 billion) and the Canadian population increased almost six fold (from 5.3 million to 31.1 million).
Historical demographer Massimo Livi-Bacci (2000) has proposed that the 20th and 21st centuries will also be quite different in terms of a “demographic dividend”.
The mortality decline of the 20th century brought more surviving children, thus less “wastage of human resources,” as well as longer and healthier work lives, while the decline of the 21st century would especially benefit people who are at older stages of life.
The fertility decline brought a maximization of the population who are at younger adult ages, while the continuation of low fertility eventually brings fewer people renewing the labour force from below.
Urbanization, as the big migration of the 20th century, brought more efficiency in the availability of labour, while that of the next century could include some of the inefficiencies of large population agglomerations.
Decomposing the process of aging
Aging started essentially because of the reduction in fertility, and in the 1970s when I was a student in demography, we learned that aging was basically a function of fertility decline. But, with fertility being more stable than declining for the last 25 years, we can say that aging is a function of low births but not declining fertility.
The early stages of mortality decline especially benefitted the very young, making for a younger population. In the 1970s, the improvements in mortality were still affecting younger people more than older ones, and thus these gains in life expectancy did not much affect the age structure. That is no longer the case. With the delay of degenerative diseases associated with heart and cancer (4th phase of the epidemiological transition), the increased life expectancy is making for an older population.
Of course, besides fertility and mortality, aging is because all persons who remain in the population get older, one year at a time. This is important especially when there are cohorts of different sizes. That is, an important component of aging is the baby boom moving from one place in the age pyramid to the next.
Societal implications: Stages of aging
The first stage of aging, associated especially with lower fertility, was easy to accommodate at least in the short term, as it was liberating for adults who had fewer dependent children.
The second stage has especially been associated with the movement of the baby boom through the age structure. As long as the baby boom was entering or advancing in labour force ages, this was also easy to accommodate as it meant a larger, better educated and eventually more experienced labour force. It is interesting to observe that over the period 1966-86, the population as a whole was aging (as measured by the median age or the proportion 65+), but the labour force was actually getting younger.
In the third stage of aging, which we have known for some time would be after about 2011, aging is a function of the baby boom moving into ages of less labour force activity. With the mortality reductions of the 4th phase of the epidemiological transition, we have an increased proportion of frail elderly.
Social programs for all ages
When Canada’s social programs were being established or enhanced in the 1960s, it was easy to plan for increased benefits for the elderly, who were an important pocket of poverty at that time. With a growing population, growing economy, a small proportion of elderly, and larger cohorts following behind, it was not impossible to have income levels for the elderly that were comparable to the income they had while in the labour force.
Our social programs were set up when there was a small proportion elderly in the population, and a breadwinner model of families prevailed. Our policies need to adapt to a situation where there are increased proportions of elderly, fewer people at ages 15-64, and the vast majority are in two-earner rather than breadwinner families.
Canada/Quebec Pension Plan and inter-generational transfers
In the late 1960s, the Canada/Quebec Pension Plan was gathering contributions from all workers, while only paying out to those who had made contributions after the plan had started in 1967. The plan quickly developed a surplus, and it was very tempting to use the plan to deal with poverty for elderly persons who had made minimal contributions. In effect, the Plan was changed so that contributors could get the full benefit if they had made full contributions (at the rate of 3.6%) for at least 10 years. The C/QPP was a very good investment for people who retired in the late-1970s, with a contribution rate of 3.6% and full benefits after 10 years of contributions. In contrast, today’s young people do not see it as such a good investment. To get the same full benefits, they have to contribute for 40 years (ages 18-65 minus 15% grace period), at the rate of 9.9%.
Until those who were 18 in 2003 when the contribution rate was raised to a sustainable level (9.9%), there will have been transfers from younger to older generations through the C/QPP. That is, while the benefits have remained the same, the program has different meaning and value relative to contributions, across cohorts.
Inter-generational transfers have benefitted today’s seniors more than will be the case for tomorrow’s seniors. The relative size of cohorts also plays a role, as does the extent of overall population and economic growth, since transfers are easier in times of growth and when larger cohorts follow smaller ones. That is no longer the case.
Compared to pensions, health is very much funded on a pay-as-you-go basis, and except for the lucky few with “civil service type benefits in retirement”, there is a lack of options for saving during younger years in a private plan that provides benefits at older ages.
Since health care is largely funded at the societal level, there should have been savings while the baby boom was at prime labour force ages. Instead, we have lowered taxes and increased deficits.
The labour force and age at retirement
With the oncoming decline in the proportion of the population aged 15-64, and with better health at older ages, we are seeing delays in retirement. This is likely to gather momentum as the age of eligibility for Old Age Security is pushed back.
However, there are other issues to bring into the picture.
An important inequality to consider when pushing back the age of retirement is the health status by socio-economic status. With a three or four year difference in life expectancy over income categories, eligibility at age 67 rather than 65 makes a much larger difference for the poorer segments of the population, especially those in poor health. There are other ways to reduce the costs of Old Age Security that would not be to the disadvantage of the poorer segments, such as lowering the income at which clawbacks apply.
Pushing back the age of retirement is a potential solution for people who have insufficient savings, but this also affects other parts of the population. Young people have been looking forward to the retirement of the baby boom in order to have a better opportunity structure. They have maximized their education and delayed their labour force entry, just to find that the baby boom is still plugging up the system.
Earlier generations had turned to volunteering as a means of making contributions later in life. It does not appear that the baby boom generations will be as generous in volunteering. They seem to want to keep working rather than turning to volunteer work, and leaving space in the labour force for younger generations.
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