Conducted by Ergete Ferede, professor of economics at MacEwan University, and Bev Dahlby, senior fellow at the Fraser Institute, the study found that a 10 percent increase in the share of the population aged 65 and older is associated with a reduction of the growth rate of real GDP per capita of 0.23 percentage points.
This implies that, in 2021 dollars, Canada’s GDP per capita will be lower by $4,300 by 2043 under Statistics Canada’s slow-aging population projection scenario and by $11,200 under its fast-aging scenario, according to the study. Notably, under the fast-aging population projection, real GDP per capita will be about 13 percent lower in 2043 than in a no-aging state.
The study’s simulations also indicate that the adverse impacts of population aging on economic growth will vary across provinces. Under the fast-aging scenario, by 2043, real GDP per capita will be lower by between $9,000 in Prince Edward Island and $21,000 in Newfoundland and Labrador. Alternatively, expressed in percentages, real GDP per capita will be 10.7 percent lower in Saskatchewan and 16.8 percent lower in Newfoundland and Labrador in 2043, compared to a no-aging scenario.
These findings come in the wake of a projection from Chief Actuary Assia Billig that Canada will have more seniors than children in 2023—the first time in history it has reached that population age ratio. In 2023, Canada will have 7,471,000 children, defined as individuals 0 through 17 years old, and approximately 7,663,000 seniors, aged 65 and older. Children will account for 19.2 percent of the population, while seniors will make up 19.7 percent, as detailed in Ms. Billig’s “Actuarial Report on the Old Age Security Program,” published in 2020.
Mr. Ferede and Mr. Dahlby addressed Canada’s literature gap on aging’s impact on economic growth, examining per-capita output and labour productivity from 1981 to 2020. They also provided insights for policymakers regarding this demographic shift.
An important policy implication of these findings is that Canadian policymakers need to embrace multifaceted pro-growth policies to offset the adverse economic and budgetary effects of population aging, the study said. A policy tool the study suggested for the federal and provincial governments is to reduce business taxes, such as the corporate income tax. This would help stimulate private investment and boost labour productivity and economic growth over time.
The study also highlighted the need to expand the country’s labour force by increasing the number of working-age immigrants and expediting their integration into the labour market. Governments can also improve seniors’ labour-force participation rates by reducing the marginal tax on their earned labour income and providing them with more opportunities to acquire new skills.
