Baby boomers‘ reluctance to retire has helped Canadian businesses escape the worst of labour shortages, but that might be about to change, according to Toronto-Dominion Bank.
An additional one million people will be 65 or older by 2025, meaning around 900,000 workers will likely stop working in the next three years, James Orlando, a director at TD Economics, wrote in a Jan. 26 note. That number is 50 per cent higher than the average number of people who’ve retired each year over the last decade. Labour shortages will follow.
So far Canada has managed to avoid the worst effects of an aging population on the labour market, because baby boomers have so far dragged their feet on leaving their working lives behind. Between 2000 and 2020, the number of people exiting the workforce hasn’t come close to matching the number hitting retirement age. That’s resulted in an additional 1.1 million workers remaining on the job than expected, TD said.
It’s proven to be good for the Canadian economy, which has come out ahead compared to the United States. During the pandemic, retirements grew by an an extra three million in the U.S. The result is major pressure on that country’s labour market and lower participation rates than before 2020.
“For a Canadian economy that still has approximately a million unfilled job vacancies, avoiding a U.S.-style retirement boom has been an important buffer for the economy,” Orlando wrote.
There are a number of reasons why Canadian baby boomers haven’t been as eager to retire as their neighbours to the south. For one, some provinces have done away with mandatory retirement ages, allowing people to work longer. People can also choose to delay their Canada Pension Plan benefits so they can continue collecting paycheques. There are also more service jobs, such as in retail, that are appealing to older workers, keeping them engaged in the workforce. In addition, people tend to be healthier at older ages than they used to be, keeping them active and working, TD said.
But economic hardship may have also played a role in keeping those aged 55-plus on the job. High costs of housing and rent might necessitate that people keep earning a paycheque for longer. Stock market volatility may have also been a factor, denting investments meant to provide retirement income. There are also indications that boomers don’t have enough savings to retire comfortably, and many don’t have a plan at all. Those factors may continue to keep older people working for longer than expected, TD said.
Still, Canada can’t outrun the “slow-moving train” of its aging population forever, and businesses need to brace for a wave of retirements that will make labour shortages worse, Orlando said.
“Though potential retirees may continue to extend their careers and edge up participation rates further, that can only slow and not offset the reality of more and more workers moving into older age cohorts where participation rates decline sharply,” the report said.
Immigration is one solution to help fill jobs and the federal government has taken note, raising targets so 1.5 million extra people can enter the country over the next three years. What’s more, 849,000 of these people are considered “economic immigrants,” meaning they are of working age. Those people should help to fill job vacancies.
Women are also a source of labour that can be tapped, especially as the federal $10-a-day child-care program allows more mothers to go to work. The program alone could entice 300,000 more women to enter the workforce, TD estimates.
On paper, those numbers of potential workers will more than cover labour gaps. Except, that’s probably not how it will play out in the real world.
As older workers retire, they also take with them skills, knowledge and experience — not easily replaced by new hires. That will be a challenge for both employers and employees, TD said.
There will also likely be a skills gap to contend with. Many of the immigrants coming into the country have higher education levels than the Canadian population, which means lower-skilled jobs left behind by retirees could go unfilled. Sectors with the greatest shortages of labour, such as construction and manufacturing, also require a unique combination of training, skills and education, which may be hard for immigrants to match. That puts the onus on Canada to come up with programs that help immigrants gain those skills so they can take jobs that most need filling.
In the end, the challenges the country faces from a wave of retirements can help Canada emerge with a stronger labour market — if we play our cards right, TD said.
“The aging of Canada’s existing population is opening the door to make the structural changes necessary to bring in, integrate and support all current and future Canadians,” Orlando wrote. “Therein lies a huge opportunity for Canada.”