HillNotes

Canada is facing unprecedented demographic change, particularly in the area of population aging. According to statistics on the anticipated changes in Canada’s population, the number of people aged 65 or more could double in the next 20 years (see Figure 1).

Governments at all levels will face significant challenges as a result. In fact, the socio economic impact of an aging population will play a major role in the decisions governments will make in the coming years.

Figure 1 – Distribution of Population by Age Group, 1971–2061

Source: Figure excerpted from André Léonard, Canada’s Aging Population and Public Policy: 1. Statistical Overview, Publication no. 2011-63-E, Parliamentary Information and Research Service, Library of Parliament, Ottawa, forthcoming.

The reason for the increase in the proportion of seniors in the population is twofold. First, there has been a drop in the birthrate: the generations succeeding the baby boomers – Canadians born between 1946 and 1965, most of whom will be 65 by 2020 – have been smaller. Second, life expectancy climbed from 68 to 78 years of age between 1961 and 2006.

Economic impacts

Over the next 50 years, the increasing proportion of seniors will have a tremendous impact on Canada’s economic growth and, consequently, on federal finances. Nor will the business sector be spared: some of the challenges it will face include an aging workforce, an impending labour shortage and increased competition for skilled workers.

The baby boomers’ financial readiness for retirement is also being questioned. Although this generation seems generally well prepared financially, middle- and high-income earners are having more difficulty achieving an acceptable income replacement rate (70%). This rate represents the ratio between workers’ income after retirement and their income at the end of their careers, when employment earnings are usually at their highest. This is why some experts are calling for changes to public pension plans and savings incentives.

An aging population may also lead to higher public health care spending, a factor that will combine with other pressures on the health care system, such as inflation, new technologies and the “income effect” (the fact that health care demands increase with income). However, many economists assert that, assuming reasonable economic growth, governments should be able to properly manage the aging population’s financial impact on health care.

Social impacts

Decisions on community infrastructure – such as housing, transportation, outdoor spaces and building accessibility – have a significant impact on the quality of life of Canada’s seniors. Canada is an active participant in the “age-friendly cities” initiative launched by the World Health Organization and is a leader in implementing guidelines for developing cities and communities that focus on seniors’ well-being. Several local initiatives are under way in the provinces and territories to offer seniors a healthy, welcoming and more accessible environment.

That said, since people suffering from chronic illnesses are the most frequent – and most expensive – users of the public health care system, and because their numbers increase with age, there will be a need to rethink how we care for them and probably to establish a wider range of home health and social services. In addition, provincial and federal governments will have to make certain adjustments in the near future to better support caregivers.

Other aspects of demographic change

While an aging population poses significant challenges, this is not the only element of demographic change facing Canada. Other trends – each of which has its own share of economic and social opportunities and challenges – include:

• slower population growth, stemming primarily from a decline in the fertility rate;
• greater ethnic and socio-cultural diversity, resulting from an increase in the number of Canadians born outside the country and a higher fertility rate among Aboriginal peoples; and
• significant differences among the provinces and territories, as demographic change varies between regions.