It took a while for a version of the Great Resignation to take hold in Canada, but now it’s here. It has taken the form of a retirement wave – and its arrival further clouds the outlook for an already murky economy.
Last week’s July employment report from Statistics Canada revealed that a record 300,000 Canadians have retired over the past 12 months. That’s up nearly 30 per cent from the same time last year, and nearly 15 per cent from the months leading up to the pandemic in early 2020.
And it’s no one-month anomaly. It continues a surge in retirement numbers that began in the spring, reversing what had been a relatively slow trend up to that point in the recovery from the COVID-19 recession.
The timing isn’t great, coming when high inflation and fast-rising interest rates have already heightened the risk of a recession in the next year. Capital Economics economist Stephen Brown suggested that this retirement frenzy could be the thing to push the economy over the edge.
“The sharp increase in retirees this year presents downside risks to our forecasts for employment, and with GDP growth already faltering, further raises the probability that economic activity will contract,” Mr. Brown wrote in a research note this week.
The “Great Resignation” is a term coined to describe the unusually large numbers of workers who quit their jobs during the recovery from the COVID-19 recession, as the massive disruptions in employment and the very nature of work caused many people to rethink their relationship with the workplace. It has been a key factor in the complicated recovery of the U.S. labour market, where job vacancies have spiked yet the labour force participation rate remains stuck below prepandemic levels.
Canada has largely avoided this phenomenon, at least in terms of the broad labour market. The number of workers overall who have voluntarily left their jobs has been well below prepandemic levels through the past two years, and has been on the decline over the past three months. Statscan made specific note in the July employment report that the job change rate (people switching jobs) has remained at prepandemic levels, and that the number of core-age workers (in the 25-to-54 age group, considered the prime years for labour force participation) who have voluntarily quit is lower than it was before the recession.
But among the 55-plus population, the story is suddenly very different. It’s as if older workers, having stuck it out during the depths of the recession and the frantic, uncertain recovery, have decided that they’ve had enough.
The exodus is most pronounced among those between 55 and the traditional retirement age of 65 – in other words, early retirements. Nearly 150,000 people in this age group opted for the proverbial gold watch in the past 12 months – up nearly 50 per cent from last summer, when early retirements had sagged to their lowest levels since 2013.
The rising retirement wave helps explain why Canada’s labour force participation rate – the share of the adult population that is either employed or seeking work – has slipped over the past two months. That decline in the size of the available labour pool has allowed the unemployment rate to drop to 4.9 per cent – the lowest in nearly 50 years of records using comparable statistical methods – despite the loss of a combined 74,000 jobs in June and July.
Nevertheless, falling participation numbers are generally not considered an economic positive. And even though Canada’s overall participation rate remains healthy by historical standards – especially for the core age group, where the rate is above prepandemic levels – the spate of retirements does pose a potentially serious obstacle to the economy. It implies slower growth of a labour supply that is already inadequate to meet employers’ needs – handcuffing expansion of output, and of income that would fuel consumption.
With the economy already feeling the weight of inflation and interest rates, a slowdown in labour-market growth could be one weight too many in the coming months.
“All this raises the downside risk for GDP, particularly if retirements increase any further,” Mr. Brown of Capital Economics said.
Now, we may be witnessing nothing more than some catch-up of overdue retirements that were put on hold during the pandemic. On the other hand, the surge in early retirements could signify some bigger shift in the labour landscape, a change in mentality for workers nearing retirement that could linger for a while.
But in the bigger picture, rising retirement rates will be a headwind for the labour market, and the economy, long after the fallout from the pandemic sorts itself out. Canada’s aging population means that the share of the population aged 55 and over will continue rising significantly for many years to come. The drag on the economy’s growth potential may have been temporarily obscured by the labour shake up of the pandemic, but the implications of our demographics are inescapable.
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