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federal budget 2012

Jim Flaherty, Canada's federal finance minister at a press conference following a speech at a Canadian Club luncheon in Toronto on March 30 2012.Fred Lum/The Globe and Mail

The federal government's plans for a long-term overhaul of the labour market illustrate how Canada is adapting to massive change.

Finance Minister Jim Flaherty's budget Thursday outlined a series of measures, including resetting the age of retirement and attracting skilled workers from abroad, to pump up the work force in years to come, which observers say carries broad economic benefits.

It comes as more Canadians are delaying the age of retirement anyway, either staying on the job for longer, or re-entering the work force. Workers aged 55 and over, particularly women, have seen the lion's share of employment gains in the past year.

"For the economy as a whole, more people working means you have more income generated and therefore GDP is higher," said Robert Fairholm, director at the Centre for Spatial Economics, activity that "should have a positive effect on tax revenue and diminish government expenditures."

Mr. Flaherty's budget called for increasing the age of eligibility for Old Age Security and the Guaranteed Income Supplement in stages beginning in 2023. As well, more resources will go to training and skills development, while the temporary foreign worker program also changes to better meet the demands of the jobs market.

"The OAS program is the single, largest program of the government of Canada," the budget declared.

"It was put in place at a time when Canadians were not living the longer, healthier lives that they are now," it said, so as a result the cost of the program will hit $108-billion in 2030 from $38-billion in 2011.

While immigration will be the key source of fresh labour supply, it is delayed retirement that, by official projections, are most important to buoying the country's labour participation rate, which is likely to ebb as fertility rates fall and the population ages.

"If Canadians actually take up the Finance Minister's hint and continue to work until 67, that shift could significantly boost labour force growth," said chief economist Avery Shenfeld of CIBC World Markets. "We estimate that by 2029, there could be as much as a 1-per-cent lift to the work force, boosting GDP by an equivalent amount. Of course, GDP isn't equivalent to well-being, since in this case, what's not being deducted is the 'cost' of the foregone leisure."

Delaying retirement carries clear economic benefits, said Peter Hicks, consultant at the C.D. Howe Institute and a former federal assistant deputy minister, who released a paper on the subject this week.

Not only does it reduce pressures on government finances and pension funding, he argued, but it will improve savings among workers, and, importantly, fill key labour shortages that are looming in the country.

By his calculations, the average retiring Canadian will be 68 years old by 2031, up five years from the current average age of 63 years.

"Later retirement, it's an inevitability," he said, for reasons that range from simply enjoying work and wanting to stay active to economic need stemming from inadequate pensions or wages.

That means a nationwide rethink is needed for both workers and employers. Jan Hein Bax, president of Toronto-based recruitment firm Randstad Canada, said it can be useful to the economy to have highly skilled older employees stay in the workforce for an extra couple of years.

But that is only the case if older workers pass on their skill sets to younger employees, through effective apprenticeship schemes, he said. That's an approach used successfully in Europe, he added.

"If you just let people work longer and they take away jobs from younger people, it is just aggravating a problem," Mr. Bax said. "But if you allow them to work and at the same time build up younger people in their skills, then it is fantastic."

Many employers tend to think in the short term. But changes to retirement rules might well be "the impetus for forcing employers to really deal with these longer-term issues" around pensions, training, job flexibility and succession planning, said David Burke, who heads Towers Watson's retirement practice.

With files from Richard Blackwell