Ottawa has defended its resistance to provinces' push on Canada Pension Plan expansion on economic terms – in a fragile economy, it doesn't want to increase CPP's payroll burden for employers. But by all but inviting the provinces to go their own way in expanding universal retirement plans, the federal government may be sending Canada down a path to a fragmented retirement system that could inadvertently raise barriers to a longer-lasting economic concern: The mobility of skilled labour.
Ontario has been clear: If Ottawa won't take steps toward increasing the CPP's contributions, coverage and benefits – and federal Finance Minister Jim Flaherty has signalled just as clearly that he won't, at least not right now – the Ontario government will pursue its own similar mandatory pension plan to augment the CPP for its citizens. The other provinces are now (to varying degrees) in agreement that the country's pension system needs expanding before it gets overwhelmed by the demographic avalanche of retiring Baby Boomers, and several are making rumblings that they might be interested in by-passing Ottawa and signing on to Ontario's plan.
So, essentially, Ottawa may be relinquishing its seat at the table when it comes to the future of the country's retirement safety net. As long as it remains unwilling to consider CPP reforms, the provinces look prepared to develop a parallel system – or, perhaps, a series of parallel systems – without any participation from the national government.
Apart from being confusing, needlessly costly and inefficient, there may be bigger problems arising from such a fragmentation, especially if the provinces can't all agree on a single provincial plan, or impose differing restrictions on how to move or withdraw assets from individual plans. (And that would be entirely likely, given the dysfunctional history of provincial co-operation, and the fact that past efforts on pension reform have had some big dissenters, notably Quebec and Alberta.) An uneven patchwork of pension systems could form a considerable impediment to workers moving from one provincial jurisdiction to another.
Think about it: If much of my future pension benefits are tied up in one province with one plan, and those benefits aren't transferable or comparable to another province with another plan, isn't this potentially costly complication going to provide an economic disincentive for me to move?
Many economists consider looming and potentially acute skills shortages to be one of the biggest potential threats to Canada's economic well-being in the coming years. Indeed, in many pockets of the country, most notably in Alberta, matching needed skills to available jobs is already a major problem. Data released by Statistics Canada on Tuesday show that Alberta has just 2.1 unemployed workers for every job vacancy, about one-third of the national average. Meanwhile, Newfoundland has 14.5 unemployed workers for every vacancy.
Clearly, there's a need for workers to migrate more freely to where jobs are available and their skills are needed. Yet Statistics Canada data show that interprovincial migration in recent years has actually been declining. There are already significant barriers to interprovincial labour mobility, especially in highly skilled trades and professions – thanks in large part to differing provincial occupational certification systems.
We hardly need to add a layer of pension complication that will provide further disincentive for the country's most skilled labour to move to where it is most needed. In focusing on short-term economic growth worries, Ottawa is running the risk of raising a much more onerous barrier to growth in the longer term.