Skip to content

Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 17 - Evidence - Meeting of October 19, 2005

OTTAWA, Wednesday, October 19, 2005

The Standing Senate Committee on Banking, Trade and Commerce met this day at 3:45 p.m. to examine and report on issues dealing with the demographic change that will occur in Canada within the next two decades.

Senator Jerahmiel S. Grafstein (Chairman) in the chair.


The Chairman: Ladies and gentlemen, we now have our full complement of experts and we are delighted that you are here today.

In addition to our first witnesses on our second round table, I want to welcome the men and women in our audience, and those who are watching around the world on the Internet and will see us on a delayed broadcast on CPAC across the country.

The mandate of our committee is to consider questions that not only affect banking, trade and commerce, but our economy as a whole. This is our committee's second round table this year on key issues affecting the Canadian economy.

The first round table was dedicated to productivity. I believe our report of last June contributed to influencing public and private decision makers to incorporate productivity as a key to our economic future.

This second round table is dedicated to the question of demographics, the key factor that will affect our economy as a whole in the very near future.

The objectives of these hearings are simple: To encourage public and private debate and propose policies to deal with the potential economic and financial implications of an aging Canadian population.

In only 10 years, it is expected that Canada will experience an unprecedented situation. There will be far more elderly people, 65 years of age and older, than younger people under 15 years. In 30 years, there will be about 2.5 working-age persons, 15-64 years, for every senior citizen — one-half of the current ratio of about five working-age persons for every elderly citizen.

These demographic trends are not unique to Canada. Many other OECD countries are experiencing similar changes.

Mr. David Dodge, our very expert and excellent governor of the Bank of Canada, recently delivered a speech in which he stressed how critical it is for policy-makers to act now in order to ensure that the appropriate structural policies from government are in place to face the challenges of the next 10-20 years. That critical policy should be in place now. We cannot play catch-up ball on this question.

We hear conflicting speculation over the potential implications of an aging population on provincial and federal government finances, economic growth, housing markets, health care, health care systems, public pensions, financial markets and personal savings.

We intend to hear from a wide range of specialists and stakeholders in order to provide this committee and all Canadians with a better view of the future demographic trends and their implications on the economy and Canadian society in general.

We hope that our study will stimulate new thinking and different policy ideas, and lead to effective recommendations on how to prepare for this demographic challenge.

Before I begin, I would like to remind those watching us live over the Internet and on CPAC's delayed broadcasts that we want your input too. The issues of demographics will have a monumental impact on the life of every Canadian and the Canadian economy. If you — anybody out there in our listening audience — have a comment on something you see, or any thoughts on improving productivity or this question of demographics, we invite you to send us an email at That address is on the screen now and will appear several times over the course of our round tables in the next two days.

We want Canadians — experts and ordinary Canadians alike — to email us any views about the evidence heard today or tomorrow. We want to hear your concerns, ideas and solutions.

A final word about the inspiration for these hearings: the Honourable Paul Massicotte convinced us that this was a very vital topic for this committee to study. We thank him for the idea. We congratulate him on his most persuasive powers to convince this committee to take on this topic.

Our first witness is Pamela White, the Director of Demography Division at Statistics Canada. The second witness is Benoît Robidoux, Director, Economic and Fiscal Policy Branch, Economic Studies and Policy Analysis Division, Department of Finance Canada. Finally, we have two experts from the heart of our government — the Privy Council Office, Policy Research Initiative — Terrance Hunsley, who is Senior Project Director, and Alain Denhez, Associate Project Director.

Please proceed.

Pamela White, Director, Demography Division, Statistics Canada: I would like to thank you for inviting Statistics Canada to appear before you today. My presentation will focus on the demographic challenges that confront Canada in the 21st century.

I will outline the major demographic themes that are presented in greater detail in the material circulated to you prior to this meeting. These themes play a major role in influencing the demographic portrait of Canada in the 21st century.

The Chairman: Ms. White is this the document, ``Canada's Demographic Challenges: The 21st Century?''

Ms. White: That is correct.

Between 1996-2005, Canada's population experienced its lowest-ever rate of growth. For the first time in a century, Canada's growth rate was lower than that of the United States, due largely to their higher rate of fertility. Nonetheless, Canada's population growth remains high.

It is significantly higher than it is in Japan or Western Europe and is second among the G8 countries.


Natural growth rate has long been considered the principal contributing factor to population growth. Since the early 1990s, this has not been the case for Canada. International migration is now the main source of population increase. Since 2000, over 60 per cent of the observed population growth has been due to international migration. Canada's rate of natural increase is projected to become negative between 2025 and 2030 if the country's level of fertility remains at its current low level of 1.5 children per woman. A level of 2.1 children is required to ensure population replacement.

This level has not been experienced in Canada since 1971. While the fertility rate of aboriginal Canadians is considerably higher compared with non-aboriginals, they account for only 3 per cent of the total population and contribute to about 7 per cent of the overall natural demographic population increase.


The increasing importance of immigration for Canada's population growth is a significant factor that will have a major impact on the country's demographic composition due to the behaviours and characteristics of the immigrant population.

Increasingly, immigrants from Asia and the Middle East tend to settle in the three largest urban centres, Toronto, Vancouver, and Montreal, and have affected rapid changes in the ethno-racial compositions of those cities. It is projected that by 2017, one Canadian in five will be a visible minority and that visible minorities will comprise over 50 per cent of the population of Toronto and Vancouver. A similar proportion of the population living in these metropolitan areas will be allophones, people who have neither English nor French as their mother tongue.

The socio-economic integration of immigrants will represent a major challenge for Canada. For example, the rate of low income is higher among recent immigrants. There is also evidence of deterioration in the economic conditions of immigrants. This has occurred even though they have higher educational qualifications compared to those born in Canada.

The aging of the population is mainly a result of declining fertility but is also due to a drop in mortality, as Canadians are, on average, living longer. While immigration contributes to population growth, its impact on aging is marginal. An increasing number of Canadians are reaching age 65 and once this age is attained they live longer. This is considerable progress. The life expectancy of Canadian men is 77 years and for women it is 82 years.

These figures are among the highest in the world, only behind Japan and a few western and northern European countries.

The proportion of elderly persons was 8 per cent in 1971 and is 13 per cent today. When the first cohort of baby boomers reaches the age of 65 and over in 2011, another significant trend will occur, as the proportion of elderly among the total Canadian population will begin to increase more rapidly. By 2031, about one in four Canadians will be 65 years of age and over.

Other countries already have a high proportion of elderly citizens. In 2001, 16 per cent of the population of the United Kingdom and France was aged 65 years and older, a proportion that Canada will not reach until 2015.

In 2002, 18 per cent of the population of Japan and Italy was age 65 and over, a proportion that Canada is not expected to attain until 2020.


The retirement of the baby-boom generation is expected to have important consequences for the Canadian labour market. The exact nature of these changes is difficult to foresee as there are important differences between the workers of today and those of tomorrow, who will have, on average, higher levels of education and labour force participation, especially for women.

A major determinant of the burden of aging will be the health and labour market behaviour of the 55-plus population. In summary, since 2000, immigration accounts for 60 per cent of total population growth and will eventually account for all growth if fertility remains low.

While immigration mitigates slower natural population growth, it has little impact on population aging.


I would like to thank you for your interest in this topic. I would be pleased to answer any questions you may have on the demographic issues that I have presented to you today.

Benoît Robidoux, Director, Economic and Fiscal Policy Branch, Economic Studies and Policy Analysis Division, Department of Finance Canada: This is a snapshot of what you can find in this document which is the 2005 budget plan. I refer you to the annex three of that budget plan, available on our website.

The Chairman: Do you have it here?

Mr. Robidoux: I do not think so because it was not clear to me that you wanted the full document but I could provide you with it.

The Chairman: Please do.

Mr. Robidoux: As Ms. White stated, population aging has to do with the decline in the fertility rate that followed the baby boom in Canada and to some extent, with a continued increase in life expectancy. It is important to understand that means an increase in the ratio of elderly — people aged 60 and over — to the working-age population, 14 years to 64 years. This is a real trigger in terms of the impact on economic and fiscal prospects.

As Ms. White said, this is a worldwide phenomenon and Canada is not alone. All developed and developing countries will face an aging population. Ms. White stressed that Canada is a young country in that respect but the extent of aging will be greater in Canada than in most other developed countries.

Among the OECD countries, it is likely that Canada will have the sixth largest increase in its population ratio of elderly to working-age. This poses important challenges to Canada's economic and fiscal processes. Simply said, on the financial side it will translate into pressure on age-related government expenditures such as universal public pension and health spending.

On the economic side, it will create downward pressures on living centres as measured by GDP per capita — the overall projection of the economy divided by the number of people in the economy. That downward pressure will occur simply because a smaller proportion of the population will be working and those two things connect directly.

What are the policy implications? We must try to reduce the debt burden as much as possible to create fiscal room to face these pressures. We must try to reform public pension systems to put them on a sustainable financial path. We need to have an efficient public health care system. We must develop an inclusive labour market because the lower the working-age population the higher the elderly population. In that way, you will ensure that all who want to participate will not face constraints or disincentives. In the context of Canada, this may mean enhancing the labour market for new immigrants, Aboriginals and older workers who can participate at their respective levels.

The last and perhaps most important policy implication is to set a public policy that supports productivity growth. Senator Grafstein, you said that your previous round table focused on productivity. In the context of an aging population, a country must rely on productivity to increase its standard of living and not on the labour market and growth of employment. You must rely on growth in productivity. This is more important when the population is aging than in other times to ensure that public policy supports growth in productivity.

In respect of these policy prescriptions, in 1997, Canada reformed the Canada Pension Plan, CPP, and the Quebec Pension Plan, QPP.

Canada has had a falling debt burden for many years now and the labour market participation of older workers has improved. The participation rate of older workers has increased by ten basis points over the last ten years, which is a good performance. Our productivity growth has improved over the last decade, although we are not doing as well as some other countries. Our performance has improved but there is still room for greater improvement to face the challenges in respect to an aging population.


Terrance Hunsley, Senior Projet Director, Policy Research Initiative: We apologize, Mr. Chairman, for arriving late, but we were advised that the meeting was to begin at 4 o'clock.


That may be indicative of our message on how elastic the population will be in respect of labour supply. We will address this question and others.

Senators have received our new report, which contains a great deal of information on demographic changes and trends. I will not speak generally to the overall trends because senators are likely well aware of them already. I will focus on certain nuances in the report on labour supply and the aging population. Our report is entitled Encouraging Choice in Work and Retirement.

The Policy Research Initiative, which is a part of PCO, worked with an advisory group of ten departments and agencies to examine this issue and develop our report. We began at somewhat the same starting point that has been mentioned twice — the changing dependency ratios. Whether you look at total dependency ratio or the ratio of the elderly only to the population, it is clear that the portion of the population that will increase will be the elderly.

However, if we assume that same proportion of change will translate into the proportion of labour available in the economy to support that population, it would be wrong to do so without taking a couple of important nuances and sub-trends into consideration. The first sub-trend is the increasing participation of women in the labour force over the last quarter century. That trend has changed the amount of labour available from the labour-force-age range population. Of that particular age range, we get more hours of labour.

The second nuance is that as the population becomes better educated, people work more total lifetime hours. We have an interesting graph in our handout on that fact. We use this analysis when looking specifically at men but the same information would apply to women. It is likely that people who complete a university degree would work, over their lifetimes, four more years than people who do not complete high school.

Surprisingly so, you might say, because the people who do not complete high school probably enter the labour market earlier and might not leave the labour market sooner. Among the less educated population, there is a concentration of unemployment, disability, and other reasons for being unemployed.

The result of these two trends is a moderation of the anticipated shortages of labour supply. We will see a decrease in the supply of labour relative to the overall supply of the population but that decrease is less than would be anticipated by the demographic trends alone. There would be a decrease of some 5 per cent in the relative supply of labour between 2010-40. Despite this, there are serious issues and problems that stem from an overall decrease in the relative supply of labour. However, we are of the view that it is more of a challenge than a crisis. This is probably the most important nuance in our report.

We conclude that population aging does pose a serious problem to Canada and that after 2010, as the relative size of the labour force begins to decrease, there will be negative impacts on the fiscal capacity of government and on the rate of growth of the economy.

We will see a situation where it will be important to optimize the amount of available labour. From this point on, our report focuses on the issue of how to encourage older workers to stay active in the labour market.

Our research concludes that the overall incentives for older workers to stay active in the labour market will increase. If we can remove some of the disincentives that are incorporated into our public and private pension plans in the Income Tax Act, we should be able to see an extended supply of labour, which would help to offset, but not entirely, the expected shortage or decrease.

We will be happy to respond to any of the broad range of issues that are drawn.

The Chairman: We will start the questions with Senator Massicotte, the inspiration for this round table.


Senator Massicotte: Thank you for being here today to take part in this important discussion. This issue will become even more important within the next five to ten years, and its effects on Canada will continue for the next 20 to 30 years. In order for us to properly understand the scope of this issue, I would like you to use the simplest possible language. In your reports, we see that the effect on our GDP could be one half of a percentage point per year. There will be costs associated with supporting our aging population, but what does that mean for the average citizen? Will taxes increase? Would you express in simple terms, without quoting figures, what these consequences will be? What does it all mean? How will this impact the average Canadian?


Mr. Hunsley: The impact, in terms of major difficulties, is going to be felt primarily by governments trying to deal with fiscal changes. Employers in specific areas will face a rapid depletion of their labour force or may require a rapid influx of workers and will need to staff up quickly.

There will be times when it will be difficult for employers to bring in new workers or to retain workers in specific industries.

Overall, I am of the impression that, in relation to the economy, this will not be a major issue except when these demographic changes coincide with portions of the business cycle. There will be times then when employers will have difficulty getting specific workers.

In relation to the general population, we will see a mix of changes. Whether that translates into tax increases, my colleague from the Department of Finance can speak specifically on that issue.

Workers will see a different and tighter labour market. They will see a labour market in which they will have more bargaining power because there will not be as much of a surplus as there has been before. They will see a market where employers will attempt to increase their productivity by any number of means, including replacing labour intensive work with automation, outsourcing, and the like. I believe we will see a mix of responses. These are the two I would underscore.

Ms. White: I cannot address the issues of taxation policy or the effect on GDP except to say that we have recently noticed that persons between the ages of 55-59, and well into their 60s, tend to work later and longer. It is difficult to say whether this trend will continue. It may well do so.


Mr. Robidoux: Very quickly, with a 10, 15 or 20-year horizon for Canadians, if we do not create the necessary financial space, if we want to account for financial pressures in health care or publicly funded pensions, this may mean two things: increasing taxes or a downward pressure on other expenditures. There is no way around it. We will either have to restrict spending or increase taxes. I believe that in this context, the scope of the trend cannot be determined. But it is a trend that we will not be able to escape. As to what that means for the average Canadian, it depends on each individual's circumstances. That is only one of the effects, there will be many others. There will be positive spin-offs for the labour market. Work will be more interesting. Wages should be relatively higher than they are now, and there will be an incentive to go to school because the pay-off will be greater. Some population segments will not be adversely affected.

Senator Massicotte: One of our reports, not yours, suggests that if we were to maintain the current status quo, and if the number of workers were to drop considerably in coming years, all other things being equal, the taxes that these people would have to pay would increase by 75 per cent.

Another important point; in the three scenarios brought forward by Statistics Canada, almost every urban centre except Montreal, Toronto and Vancouver will experience a shrinking labour force. People are moving from the rural to the urban areas, including those three cities. This has enormous consequences for the community infrastructures within society. There may be more people living in these cities but fewer of them will be working. This represents enormous changes in managing public funds, as they relate to individuals. What do you have to say about that?

Mr. Robidoux: Once again, I am not sure which study you are quoting, but we must be careful. We can either draw a very pessimistic or a very optimistic picture. These forecasts are highly uncertain and it will depend to a great extent on how the government positions itself. If you are referring to Canada's ten-year surveys where the debt-to-GDP ratio was much higher, a similar study based on the same assumptions with the same GDP would yield very different results today. Preparation is the key for any country, when it comes to an increase in the GDP; take Japan, for example. They are stuck. They are not ready. It depends on the assumptions that are put forward. For example, hypotheses about productivity and health care expenditures are extremely uncertain.

The only thing that I can say is that there will clearly be pressure exerted on government finances, economic activity and on the per capita increase in the GDP. This is even more important than economic activity which represents a rough estimate, but which still allows us to determine the improvement in the public well-being, the average increase for Canadians. The pressure is quite clear when it comes to these two aspects. In one case, it will be downward and in the other, it will increase. As to the scope, that is another story. But the trends are quite clear.

As to the labour force, will the proportion of the population between the ages of 15 to 64 decline or increase according to each region? That is largely dependent on any immigration that may occur.

Senator Massicotte: I think that Statistics Canada has prepared some projections. What are the conclusions for Canada's regions? You prepared three scenarios. What was the middle scenario for the labour force in the regions and urban centres?

Ms. White: With respect to the number of workers, there are components for the urban sectors. I do not remember what the figures are. I will ask my colleague who prepared the forecasts. His name is Alain Bélanger, the demographer who is responsible for these projections. He is now working on the urban and interprovincial labour force projections. He would be the best one to answer this question.

Mr. Alain Bélanger, Coordinator, Research and Analysis, Demography Division, Statistics Canada: I prepared these projections. In answer to your question, I would say that, generally speaking, immigration is one of the important factors for the labour force or for those who are of working age and who live in the regions. It is highly concentrated in large Canadian urban centres such as Montreal, Toronto and Vancouver, and a little less in smaller cities like Ottawa, Calgary, and Edmonton, where there is also a certain level of immigration. Internal migration among regions must also be factored in when accounting for Canadians who are already here. With that in mind, certain areas of Alberta are very attractive, and are a destination for a number of Newfoundlanders and Ontarians. So when jobs are available, internal migration can also meet part of the local labour force requirements.

However, the non-core regions, the small towns, will not benefit from immigration in the future — it is unlikely that immigrants will begin to settle in other areas of Canada — nor will they benefit from internal migration since, for some time now, they have been on the losing end of internal population movement. It will be difficult for these regions to renew their labour force.


Senator Angus: I will address this question to the folks from the Privy Council Office.

You were talking about older workers remaining in the work force. When you use that expression, does that mean people over 65 years of age? Does it have a set meaning to you when you use that expression?

Mr. Hunsley: We have used a number of benchmarks, but the benchmark that we would most like to use would be ``what is the age at which people retire?'' Unfortunately, that question is almost unanswerable in Canada because people may retire from one job or another a few times in their lives.

We do notice that there is a lot of elasticity in the labour force participation of workers that might be in their 50s and early 60s — still even some surprisingly after the age of 65. A couple of years ago, I would have said that, in general, work tends to shut down at the age of 65, but that is not the recent trend.

The age range that we would be looking at in terms of incentives to extend their working years would be that range between 55-65 years.

Senator Angus: You are not suggesting or thinking of incentives to stay in the work force beyond 65 years, which I am not suggesting. We are here until we are 75 years, for example.

Mr. Hunsley: We are identifying a number of options that would provide that opportunity for people at the age of 65 years. Right now, for the majority of Canadians to work beyond the age of 65 years, there is a substantial financial disincentive, certainly for anyone collecting the GIS.

Senator Angus: Obviously, there are different segments and areas of the population. In my own limited comings and goings, I notice in the major accounting firms in Canada, which are big employers, there is sort of a fixed age of 60 years and you are out. I realize that this is not a giant employer like General Motors, but it is a big area of employment.

Look at the huge corporations where again, they are upper-end employers, but they have some mandatory retirement policies that seem to be in the lower range by today's standards, below the age of 60 or around that age. It seems to be a fruitful area. I think you used the word ``subtle,'' and you talked about both incentives and disincentives.

Could you list the incentives and the disincentives?

Mr. Hunsley: One of the well known disincentives is a provision of the Income Tax Act that says for registered pension plans you cannot continue to work, take your pension and contribute to building up more pension benefits at the same time. That provision has been there for quite awhile.

Employers have adapted to that as well. In many companies, when you come to retirement age, you may have some range of choice; but when you leave, you leave. You do not have the opportunity to work part-time. If you do that, your wages go down and the calculation of your pension goes down. There is a disincentive to phase into retirement rather than just to move out altogether.

Senator Angus: That is an excellent example. There could be a rejiggering of the tax system or the pension legislation.

Mr. Hunsley: There are possibilities to look at that from the income tax legislation point of view and from the point of view of employers' policies and collective agreements. These kinds of incentives can come about from any of those sources.

There is a similar kind of disincentive but with probably much less impact in the Canada Pension Plan, in that there is a stop-work requirement in that plan. I believe you only have to stop for two months, but you do have to stop and that means a break and probably a break with your employer.

How many people want to become self-employed if they have been working as an employee for many years? That is another disincentive found in the Canada Pension Plan.

In addition, I do not think you can continue to increase your eligibility once you start drawing from the plan. You cannot draw and continue to build up more credits as time goes on.

We have identified a number of areas that are worthy of attention. We think they would make a substantial difference for some people, but at the same time, the markets are also working in the right direction as well in that the incentives provided by employers for people to stay on will probably grow. People will have a bit more bargaining room in relation to phasing into retirement and these kinds of things.

In a sense, there is an opportunity for public policy to work in conjunction with the market toward useful objectives.

Senator Angus: One of the measures attempted in France and marginally attempted in our country is the four-day work week. I hear conflicting evidence on this subject. I think it is popular — especially, as you mentioned, with women in the workforce. Is this an effective way of dealing with the problem or is it a red herring?

Mr. Hunsley: I do not know if there is enough information or research on the experience in France to say whether it is effective. However, we think that there are good reasons to provide people with a greater range of choices and more flexibility in what they choose to do in their employment.

In relation to women's employment, flexibility around the availability of child care, for example, to free up a range of choices there, would seem to be a policy intervention that would result in increased labour supply.

Whether France's approach will increase or decrease the total amount of labour supply in the end, I do not know.

Senator Angus: Ms. White, I understood you to say in your opening comments that the problems that you have delineated for us are common to all members of the OECD. My understanding, from my own reading, is that the U.S. does not share the same problems and that it is a glaring exception to the rule. Is that true or am I labouring under a delusion?

Ms. White: The U.S. has a higher fertility rate than we do; therefore, their population is not aging at the same rate.

Senator Angus: It makes a big difference.

Ms. White: Yes, it does make a big difference.

The Chairman: Can you give us the percentage difference? We tracked this percentage on our productivity study and we want to know whether this has an impact on the question of productivity. Obviously, it does.

Do you have any statistics to give us on the differential between Canada and the United States?

Ms. White: If you look at fertility, for example, Canada has been averaging about 1.5 children per woman since 1999. In 1971 we were at replacement level and we have been declining since then. We are clearly below replacement level now.

One of the major reasons why the U.S. is growing faster than we are is that it has a much higher fertility rate. Not only is the growth rate faster, but its population structure will not age as quickly as ours will.

Senator Angus: Am I right to point out that the U.S. is an exception to the general problem? This is especially relevant because they are such a close neighbour and integrated with us in so many ways.

Ms. White: Yes, that is correct.

Senator Angus: Are there particular ethnic and cultural reasons for these numbers?

Ms. White: There are three reasons why the fertility rate in the U.S. is higher than in Canada. One is the high rate of adolescent births. The U.S. has one of the highest rates of births to women between the ages of 15-19 in the developed world. This is not necessarily an admirable position to be in because it means delays and cessation of education for young women and the creation of lone-parent families, which have their commensurate problems in the labour market and related socio-economic problems.

The second component is that women aged 20-29 in the U.S. have a considerably higher fertility rate than Canadian women do. That probably explains about two-thirds of the difference between Canada and the U.S. in terms of fertility.

Canadian women delay having children. The average age that a woman in the U.S. has a child is around 24-25 years. In Canada, it is in the late 20s. Therefore, there is a major difference in fertility.

Senator Angus: We need more ice storms up here, do we?

Ms. White: I do not know about that.

Some European countries have noticed an increase fertility — France, for example, and some Scandinavian countries. One might look at whatever policies may encourage family formation.

Senator Angus: Are you not glad I was allowed to ask that question?

The Chairman: Yes.

You said there was a third factor. Have you given us all three?

Ms. White: Yes. It is really that core component of women in their 20s that is responsible for two-thirds of the difference.

Senator Massicotte: I thought, Ms. White, the experience you were referring to in the United States was predominantly in the south and west. I thought the northeast United States was similar to us.

Ms. White: If you look at the fertility of educated white women, they still have a higher fertility, at about 1.8 children, compared with the total Canadian fertility at 1.5. There are a number of factors. There are some ethnic differences, but it is clear across all ethnic groups in the U.S.

Senator Angus: It is not just Hispanics.

Ms. White: You cannot explain it on the basis of Hispanic or African-American women. White university-educated women are having more children than the average Canadian woman.

The Chairman: This might be a gender insensitive thing to ask. Is the cultural attitude toward abortion in Canada and the United States different? Does this have an impact?

Ms. White: What is interesting is that the U.S. has had a considerably higher abortion rate than Canada has had for the last 20 years.

Senator Fitzpatrick: I am sorry I was not here at the beginning of the presentation. My observation may not be correct, but I did hear Mr. Hunsley's full presentation. I got the impression, rightly or wrongly, that you do not seem to be overly concerned with this as a problem.

I was a little surprised by your comment that people tend to be working longer. Do you have information on that trend?

Could you give some specific examples of services or incentives that the government could offer to keep them in the workforce?

We talked about a tax, but other incentives might work. What ability does the federal government have to influence these incentives?

I am from a rural area of Canada and my interest is in how the incentives might apply to our rural population.

Lastly, can you tell us what effect all of this will have on this issue of productivity?

Mr. Hunsley: First, I will address the question in relation to the participation of older workers in the economy. Mr. Robidoux mentioned that up until the mid-1990s there was a continuing gentle downward trend and people were generally retiring or exiting the labour force earlier. In the last 10 years, and one might even say more so in the last five, we have seen some changes in that trend. That means, to me, that there is a response to market situations. On the one hand, more relatively older workers are healthier and more highly educated and want to continue working in one way or another. Another group does not have the old traditional defined benefit pension plans. When interest rates are low and long-term bond rates are low, retiring with an annuity might not be the best thing to do. Active market responses are changing the overall pattern of how people are reacting to retirement.

Senator Fitzpatrick: I think the baby boomer segment is working longer. Can you give us an explanation as to why the baby boomers are working longer? Perhaps it is the fact that it is more expensive to retire. Do you have any comments? Is there any difference in the psychology of this group?

Mr. Hunsley: In general, I think that the baby boomers are approaching retirement with good savings, based on good incomes. The incentive to keep working, if your income is high, is fairly high. I tend to think that the impact is more on the incentive side among certain groups, but there are those that may be caught in the middle.

When very low-income workers retire, the Canadian income security system still treats them quite well. Many of them retire without less income than they would have had while working. I am talking about people who earned very low incomes.

However, there are people who are in a kind of modest income range who are very sensitive to what is happening in the market and their savings and what they have available.


Alain Denhez, Associate Project Director, Policy Research Initiative: If I may add a few words about the incentives that the government might initiate, first, you must not forget the market. That is important. The market will have to improve the conditions for older workers by providing them with a better salary and by adapting their workforce to their age. Second, the governments could invest more in workers who are mid-career by providing them with the tools that will allow those who wish to, to continue to work. As Mr. Hunsley said, we should also consider changing the income security and guaranteed income supplement programs so that those who retire at 65 can continue to work without being penalized, by making actuarial adjustments, for example. Even if it is not a major point, we should also consider eliminating compulsory retirement at age 65, except in cases where the working conditions would dictate a cut-off age.


Senator Fitzpatrick: Would you care to comment on any differences between urban and rural working conditions? In our rural areas and especially in the agricultural sector we see that people leave the work force quite early.

The Chairman: Is that an aging problem or lack of capacity? Are they not available or are they not working as long? From your perspective, what might be helpful?

Senator Fitzpatrick: I think it is some of both. Certainly, working in rural situations is more difficult for a person who is aging because the jobs associated with the rural areas are tough and physical.

The Chairman: It is the nature of the workplace.

Senator Fitzpatrick: That may be, or it may be the level of health or health care for those workers, or compensation issues, or whatever.

Mr. Hunsley: A Statistics Canada publication recently noted that 26 per cent of retirees would have continued working if it were not for health-related matters. I mention that only to say that the kind of work that a person has done throughout their life is a major factor on how long they stay in the workforce as well as what options they have to move out of that workforce.

Our aging population will present different scenarios in the regions and within the urban and rural sectors. Ms. White can talk about the urban/rural divide, but the impact on the decrease in overall labour supply relative to the population is by no means equal and even across the country. We see such varying figures as a 4 per cent decrease in Ontario, an 8 per cent decrease in Quebec and a 34 per cent decrease in Newfoundland in relation to labour supply issues. There are serious concerns related to these percentages.

When we add those concerns to the pressures on governments in general for example, to maintain health care and other care services for an elderly population, we have the possibility of two converging problems that could be more severe for certain parts of the country than for others. I think this is an important issue.

Senator Fitzpatrick: Can the utilization of an aging population have a negative impact upon productivity? When we get older, we do not move as quickly or think as quickly as we did when we were young.

The Chairman: What is your evidence for that statement, Senator Fitzpatrick? I think we are more productive when we are older. Senator Fitzpatrick may think we are less productive. What do you think Mr. Hunsley?

Mr. Hunsley: The literature shows both, so you choose either side.

The Chairman: You pleased everybody with that answer.

Mr. Hunsley: I believe that Human Resources and Skills Development Canada has projected increases in productivity over the next several years. However, that probably reflects both labour productivity and other economic productivity factors. With a declining relative supply of labour, there is more capital available per worker to invest and we can expect some increase in productivity.

As older workers within firms start to retire and employers have more opportunity to shape the labour force of their future through retirement and replacement, you can imagine that employers will find ways to improve productivity through better organization of their labour force.

It is true; however, that it is not only the movement of the baby boomers through the labour force. The labour force as a whole is going to be older in the future.

Senator Tkachuk: Older is really only about time. We seem to be focusing a lot on our aging population while not discussing the real root cause of the problem, which is the lack of kids coming into the workforce.

In Encouraging Choice and Work in Retirement, you have a chart that illustrates our life expectancy at age 65. I take it those who reach 65 live this long on the average, right?

In 1967, when we introduced CPP, the average age of a male was 67 years and for a woman it was a little higher.

What was the life expectancy in 1927? Was it 10 years less?

Senator Angus: The numbers are in the brief.

Senator Tkachuk: No, they are not in the brief.

Mr. Hunsley: There is a huge difference between life expectancy at age 65 and life expectancy in general.

Senator Tkachuk: There is not much difference between the male in 1978 and he is 65, living past the age of 65; you have 78 years and 78.6 years.

My point is they did not have a huge problem. My guess is that the average age that a person lived in 1927 was substantially lower than 67 years. However, we did not have this discussion then because we had the expectation of many children to take care of the productivity.

We have the problem because in the 1960s, we based our social programs such as CPP and health care on Professor Samuelson's theory that we would never have a situation where we would have more old people than young. That theory is upside down and we will have more old people than young people. There will be more old people and a lot less young people and the social programs will not work. Of course, we cannot afford health care because the premise on which we based it is no longer true.

Why do we not talk about the real Canada Pension Plan problems? We are solving that problem by charging more for it. That will not work. That we live longer should be an opportunity and a celebration of our health, technology, social structure, et cetera. Yet, we will solve this problem by bringing in immigrants.

I have nothing against bringing in immigrants but we cannot solve the problem with immigrants about whose education system we know nothing. How do we solve that problem? Is there a way to increase the population?

Senator Goldstein: We are so busy at meetings we cannot have more kids.

Senator Tkachuk: In the ``Options for Canada'' section of the Policy Research Initiative's report Encouraging Choice in Work and Retirement tabled here today I see that all of the figures are based on people getting old.

How do we change the tax system to change the culture so we have larger families — perhaps three or more children? That is a way to solve our problem.

Perhaps we should change the CPP eligibility age to 69 years. We can all understand that simple solution, yet it is not in the report.

The Chairman: I think Senator Tkachuk has a point. Some of us were around in the early 1960s when the life expectance was between 65 years and 70 years and CPP based its eligibility on those ages.

Senator Tkachuk: They gave you a pension when you died. The average age of death was 67. That worked out well for everybody.

The Chairman: That was the thesis and the public persuasion of CPP. Now we have a much larger, longer expectation date and the same system is in place. There is no reason why we cannot extend the eligibility a year or two. That action would result in huge gains with respect to closing the yawning gap between the worker supply and the need to fill the pot for people who are truly retired.

You are in the Privy Council Office. Is there any reason why you will not give this quick-fix advice to the government? It is a quick fix and would not take a hell of a lot to do it.

Mr. Hunsley: We are suggesting some adjustments to the CPP, but that will not have much of an impact on the retiring population. In a large portion of the retiring population, the CPP is a factor in their income, but it is not the big factor in their income.

The Chairman: I interrupted Senator Tkachuk, but I think he made a valid point. The demographic shift is shifting but the policy is not. That is his point, I think.

Mr. Robidoux: Canada's Pension Plan is sustainable and extending the eligibility rate is a non-issue. Other countries have not fixed their public plans and they face a lot of pressure going forward. They will basically not have enough money saved to pay for these pensions. We fixed that rate in 1970 and increased the contribution rate less than we would have had to do by waiting longer, so the plan is sustainable.

The only pressure we will face is the cost of Old Age Security, OAS, and the Guaranteed Income Supplement, GIS, which are universal at age 65. We are not worried about the sustainability of the CPP or the QPP.

The Chairman: You have raised a larger issue. It is not only the CPP but also the whole impact in terms of productivity, growth and maintenance of that growth curve and how we replace workers. There is also the question of cultural as opposed to self-induced fertility rates. You have raised a whole raft of other questions and Senator Tkachuk was trying to get to them.

Mr. Robidoux: If we successfully increase the fertility rate now, we would face both the aging problem and the costs of raising many more children. In some sense, the dependency ratio would increase from both ends of the population. It makes sense to increase our fertility rates later on when we have settled our most pressing aging issues.

The fertility issue is to take it to the point where the population numbers will be stable and not declining, excluding immigration. In that case, a rate of 2.1 will keep your population stable. No one is saying that we always need to have a growing population. Having a falling population over the long term raises a philosophical question of where the world is going, but that is another issue. We will face that issue later without returning to the fertility rates in the 1950s and 1960s.

Senator Tkachuk: Is it a matter of discussion that we have to replace ourselves? We cannot expect to retire if we do not replace ourselves with people who work. Analytically, academically and intellectually society does not work if we do not replace ourselves. It is a matter of public policy that should be discussed. It is Orwellian to say that we should not do it later rather than now. It takes a long time to convince people that this is a good thing to do, and we tend to avoid talking about this important topic.

I have a big problem with talking about the aging issue as a problem because I see it is an opportunity. It is a wonderful signal of our society. We should be able to work longer and these things should be positives for us. We are healthier than ever. We should be talking about the opportunities of aging.

Mr. Robidoux: It is a challenge that could be an opportunity. It is a fiscal and economic challenge for which we need to prepare. It is not a disaster or a crisis and other related topics deserve our attention, as well.


Senator Plamondon: Most of these documents deal with the aging population; it is recommended that they continue to work and employment should be encouraged. People who are about to retire tell us that they want to travel. They have money set aside, they want to travel, they have plans to spend their savings.

This means that if you want them to keep working, you will be weakening another part of the economy, the travel and tourism industry, and maybe the volunteer sector as well. No one has mentioned the economic contribution, in any of the documents that I have read, and I have read many.

I would like to see where volunteerism is discussed, because it is getting harder to find volunteers in a number of areas. People who receive unemployment insurance benefits have to look for work and cannot volunteer because they could lose their benefits. All of the associations are complaining about the lack of volunteers. If people must work longer, they will not be able to travel, they may perhaps be able to save more, but over a longer period; they will not be able to invest as much, and, something to note, they will have something to leave their children.

When you start to draw a pension at 60 or 65, there is often not very much left to inherit, because the money gets spent. We often hear: ``I saved it, and I intend to spend it while I am still healthy enough to do so.'' That is one thing; in other words, I am not sure all aspects have been considered when stating that we want people to keep working.

Also, these scenarios have not accounted for the possibility of a pandemic. There has been a lot of talk recently about the avian flu and its possible effects on productivity, demography and on the elderly which could become a burden on the health care system. If we do have a pandemic, those the government considers a burden in its accounting would probably be the first to go. We saw this in Toronto, when a virus hit a seniors' home, the death rate was very high.

So I was wondering whether you had developed any scenarios that take into account the dangers threatening Canadians and many others.

Another question: you talked about immigration. Immigrants used to come here from countries with the same culture as ours. I have looked at the graphs; increasingly, those countries are experiencing the same problems as we are. So we should go look at what is happening in other countries, countries that do not have the same culture, in labour, productivity, education, recognition of diplomas, et cetera.

Another thing, which may entail added expense, will have to be considered: how can we integrate them rather than leaving them to their own devices in a ghetto, and awaiting the social conflicts that may follow.

You mentioned that Toronto will soon be 50 per cent allophone. I met a woman in Toronto, who works for the government, who told me: ``You cannot get service in English.'' I said to her that it had been that way for a long time where I am from in French, and we solved our problem — whatever. This woman discovered that after growing up and living in English, she eventually could no longer get service in English. It was an interesting neighbourhood in Toronto, where people spoke neither English nor French. Those integration costs will also have to be considered.


The Chairman: Senator, it is important to allow the witnesses to respond to your questions. You have raised at least four or five overlapping issues. Perhaps you could repeat two or three questions for the witnesses.


Senator Plamondon: I would like you to tell me about the criteria that have been tightened up for granting disability to certain people. A document referred to this as another means. That is what I call downward pressure on spending.

Mr. Hunsley: You have indeed raised some very interesting points. We have not developed any scenarios that take into account the possibility of a pandemic. That subject was not dealt with in our research, but it is certainly something that is worth considering in greater depth.


It is important to note that older workers are not only engaged in the labour force for pay; they have three very important and productive roles in society. Firstly, they are engaged in the labour force. Secondly, they are a major force for volunteerism in the non-government community and their work is extremely important. An analysis of the impact on volunteerism indicates a trade-off if people work longer. The third area of productive involvement is in the role of caregiver.

We suggest the approach allow this group more flexibility. They are all important to society, both to the economy and to the health and quality of life of the society. The baby boom generation is going to become a big caring generation because many of them still have older parents who are still in relatively good health. They are active in the volunteer sector and in the labour market.

Senator Plamondon: I would like to know the number of people who have the supplement to the Canada Pension Plan because they are not rich people. If somebody is thinking about cutting the supplement there will be problems.

Mr. Hunsley: We have considered the possibility that, at the age of 65, some people might want to continue working and if they continued working, they would lose part of their supplement because of the way it is calculated. We might want to consider an earnings exemption for those people who want to continue working, to allow them to earn more without that disincentive of having the supplement reduced.


Senator Goldstein: I would like to add my thanks to those of my predecessors for your excellent written and oral presentations.


Would an increase in various incentives — specifically family allowances and child care provisions — have a significant effect on the birthrate?

My second question deals with your conclusion that things are not that bad. When I see an increase of 100 per cent of the cost of OAS and GIS payments as a function of our gross domestic product and a more than doubling of health costs between now and 2040, without an apparent or equally significant increase in productivity, I cannot imagine how you can say that things are not too bad. I know that human resources have projected 1.8 per cent on average, but the C.D. Howe Institute is not as optimistic. Other private think tanks are also not very optimistic.

How do you put together a program or social policy that will enhance or encourage birthrate? How do you deal with the likelihood that productivity is not going to keep pace with cost of social programs?

The Chairman: At one time, the government had a definitive policy of trying to encourage larger families and perhaps you can relate whether that policy was successful.

Mr. Robidoux: Quebec is still debating that policy and any effect on the baby boomers was between nothing and very small.

Quebec has a more developed daycare system than other provinces. Quebec has one of the lowest fertility rates in Canada. When women started to participate in the labour force and the country got richer, the fertility rate dropped.

Our document on health spending shows a very large increase but not a doubling of the figure as you suggest. The pressures will be there. It is important to prepare for these pressures.

There are technological trends in aging that are sometimes cost saving and may provide open types of services, but they do cost money. When you have a public health system, there is more pressure on the fiscal framework.

With regard to participation of older workers between the ages of 55-65, it is not a question of providing a lot more incentives but removing the disincentives.

It is not about forcing people to work longer but providing them with the choice to do so if they wish. We have to eliminate the rules that distort and cause problems for the fiscal framework.


Senator Massicotte: Ms. White, we are still talking about private pension plans. What percentage of the employed population participates in private pension plans?

Ms. White: I do not have the figures with me.

Senator Massicotte: Is it possible that it is 22 per cent?


Mr. Robidoux: The number is around 40 per cent.

Mr. Hunsley: It is around 40 per cent but you mentioned in the private sector. The private pension system is more extended in the public sector than in the private sector, but that is a very significant issue.

Within the private sector, for example, the traditional company pension plan that gave you 2 per cent for every year of service — now only covers about 21 per cent or 22 per cent of the private sector.


Senator Massicotte: In commenting and giving the ratio of older people, when the supply or demand is going to be different and there may be fewer people available to work, it is only to be expected under those circumstances that the cost to businesses or the cost of labour is going to go up. What will be the consequences of our Canadian companies being less competitive globally, for example, compared to India, with an activity rate of 3.1 per cent? Is there any economic consequence of the cost of labour increasing? We will invest more in capital; but is that harmful for the Canadian economy?


Mr. Hunsley: There are two ways to respond to that question. If the pressure of wages goes up, it means that there is also an incentive to invest more capital to increase productivity. There is also more worker incentive to increase competency, education and training. The incentive for them to increase their productivity also goes up. You see some pressures that way for labour to become more productive.

At the same time, there would be pressures for outsourcing labour to other countries. That would tend to be the less productive labour in most cases that would be outsourced, which could result in some increase in productivity for labour here.

Senator Angus: This question of process deals with this policy initiative from the Privy Council Office. It is an excellent initiative. For the people not only in this room watching, but for the CPAC and Internet viewers, all of you folks are from the government — Statistics Canada, Department of Finance Canada and the Privy Council Office, which is sort of the ministry for the leader of the government. Who generated this initiative?

I notice it is a horizontal approach and goes across a wide range of government departments and agencies. Clearly, somebody decided it was time to address this problem and prepare for the future. It would be interesting for us to know and have on the record how this study came about.

Mr. Hunsley: I have the advantage of only being in the Privy Council for a year and my history is not very good. The policy research initiative was formed roughly 10 years ago.

Senator Angus: On this particular subject?

Mr. Hunsley: No; the work on aging started two and a half years ago. It was identified by a number of departments as a broad issue that was not specifically in their area of responsibility, but which cut across the whole range of government policy. The Privy Council Office set that as an issue to work on because it was something that cut across government policy.

Senator Angus: Is this a high priority?

Mr. Hunsley: The aging population is a high priority for public policy, yes.


Senator Biron: Could you tell us what per cent of people have a private pension plan both in government and in the public sector?

Mr. Hunsley: In 2002, in the private sector, it was 29 per cent, but that includes defined benefit programs and defined contribution programs.

In the public sector, in the same year, we have a total of 86.6 per cent, and for the most part, 81 per cent of public servants are covered by defined benefit programs.

Senator Biron: Eighty-one per cent, but of the total population, does that mean that 29 per cent of the population has a private sector pension plan?

Mr. Hunsley: In the private sector, 29 per cent of workers have a pension plan.

Senator Biron: Eighty-one per cent of those working for the government.

Mr. Hunsley: Eighty-six per cent.


Senator Moore: I am sorry I am late.

I am interested in the fertility comments. Maybe this is a sociological question, but is there more or less of a focus on the family unit? Do you consider that focus in your research? If there is less focus, do we have a negative impact on the fertility rate and on the increase in population?

Mr. Hunsley: We know very little about increases or decreases in fertility. There is a corresponding trend of decreasing fertility and changes in the family structure in Canada. It is very difficult to quantify that subject.

Senator Moore: Sometimes I think we are not focusing enough on families and that has led to some decrease.

The Chairman: When I look at two of the Statistics Canada graphs, I see a huge cultural shift. We have already seen it in our cities and it is going to accelerate quite dramatically.

When you look at the numbers, by the year 2017 over 50 per cent of our communities will be visible minorities, mostly new. The number of people's mother tongues for immigrants 10 years or less in Canada has gone from 45 per cent English down to 17 percent; from 5 per cent French to 3.6 per cent; and now close to 79 per cent whose mother tongue is neither French nor English. This huge cultural shift will occur during a very short period of time. Do you have definitive policies to deal with this from a cost standpoint? Obviously, this immigrant resettlement will be one of the huge costs.

Senator Moore: Could we say ``integration?''

The Chairman: I do not like using the word ``integration.'' It is not a cogent word in Canada. I am talking about a resettlement process. I do not want to get into a debate about the nature of the word but it does require Canadian acculturation. It strikes me as being a huge cost that does not appear in any departmental budget. Is that cost factored into the finance budget in terms of new costs or in any other terms?

Mr. Robidoux: You should talk to Citizenship and Immigration Canada about that budget.

The Chairman: I am talking to Privy Council Office.

Mr. Hunsley: I cannot speak to this from the point of view of actual costs or budgets related to immigration. However, you have touched on two issues related to immigration: One is whether an increase is in order; and the other equally important issue is how quickly immigrant and immigrant families adapt to and become involved in the economy.

We know that over the last 10-15 years it has been a much more difficult process for many immigrants. We could improve our labour supply and decrease our social costs by doing a better job in that area.

The Chairman: I thank our witnesses for their cogent presentations and stimulating evidence this evening.

I welcome our next panel of witnesses to this round table on demographics.

The panel includes Mr. Paul Darby, Deputy Chief Economist from The Conference Board of Canada, Mr. William B.P. Robson, Senior Vice-President and Director of Research from the C. D. Howe Institute, and, from the Canadian Federation of Independent Business we have Mr. Richard Fahey, Vice-President, Quebec, and Rob Taylor, Senior Policy Analyst, National Affairs.

Earlier today, we heard from the government advisers. We heard from Statistics Canada, the Department of Finance, and the Privy Council Office, which is the public service in the Prime Minister's domain. We will now hear from the private sector to see whether you agree or disagree with the comments you heard earlier today.

Paul Darby, Deputy Chief Economist, The Conference Board of Canada: Thank you very much, Mr. Chairman. It is a great pleasure to be here today.

We at the Conference Board of Canada believe the issue of our aging population and its impact on labour supply is a critical issue to which Canada will have to design appropriate policy responses if we are to continue to be a successful society. It is a bit of a sleeping issue in the sense that at the present it is not putting very much pressure on our productivity but will do so quite dramatically by the year 2010.

We are shocked and amazed at the private sectors' lack of interest in this issue and our polls indicate that our private sector customers could not care less about this issue.

We are desperately trying to educate our private sector members that five or six years from now they may have a difficult time finding workers to replace those who are about to retire.

The only place where we seem to get any kind of take-up is, of course, with the whole issue of the non-sustainability of private defined benefit pension plans. That subject gets their attention as it brings it home from a financial perspective.

However, we are shocked and amazed at how little attention this is getting amongst those important business leaders. They have not made any effort in terms of changing the way in which they currently deal with their older workers in putting strategies in place to deal with labour supply shortages and recruitment issues. This situation exists throughout the roughly 15,000 organizations that touch the Conference Board of Canada.

The Chairman: Thank you for that, Mr. Darby. That is the very purpose of these hearings. This committee considered that this issue is a time bomb in the Canadian economy. It is a slow fuse, but it is burning quickly and we are not ready for it. That was the rationale for provoking public hearings and by doing so, changing the media's and the public's mind that this is an issue of great concern.

William B.P. Robson, Senior Vice-President and Director of Research, C.D. Howe Institute: I am aware the questions and answers can be more entertaining than the presentations, so I will be brief. I second the statements regarding the importance of this issue. We had the CPP and QPP reforms, but with those exceptions, there has been remarkably little movement on this issue.

As we know, from looking in the mirror daily, what we do not necessarily see from day to day can have a rather startling cumulative effect.

I think it is very appropriate and wise for this group to have taken on this topic.

You have our brief and I am certainly not going to read from it. I want to highlight the reason for laying out a very simple model that conforms to what many economists subscribe. Economists believe that it is useful to think about the generation of incomes and outputs in the economy as coming from labour, savings and investments that creates wealth and the productivity growth that over time will raise our living standards the way it has in past generations. I emphasize that framework partly because it is helpful for sketching out our concerns.

There are a couple of scenarios in the brief. I would not go to the wall on this. It is a simple model that helps to highlight the key forces of our concerns. We are concerned about changes in the participation rate of the aging workforce. If we make some very middle of the road assumptions about the national saving rate and the rate at which we accumulate wealth and then simply project forward on the basis of past productivity growth, we get real incomes per person growing at a rate that is considerably slower than what we have been used to.

The Chairman: Mr. Robson, please slow down.

Mr. Robson: I will slow down proportionately to the slower growth in real incomes.

A middle of the road scenario gives us lower but still positive real income growth. However, we are concerned that an older population will save less or that productivity growth on an economy-wide basis might be slower.

It is important from the point of view of both the private sector's prosperity and the public sector's ability to offer programs at a reasonable cost in taxes to address some of the things that we think we can affect.

Let me highlight a couple of points in connection with each of these three factors. As I say, I will not touch on everything that is in my presentation.

There was some very good discussion in the earlier session about the workforce participation issues. Let me highlight one startling fact that comes out of our demographic projections, which I did not do in time for this brief.

Over the past 25 years, of the entire increase in the population that we normally think of as the working-age population, say between the ages of 18-64, about one-quarter of the net increase in that working-age population was people aged 55-64. That is the final decade of working life and certainly, when most people are getting closer to retirement.

In the next 25 years, more than 90 per cent of the net increase in the working age population will be in that age group. I am talking arithmetic here. Obviously, some of these people turned 55 years of age during that period. That is essentially where all the net growth in the working age population will be. For employers and for public policy, that puts a sharp focus on the challenge.

Many of the things discussed in the earlier session, whether they are forces for retirement, the modest-income people who are looking at big clawbacks if they continue to work, many of the tax laws and other regulations that affect compensation arrangements in the private sector, those things will matter a lot.

I should highlight the particular problem of early retirement in the public sector, a problem that exists in the private sector but that has levelled our since the mid-1990s. However, a tremendous amount of human capital is leaving the health and education sectors. When we think about the incentives that exist for people to stay in the workforce or to get out of it, one of the major pressure points is in the public service. It is appropriate to think of this not only as something where we need to change the private sector environment, but also the public sector, because if the patterns persist, there will be too much pressure on the health system.

On saving and investment, there is an obvious point, and some of this came up earlier in the discussions on productivity. There is some dovetailing of work incentives when it comes to saving as well, because pension saving is very important to the overall build-up of national wealth. Certainly, the tax laws could be more favourable towards private sector saving.

Looking at the public sector, the fuller funding of the Canada and Quebec pension plans certainly helped. It made the severe fiscal problem smaller but we face some other challenges in that area and health care is a difficult one.

It is hard for the federal government to address health care issues because they occur at the provincial level, and my own editorial on this is that the more the provinces depend on federal transfer payments for their health funding, the more difficult it will be for them to contain those pressures.

You know that the C. D. Howe Institute has recently published some interesting work on the relative position of our tax system when it comes to encouraging or discouraging investment. We could certainly improve that situation.

My quick comment on productivity is that the more dynamic a labour market you have and the more you encourage saving and investment, the more you will find when you look back on it, with the benefit of a few years of experience, is that in fact you did ginger up that productivity growth. It is hard to address on its own as sort of an item in a bubble all by itself, but when you address it in concert with what you are doing in the labour market and the investment climate, it can certainly make a difference.

With that, thank you very much for having us here. I look forward to questions.

Richard Fahey, Vice-President, Québec, Canadian Federation of Independent Business: Thank you for the opportunity to present to you. I am under stress a bit, because Senator Goldstein used to be my teacher in bankruptcy at the University of Montreal, and the reason we are here is just about that — to avoid bankruptcies in the SME sector.

As we know, Canada's population is aging and most of the recent focus has been about its impact on social policy and the consequences of our aging population on our health and education sectors.

CFIB looked the other way, not to the expense side but to the revenue generating side where small Canadian business owners generate wealth and 70 per cent of net new jobs yearly. Much of our socio-economic structure is based on the SME sector. Few people know that 75 per cent of total businesses have less than five employees, which are very small entities, and 98 per cent of businesses have less than 50 employees.

CFIB published a report in June of this year outlining that four out of 10 small business owners will retire within the next five years. Some people might say that five years leaves a bit of time, but when you realize that it takes between three and five years to perform a successful transition, you realize it is not time to plan but time to act. If we look to a longer period, 10 years down the line, seven out of 10 will retire and pass on their business to another business owner.

I agree with Senator Massicotte that we must urgently address the finding that two-thirds of small business owners have not started planning for their future succession. Of the ones that have started, the majority have done so informally without actually informing the potential successor.


A very large majority of the heads of SMEs — almost 58 per cent — plan to retire in two years but have not yet identified a successor.


We know that 58 per cent intend to retire within two years and have not started their succession planning. This is a great concern, and it shows the urgency of the issue.

When we released the report, we presented a figure of 2 million jobs at risk in Canada. Why 2 million jobs? Without preparation, a small business owner will tend to sell at a discount to competitors, to outside interests, with the associated risk of business closure. I will give you two examples; one is positive and one is negative.

I will start with the negative one, which deals with a casket manufacturer on the south shore of Quebec. There are three casket producers or manufacturers in North America, two in the U.S. and one in the lower South Shore. That company did not have a succession plan and did not have a successor. The business owner sold to a competitor, who bought the market share and closed down the shop. There were some lay-offs. The U.S. supplies that market now. That is the negative side of the equation.

Fortunately there are positive stories as well. A high-tech machinery company in the energy sector from Moncton faced the very same situation. That member received a very generous offer from an U.S. entity. While discussing the offer the member asked about the growth potential and the future for this business. The buyer answered that his plan was to shut it down. The member refused to sell his business.

Obviously, that member knows the benefit of succession planning, and that is why we want to emphasize how to achieve successful successions. Obviously, the onus is on the entrepreneur, but government can also take a role.

We have six recommendations for facilitating the succession process.

The very first issue, and my colleague Mr. Darby raised it, is one of awareness. We need to raise awareness of proper business succession planning by making practical information available on Service Canada.

We think that Canada should have a national conference on SME succession issues, given the economic importance of the SME sector in the economy. CFIB would participate in this conference.

On the fiscal side, we suggest an increase of the lifetime capital gains exemption of farm property and small business shares to the successor. That lifetime capital gains exemption has not changed since 1987; it sits at $500,000. To make it fall in line with inflation would raise it to approximately $750,000 to $800,000.

The second fiscal recommendation is to defer taxes on capital gains from the transfer of the business to the owner's children. If the business owner transfers the business to the children, then the children or the owner could defer the income tax on the capital gains.

The third recommendation deals with government programs and intervention through agencies. Right now, the challenge is not about creating new businesses; it is about ensuring that the existing businesses survive.

Finally, through the network of economic development agencies financed by the Government of Canada, we need to foster and encourage the development of an entrepreneurship culture in partnership with existing entities involved in mentoring students and developing educational activities.


New recruits for business are currently in school. We have to encourage our young people to go into business. In the most recent study of the Global Entrepreneurship Monitor, it was shown that Canada is lagging behind in terms of the desire to go into business. So that needs to be emphasized.

Our report suggests that recommendations should not be made just to government. The primary responsibility lies with the heads of companies. We have provided our recommendations to the professionals who advise the heads of SMEs. We recommend that all financial institutions, insurance companies and others return to the SME sector. The banks have abandoned that sector over the years. The loan refusal rate for SMEs has shot up significantly. Financial institutions have to help our businesses get through this transition.

In conclusion, there is a business case for succession planning, because it is recognized that that increases the value and income of the business and at the same time contributes to its financial stability. Preparing young people for their future roles in insuring that the two million jobs at risk in Canada are not lost can only increase their productivity.

Senator Massicotte: Thank you for your presentation and your report, which is very well done. Mr. Darby, economic growth and GDP are discussed in very technical terms, but when it comes to demographic growth, if the trend continues, what does that mean for Canadians?


Mr. Darby: I received a wake-up call while preparing a long-term Canadian forecast during which we received criticism from Hydro-Québec that we were not properly taking into account the impact of the aging population on labour force participation rates.

When we actually disaggregated the population data into a number of different cohorts, applied historical participation rate figures to each cohort, and projected forward, we found that we reached a negative unemployment rate around 2017.

It is difficult for me to publish a negative unemployment rate. I love doing long-term forecasts because, frankly, going into the future as we have been moving in the past, when it breaks down and snaps in two, we really learn something.

We immediately learned that current labour force policies and current approaches to how we generate wealth from our labour in Canada are not sustainable. Adjustment will obviously take place. The previous panel went through a fair amount of that adjustment. It involves, as you deal with increasingly scarce labour, that you pay a lot more, invest in capital and replace labour with capital. No matter how we cut it under reasonable assumptions going forward, we slow down growth in Canada from the 3 per cent range to the 2 per cent range by 2025, over the next 20 years.

It is difficult to avoid the conclusion that the scarcity of labour, particularly past 2010, is going to put substantial limits to growth in Canada. We need to come to grips with this fact.


Senator Massicotte: The Governor of the Bank of Canada, Mr. Dodge, recently talked about the potential consequences of using savings among a very high percentage of the population to meet their needs, which would mean less available capital for investment. In your opinion, is that dangerous?


Mr. Robson: It is one of the larger unknown factors and includes a downside risk. The average Canadian, if you think of the income growth rates, would experience this as a lower rate of increase in the standard of living. For many groups, this means a stagnation whereas you might previously have had those who were not doing as well; growing, but at a lower rate. You might actually see some stagnation, which implies friction and difficulty when governments try to redistribute and tax people to provide the services.

The impact on saving is certainly one of the factors in that outlook that concerns me. It is possible to imagine a situation where a country brings in savings from abroad, as Canada did for many years, and continue to add to the tools that its workers have to work with, and generate productivity growth that way.

It has always been true, and still is today, that the savings of the people in that country generate the investment that country can undertake. As an example, I am much more prepared to invest in Mr. Fahey's enterprise because I know him and I know what he is doing. It is very different to invest halfway around the world.

I take the saving issue very seriously. It is important that the public sector ensure that the time profile of programs remain sustainable. If we see a larger gap between our taxes and our expenditures than what we have now, then we will do some prefunding, as was the case with the Canada Pension Plan.

When it comes to the private sector, we do not know how individuals' saving patterns will change. David Dodge highlighted one particular risk. What we need to do is move the levers we can control. That is why I emphasized that we treat pension saving as favourably as possible.

Senator Angus: I would like to start with Mr. Darby, shocked and amazed as you may be.

I do understand, correctly, I hope, that The Conference Board of Canada is a private sector think tank organization.

Mr. Darby: That is correct.

Senator Angus: It is the private sector, your own membership, which is not focusing on this problem.

Mr. Darby: Yes, that is true.

Senator Angus: Your organization published an interesting report that confirms the risks set out in terms of the sustainability of our prosperity and our standard of living in Canada.

By the way, I would like to add my congratulations to all of you. This is excellent stuff that you have prepared.

I understand from your report on the 12 leading industrialized countries that Canada's performance has gone from third to sixth, to dead last. In other words, there is a decline in our performance. That must get the attention of your members, and they must be shocked and amazed that the country appears to be in free fall. We need to turn this situation around.

Is our aging population a contributing factor to this decline?

Mr. Darby: Our aging population does contribute to some extent, but it is a rather small factor at the present time. Part of the reason why it is difficult to get the attention of the private sector on this issue is that, with the exception of sustainability of defined benefit pension plans, it is not a burning platform. We are looking at the last of the echo boomers — the children of the baby boomers — working their way into the labour force, so right now, recruiting for the private sector is not by any means a crisis. The unemployment rate is low, and there are serious issues around skills; we have a skills mismatch with respect to the jobs available. However, in terms of the general numbers of people available to work, it is not yet near the crisis it will be in five years.

Senator Angus: The reason I was shocked and amazed at your statement was that the only game in town for the last five years has been what is happening to our health care system.

We have been told that we cannot afford it and the reason is the aging population along with the reduced availability of key players such as nurses and technicians.

Certainly, businesses in the private sector have their focus there because a larger proportion of our tax dollars are spent shoring it up. Can we sustain it in the way we know it? Probably not. What is a public-private partnership, and how does that work? This is on the front burner right now.

The C.D. Howe Institute, The Conference Board of Canada and the Canadian Federation of Independent Business focus on these issues and I hope your reports register with the population.

You were all in the room when the other folks testified. I had one of the witnesses confirm that in the U.S. they do not have this problem. Yet, our economy and many of the things that have contributed to our wonderful standard of living and rate of economic growth, you are now projecting will go from three to two in 12 years or whatever; that is scary stuff. The U.S. model has affected us, but here is an area where there is a total difference. I would like your comments.

To me it is anomalous. Here we are beside the elephant; when it gets a little cold, we get pneumonia. Here is an area critical to our future, and you are shocked and amazed.

Mr. Darby: The major difference with respect to the U.S. performance has been a very large influx of immigrants coming mainly from Latin America who have demonstrated higher fertility rates than in Canada. I am not sure, but it would be worth examining why the fertility rates among those substantial numbers of immigrants that have come to the United States from Latin America have remained fairly high.

The Chairman: When we raised that question this morning the Statistics Canada expert advised us that they are not just multicultural or ethnic issues but issues that cross the entire board.

Senator Angus: U.S. women are having children at 25 where Canadian women wait until their late 20s.

The Chairman: That was our first intuitive response, but we asked that question and we were surprised that was not the issue. There is a definitive difference between Canada and the United States in terms of how they approach the question of fertility.

Mr. Darby: I have looked at the data for both African-Americans and for immigrants of Latin American origin in the United States, and they do have higher fertility rates than the average fertility rate of a citizen of the United States.

The fertility rate is higher among Caucasian women in the United States or non-visible minorities than it is in Canada, but the differences are not as significant. Overall, the number is higher, but I still think it is worth looking at some cultural aspects — at the attitude toward families and children that may result in differences in those fertility rates.

Senator Angus: Did I not say that Mr. Taylor and all these three others would like to comment?

The Chairman: Can I just ask the question and then you can respond? Is there a relationship between female participation in the workplace and fertility rates? Have you looked at whether there is a connection between those two — the difference of participation rates here or in regions of Canada compared to the United States?

Mr. Darby: There is evidence from Europe to suggest that the kind of intuitive feeling that lower participation rates among women would also be associated with higher fertility rates is not true. We have some data from a number of countries in Europe, where we have seen declines in the participation rates of women, sometimes spurred by public policy in the hope that the fertility rate would rise and in fact, that did not take place.

The attitudes of women in most developed countries, and in many developing countries — China and India for example — are influenced by education and availability of inexpensive birth control. Whether you stay at home or not is not as important a factor.

Mr. Robson: I want to address the question of the private sector. It is true that when you talk to executives about what they are doing in this situation, very often the answer is they have not thought about it except for perhaps the crisis that Mr. Darby mentioned. One more intriguing thing to notice about the recent employment statistics, if you go from the beginning of 2001 to now, is the net increase in employment. More than half of that population consists of people aged 55 and over. In the private sector an adaptation is occurring. Employers are finding that many of the things they are doing in the work force, for example in relation to disability and so on, makes the workplace a more accommodating place for the older worker. Maybe when you are looking at this you will discover lateral ways into the policy angles.

We have not done a significant amount of work on the subject of fertility rates. Kevin Milligan's study found that although the Quebec baby bonus did work, it cost about $15,000 for every birth that otherwise would not have occurred. That may sound like a fair amount of money, but if we are thinking about lifetime taxes and contributions, maybe it is a bargain. It is not the last word on the subject, and I am not sure it is the way to go. I hope that this group will look at some pro-natal policies as part of the overall panoply, it is somewhat of a politically charged area, but there is no question that in the end, if you want your society to sustain itself over time, that is what you do.

Rob Taylor, Senior Policy Analyst, National Affairs, Canadian Federation of Independent Business: In terms of the private sector acknowledgement of the issue, our part of the private sector is more focused on day-to-day survival and that is why our organization is bringing it to them. We are collaborating with a number of organizations like the chartered accountants to bring to their awareness that they have to move forward on their planning and consider the merits of succession planning.

Senator Angus: I was surprised, although I thought it was creative to go to the revenue side of the problem, Mr. Fahey. In my view, it has nothing to do with the aging population and the demographic issue. The small business owner is always hoping to either build it up or make a score and live happily ever after in Palm Springs or have his sons or grandsons come in and maintain the family business over the years. I think those were the two scenarios you depicted.

There is another problem creating this issue, which is of great concern to your organization. That is, the fiscal structure in this country is not conducive. Guys come in here and if they succeed in getting the financing and the venture capital and the combination of money needed to get it started and up and running, the first thing they will look for is an American, British or German company to come in and buy it out.

That is one thing that is happening. I think you described the other problem quite well. If there are three companies in a field — and that is much more common than I realized — the people come in, buy the market share, and close the door. Usually the Canadian door closes. I do not think it has anything to do with an aging population.

Mr. Fahey: The person who is takes the decision at the very end, which is the business owner, is also aging. He might have health problems. He might not see any succession prospects. That is a key element of this research: When you look to the saving practices of the SME owner, you will see that he is saving for his retirement through the value of the company. His retirement plan is the company. Over the years, he has invested in machinery, into the company, and into employees. Before leaving for the desert or Palm Springs, he must monetize the value of that company.

You have raised the issue that our fiscal structure is a challenge for SMEs, but I would not discount the regulatory burden of small businesses. We did the study in Quebec and comparable numbers came from the Fraser Institute on the value of that burden. The Fraser Institute came out with a figure of $12 billion that SME owners spent filling out paperwork for civil servants in all regions of Canada.

In Quebec, we did the study in a different way. We showed that each employee spent three hours a week on paperwork or red tape. We have explained that 75 per cent of small businesses have less than five employees so the calculation shows that each business spends 15 hours a week on the paper burden.

Obviously, that has an impact on the time you have to plan for that succession. That is why we are looking for changes not only on the fiscal side, but also on the regulatory and program side in order for government to make it more facilitating for small businesses to create, as they did in the past, the greater amount of jobs and wealth in Canada.

Senator Massicotte: Mr. Robson, you mentioned that the policy incentives worked in Quebec, yet, Mr. Darby's report specifically said that similar policies in Quebec failed to make a difference. What are the facts?

Mr. Darby: From our perspective, the fertility rate during the program declined. There may have been other factors, but clearly the goal of the initiative was to increase the fertility rate and it went the other way. After two or three years, the Quebec government actually increased the benefit and the fertility rate continued to decline. The Quebec government finally abandoned the initiative all together. That does not sound like a success to me.

The Chairman: It was about $15,000 or $16,000 per capita, was that not the incentive?

Senator Massicotte: Mr. Robson, do you interpret those figures in the same way?

Mr. Robson: If there were a disease and the death rate was going up and we were giving people medicine and the death rate still went up, we would not necessarily conclude that the medicine was useless.

The trick with these analyses is to try to determine who is affected and compare them to similar people in like circumstances.

Kevin Milligan's conclusion was that it did make a difference. It was not enough to change the trend, but there are other things we can do.

In a colourful phrase, that I wish I had coined someone said that Canada's tax system treats the children of middle or upper income people as though they were ``fancy boats.'' Children are a consumer item and you pay tax on the income that you put into your child's education until he gets to post-secondary and there he gets some help.

Clearly, there is scope for Canada to adjust its tax system and other transfers in a way that would be more family- friendly. How big of a difference it would make, we do not know. Kevin Milligan's estimate is one. That is definitely one of the things that we want to look at as we are examining this entire area. In the end, you simply will not solve this problem with immigration. If the domestic economy is struggling along and the tax burden is going up, then the deal you are offering many of your immigrants is: ``Come in, empty our bed pans, and pay a whack of a lot of tax,'' and that will not be attractive.

Senator Massicotte: What did they do in France?

Mr. Darby: There is no doubt that if you provide an appropriately large incentive, you will change behaviour in terms of fertility rates and birthrates. What you need to come to grips with is the amount that we are talking about to really make a difference. There was obviously some small impact from putting in place those programs in Quebec, but not nearly enough of an incentive for your average Quebec family, whatever that might be, to seriously consider changing their behaviours around having children.

It costs a lot of money to provide a good education and good career prospects, and even the general costs of raising a child are very high. If you want to make a difference here, you can, but it will be costly.

Mr. Fahey: I was fortunate to sit on a forum that looked at the impact of our aging population. The finance department showed that the effect was marginal and not enough to reverse the trend of declining birth rates.

This committee has looked to other natal policies throughout Europe and North America. Again, Quebec is the most generous to families, yet we do not have the highest birth rate in Canada. The finance department research showed that you have to inject a large amount of money in order to convince people to have children. The cost benefit analysis is simply not sufficient.


Senator Plamondon: I would like to come back to family. When you read the documents that we have been given, you think of measurable things like income, productivity, but never family happiness. Happiness is not measured, that is what it said in today's Le Devoir. When will there be a study that measures happiness?

Day care can be provided, but if it takes both parents' salaries, if both parents have to work for eight hours, take the kids to day care very early in the morning, arrive exhausted in the evening, barely have time to help the kids with their homework and lessons, give them their baths, and have a little bit of time to themselves, the amount of money is not what is going to count; the main thing would be transforming the labour market to enable parents to enjoy some time with their children. That has not been done. Family happiness has been neglected. That was my comment.

My question had to do with immigration. You may wish to comment on family stability. You don't have children if you don't know whether you are going to spend the rest of your life with the same partner. After divorce or separation, it takes a woman some time to decide to have another child.

I wonder if there is competition among countries where there is immigration. Have you done any studies on that? How do they attract immigrants? Do the immigrants who come here invest in Canada, or do these immigrants put money aside and then return to their own countries once the political and economic situations have improved? In other words, are they coming here to work, put money aside and return home, or are they really coming to participate fully as Canadians?

Mr. Fahey: I am going to comment on your observations about happiness. Work is being done to evaluate happiness. Pierre Fortin, a well-known Quebec economist, has done some rather interesting work on this topic, and he has in fact produced a happiness index.

You are quite right. The decision to have children is not easy; it is not a decision that can be converted into cash. Having a child brings happiness; it also brings responsibilities. And the social upbringing given to the child, as generous as it may be, must be paid for, and it is linked, to some extent, to the taxes collected by the various governments to provide this infrastructure for children and families.

I am going to talk about immigration from a business perspective. Immigration is becoming a way for owners of SMEs to deal with the shortage of skilled labour. There are currently about 250,000 jobs in Canada, in the SME sector, that have not been filled for more than four months. We are concerned to see that the labour shortage predicted for five or ten years from now is already becoming a reality. We are looking at the tip of the iceberg, and we know that the major challenge will come 10 years from now. However, immigration is seen as a way of countering this labour shortage, of countering this shortage of people in the labour force in Canada.

We have realized that there is a greater proportion of immigrant investors in Quebec. Immigrants see the possibility of investing in Canada. They have sometimes done so from abroad, they sometimes do so in Canada. In this regard, I would say that the collective challenge we face with immigration is in terms of integration. In Quebec, the government has introduced a new immigration policy based on the changing labour force. The government looks at labour requirements in various sectors and seeks out immigrants based on these requirements. That approach was initiated by Minister Coderre at the time, following discussions with the other provincial governments. The Quebec government adapted the approach, which will enable us to seek out immigrants who meet the needs of our labour force, of our economy.

The challenge now is to recognize their diplomas and skills. I will give you an example from Quebec. It is not normal for a foreign lawyer to be required to work five years in a law firm before being allowed to practise, whereas obtaining a law degree and then being called to the Bar only takes four years.

Their diplomas must be recognized. How many Haitian or North African engineers in Montreal are driving taxis? That is not normal. We must allow these people to contribute to the economy, we must integrate them — not just in the large urban centres but in the regions of Canada — so that we will have a labour force that will enable us to face the challenge of our aging population.


Mr. Darby: There is competition for immigration and that competition will heat up. It will become more difficult for Canada to attract immigrants in the next 10-20 years. The population of China, our main source of immigrants, is aging. The birth rate there is two, and the birth rate in India is dropping. Europe is no longer a source of much immigration for Canada. It is going to become tough to attract skilled immigrants in the future. We know that immigration is not a solution to aging, but it will be difficult to use it even as a solution to labour force supply.

Senator Plamondon: As well as retain them.

Mr. Darby: Yes.

Mr. Robson: I did say that the presumption behind some of the projections I made was that we would be happier if our incomes were rising more quickly. That is a strong assumption. The research into happiness that over the last few years has burgeoned does tell us a few interesting things. People tend to be at their least happy in the mid-40s and then they get happier. There is one positive side of aging.

Being married certainly is associated with more happiness than not. Children, on their own, do not make much of a difference.

The Chairman: Are you saying they are motor boats?

Mr. Robson: They do not make people a whole lot happier in terms of what they say, but the maintenance offsets what you gain from zooming around.

Certainly, the choice between raising a child and participating in the paid workforce will always be there to some extent. I do not think we can pretend it will go away. What we would ideally like is for people to be comfortable choosing whichever works for them.

On immigration, I agree with a lot of what Mr. Darby just said. Canada has traditionally, as with investment, been one of the very few countries in the world that the whole world looked to as the desirable place to invest or to go. That is still true today, but we have seen a worse performance, as pointed out in the previous session, by immigrants who came in more recently. That was partly because for the first time, in the early 1990s when the economy was not doing well, we did not cut back on immigration. A lot of people came in all at once into a bad labour market and that seems to have had a lasting effect.

On credentials it is common to observe that the value of a foreign education seems to have gone down. We know that a university degree does not mean the same thing in one country versus another. It is important to be careful about simply asserting that we are making a mistake. It may actually be that the credentials that look the same on a piece of paper are not the same when people come here. If that is the case then clearly our immigration policy has to respond to that.


Senator Massicotte: On the topic of incentives to have children, France has succeeded in increasing the birth rate through financial incentives. Perhaps Mr. Robson can answer my question: what has France done specifically and why has it worked there?


Mr. Robson: I do not know, but as the one who said that it is possible we could do things in this area I am happy to have some support.

Is $15,000 a lot? The average Canadian pays $15,000 worth of taxes every year. Maybe just from a sheer fiscal point of view it is not such a bad investment.

Senator Massicotte: If it works.

Mr. Robson: Sure, on the assumption that is what it would cost you.


Senator Massicotte: Mr. Darby, what was done in France?


Mr. Darby: I am aware that it was effective in France. My understanding was that the amounts were much higher than what we were talking about in Quebec.

The Chairman: As I understand it — I think you can confirm this or not — it was not just the front-end incentives but there are a lot of special incentives in terms of education, et cetera. As our clerk has pointed out to me, it is not just the question of the first incentive to give birth to a child. It is a question of maintaining that child in a tax system that is sensitive to the needs of a growing family. There are disincentives, as Mr. Robson pointed out. The French system, Senator Massicotte, if I recall correctly, was a coherent policy of not only incentivizing it in terms of fertilization at first stages, but, making sure that after the child was born there was a system of care.

Contrary to that is the whole question of the high social costs to their economy and the lag on the economy, so there is a cost benefit on that as well. Am I correct about that?

Mr. Fahey: Yes and we should also look to the U.S., which does not give a whole lot, if any, to families, and yet it has a higher birth rate than the birthrate in France.

Senator Massicotte: The issue is not financial, it is cultural, which I suspect is the real answer.

In France I think it is more the third child and not the first and second.

Someone help me a bit. We emphasized in the earlier reports education and education on a continuing level. We also see the surveys of people who retire are influenced immensely by the savings they have accumulated. If you are a professional and you have done well, you have greater savings therefore you retire earlier. In other words, we are saying the solution is education, but it looks like if we are educated more we retire earlier. How does it work? Where is the solution in all of this?

Mr. Darby: In the econometric work we did on the retirement decision, which was difficult work, one message came through loud and clear — and it will not be a surprise to anyone — the more money you have when you are facing retirement the more likely you are to retire. By far, the single most important determinant of the age of retirement in Canada was your accumulated past savings combined with what you would expect to get as a benefit from a pension plan.

It is not a scientific survey, but I was in Toronto last week giving a speech to 80 human resource professionals and the vice-president of our human resource practice at The Conference Board of Canada mentioned the importance of trying to take some of the policy incentives out of the system that would encourage early retirement. An obvious one is why does the CPP allow you to retire at age 60. In every country in Europe is moving that up to 61, 62, 63, over time because it does not make any sense. The boos and the hisses that came from that audience made me feel like I had to duck for cover. This is a very political, cultural, social issue. If you have the money, it will be difficult to convince people to stay working past 65, even 60. It is not going to be an easy issue.

The Chairman: I have a factual comment. Our researcher from the library has indicated that we will be receiving material comparing our tax system to the American tax system, and he advises me anecdotally based on his recall that the American system is more sensitive in terms of the child and in terms of incentives as you go through the education and housing systems. We will have the benefit of that analysis as well.

Senator Massicotte: Mr. Robson, your emphasis is reduction of taxes specifically on investment capital. Another incentive you espouse is greater incentives to save to provide for the future. Some reports suggest that the fact that the government has not kept up with RRSP limits and pension limits has actually helped and will encourage people to work longer and is partly a solution to our serious problems. Would you comment, please?

Mr. Robson: Just as it is never quite clear whether paying someone more will induce them to stay in the workforce longer or retire earlier, in the savings situation the same sort of difficulty applies; whether the greater reward for saving will cause people to stop saving or not.

I take comfort from the fact that when we look at the aging labour force participation it correlates with education. I am not sure if those highly educated people lost all of their money, because being smart did not make them rich. I suspect that there is a one-time retirement decision and then increasingly we will see people who made that one-time retirement decision, many of them federal public servants who then did not want to stay retired. Although they show up in the statistics as a retirement, they then become active in the workforce later on.

The motivation that people will feel will be in large part a function of things we do not measure easily, but if they are educated and healthy they will want to continue to do things.

Incidentally, touching on an earlier point, my understanding, and I have not looked at this in my own research, is that volunteer activity and participation in the workforce do tend to go together to some extent. People who are active in one area tend to be active in others. I do not say that as a hard and fast rule everywhere, but it is something that indicates we may get something of the best of both worlds.

My inclination is to argue that the more work and the more savings we have, the more choices we will have. I am reluctant to see more people subjected to what happens to many lower-income seniors. That group is getting close to the point where the GIS will start clawing back what they save and any extra labour income they have. It is a rational decision to convert your savings into some form that cannot be clawed back and get out of the paid workforce.

The fewer incentives the better off we will be, and then we will worry about whether people are too comfortable.

The Chairman: I take it that you are saying that our policies are almost counterintuitive. You have all said that essentially we are now encouraging, without mentioning the role of unions, early retirement. We tell teachers, nurses, public servants and partners in law firms and accounting firms to retire early. Senator Angus and I discussed last night that there is a demand for earlier retirement. At one time, the older an accountant or legal counsel, the wiser they were and the better their practice.

The hissing that you heard was people saying, ``This is horrible. I want society to provide me with a good, early retirement.'' All of our policies seem to be counter to this looming economic bomb.

Turning to Richard Fahey's position, I recall the tremendous debate between corporate America and corporate Japan. When the major corporations there retired their employees at age 55, they had a process to get them involved in subsidiary small businesses in order to keep them active in the workforce for another decade.

It seems to me that we must convince the unions, the government, the public service, Parliament and the private sector that if we want the economy to continue to grow we must keep people working, and we must find creative ways to make us all work longer and better. Is that fair?

Mr. Fahey: That is absolutely correct. As Mr. Darby said, in many European they are raising the age for government pensions plans. It is clear that early retirement has been favoured in the past. However, by doing that now we are shooting ourselves in the foot. We need to correct that situation, not necessarily by setting up deterrents to early retirement but an incentive to progressive retirement, and the private sector needs to adopt that policy.

People who are over 60 years who want to carry on working would probably want to work three days a week and receive a partial pension for the two days they are not working in order to augment the salary they received from their employer. Our current system does not permit that. You cannot receive retirement monies while working. Obviously that needs to change. There have been discussions by at least the Quebec government and the federal government on progressive retirement whereby it would be possible for aging employees who are healthy and want to carry on working to receive monies from their pension funds as well as from a salary.

The Chairman: Mr. Robson and Mr. Darby, do you agree?

Mr. Robson: I do. I used to show a graphic that was my message in a bottle. It showed that the gap between what you would get if you did not work and what you would get from working narrows abruptly at a certain stage of life. That bottleneck is what induces many people to leave the workforce. It will always narrow, but it need not narrow as abruptly as it now does.

It is desirable to have provisions in the Income Tax Act for forced annuitization or such things that mean that at a certain date people hit a wall. I like the actuarial adjustments in the Canada Pension Plan and the Quebec Pension Plan. I would not touch them. It would be nice if they were a little larger, but I worry that if we tinker with something that is in good shape we may end up making a mistake. Why do we not have actuarial adjustments in the OAS and GIS for people who delay receipt of them? That is an example of where people face an abrupt cliff that could become a smoother slope.

There is evidence that people who work longer live longer independent of the things that led them to do it, so it might be a good thing for that reason.

I would like to put a more subtle idea on the table for consideration by this committee. We know that one reason we used to encourage older workers to leave was the theory that we needed to open up spaces for younger workers. That is much less of an issue in the future we are looking at now where there will be fewer younger workers. I have always suspected that logic was wrong. I think that older workers and younger workers complement each other, just as so many different skill sets do. Forcing older workers out in large numbers did not seem to lower the youth unemployment rate; the tighter labour market did that. That is another reason to get rid of some of those systems.

The Chairman: Mr. Darby, would you comment?

Mr. Darby: I could not agree more. My understanding is that the retirement age of 65 originated with Otto von Bismarck in Germany when he put the state pension plan in place there in 1864. We do live quite a lot longer and generally have healthier lives than German factory workers in 1864. As a standard of when it is time to turn in your punch card it is clearly out of date.

We now have in place a large number of incentives that encourage early retirement that will not be easy to change. Frankly, if I can retire at age 62 with almost full pay, it will be difficult to convince me not to do that.

This is a real challenge. Yes, the policies are not aligned. The actuarial figures on the Canada Pension Plan are, as Mr. Robson correctly pointed out, pretty good. They could be tinkered with to slightly encourage or at least be neutral with respect to early retirement, but the incentive is not huge. We are looking more at issues like how to encourage the bridge jobs to which Mr. Fahey referred. They have done a good job in Japan. How do we encourage the continuance of working life past retirement through policies of incentives such as subsidies?

In addition, it seems clear from the activities in Europe that we need a holistic approach to this issue. We cannot tinker with one aspect and then another. The lessons learned in France with respect to the birth rate that was mentioned are clear in that regard.

The best model that we could discover for keeping people in the workforce longer seems to be the Finnish model, which had a very holistic approach.

The Chairman: By the way, Finland is one of the most productive countries in the world. They consistently rank in the top 10 per cent, so they have obviously solved some problems.

Mr. Darby: I understand that they have advertisements on television. They are changing the financial incentives of the state pension plans with respect to early retirement. There are lots of subsidies and incentives for those who are over 65 years to start new companies. There are real issues around work, life and family balance. They encourage higher fertility rates as well.

Mr. Darby: We can learn from the existing models if we pay greater attention to them. A holistic overall approach to the problem has to be the answer.

Senator Moore: A major concern has been the item raised by our witnesses with regard to the culture of retiring at the age of 60. We compete in the world marketplace and just last week the EU published a paper urging workers to continue to work until age 85. We will end up somewhere between those two ages but 60 years seems to be quite young. It is also quite a waste of talent and knowledge that could be transferred to upcoming younger workers.

Mr. Robson: I observed earlier that when you look at where the net growth in the labour force will come from in the coming decades, it is clear that if we do not utilize that segment of the work force well, then we will miss all the action. I want to repeat what I said earlier with reference to Mr. Darby. He wants to retire with full pay at age 62, and I hope he can do that, but I would venture to predict that he will not be spending ten hours each day on the golf course. There will be others like Mr. Darby in the world that will take partial retirement from their first job but will stay active in a variety of ways, both volunteer and paid.

From a policy perspective, you want to ensure that employers and employees have maximum flexibility when it comes to striking a deal that will work. Any tax laws and employment regulations that presume a certain kind of relationship or pension plan will inevitably cut off some of the things that we may want to see happen. It may well be that many older employees in the future will be interested in receiving certain kinds of health benefits and insurance for long-term care that are difficult for employers to deliver today. They will be less interested in the cash and more interested in the benefits. From that perspective, we want to ensure that there is a maximum scope for employers to strike a deal that will work for them.

Mr. Fahey: The 11 per cent of SME owners who want to retire said that they are willing to start a new business. Not all of us are losing out on the SME owner because he still wants to be involved either as a consultant to successor of the business or as an owner of a new business.


Senator Plamondon: Have any studies been done on the wealth of wisdom and experience found among retired employees? Are there countries that are better at tapping this wealth?

Before I became senator, I worked in the field of consumer protection. I had a small ad hoc committee made up of people who knew about construction to help consumers who had problems with their houses. They were happy. In this committee, we had a former contractor, a former plumber, a former roofer. These people were glad to contribute their knowledge and experience that was not being put to any good use otherwise.

Mr. Fahey: I have not seen the study on the value of this pool of expertise. Let me say that I have already given a presentation to the FADOQ, and they had worked on the issue. I know that they have already thought about it.


Mr. Darby: We have evidence from a number of companies around the world that have recognized that the demographic of their customers is also aging. It would behove them to have in place interfaces with those customers that would share values and issues.

Home Depot's most productive store is the one where two things happen: they have excellent mentoring programs for the older workers with the younger workers that they often hire as well. We have great evidence from company after company to support what Mr. Robson has said that the mix of older and younger workers is by far the most productive mix.

The customer coming to the store is reaching into his 50s relates well to someone of his own age who deals with similar issues. We have examples of many companies that are beginning to recognize this demographic and that having in place a work force that can easily interface with that demographic is a competitive plus. We need to disseminate that message further afield.

The Chairman: My mother's younger sister was 88 years of age when she retired as a sales clerk in a dress shop in downtown Toronto. Her very productive years were the last ten because everybody wanted to seek her advice.

I thank our witnesses for their evidence this evening. Each of you mentioned over and over again the impact of remedying this policy — this forthcoming time bomb — through taxation. Each of you repeatedly mentioned taxes. The deputy chair and I have been talking about this and have determined that one of our future studies should entail a probe of the tax system as it influences these policies. You have affirmed our recent conversation.

We want to hear what the public has to say on these issues. The conventional wisdom is wrong and I hope that your evidence has contributed to changing public opinion. Any additional comments from the witnesses can be sent to the Clerk of the Committee.

The committee adjourned.

Back to top