Proceedings of the Standing Senate Committee on
National Finance
Issue No. 30 - Evidence - April 12, 2017
OTTAWA, Wednesday, April 12, 2017
The Standing Senate Committee on National Finance met this day at 6:46 p.m. to study the financial implications and regional considerations of Canada's aging population.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I welcome you to this meeting of the Standing Senate Committee on National Finance.
[Translation]
I am Percy Mockler, senator from New Brunswick and chair of the committee.
[English]
I wish to welcome all those who are with us in this room and viewers across the country who may be watching on television or online. As a reminder to those watching, these committee hearings are open to the public and also available online on the Senate website at sencanada.ca.
[Translation]
You will also find information about the committee, including its reports, bills under consideration and the list of witnesses.
[English]
I would now like to ask the senators to introduce themselves starting with the deputy chair.
Senator Cools: My name is Anne Cools, and I am a senator from Toronto, Ontario. I'm so pleased to see my colleagues because I love them very much and we work well together, which is always a good thing.
[Translation]
Senator Forest: Good evening. My name is Éric Forest. I am a senator from Quebec, the Gulf region specifically.
Senator Moncion: Lucie Moncion from Ontario.
Senator Pratte: André Pratte from Quebec.
[English]
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Neufeld: Richard Neufeld, British Columbia.
[Translation]
The Chair: I would also like to recognize the clerk of the committee, Gaëtane Lemay, and our two analysts from the Library of Parliament, Sylvain Fleury and Olivier Leblanc-Laurendeau, who team up to support the work of this committee. Thanks to you as well.
[English]
Today the committee is continuing its study on the financial implications and regional considerations of Canada's aging population. Honourable senators, our witnesses this evening are here to address some of the aspects of the order of reference from the Senate of Canada. From the University of Alberta, we have Joseph Marchand, Associate Professor of Economics.
[Translation]
From the University of Saskatchewan, we also welcome Daniel Béland, Professor and Canada Research Chair in Public Policy.
[English]
Thank you both for being here. I would now invite the witnesses to make their presentations.
We will start with Mr. Marchand followed by Mr. Béland. Following your presentations, the senators will ask questions.
[Translation]
Mr. Marchand, please go ahead.
[English]
Joseph Marchand, Associate Professor of Economics, University of Alberta, as an individual: First of all, let me thank the committee for the opportunity to appear before you. I also want to commend the committee for having the foresight to address Canada's aging population at present before its economic effects have been fully realized.
A bit about the aging population in general: compared with similar OECD countries, Canada's percentage of population aged 65 and over is not the highest. Japan, Germany, France and the U.K. have percentages that are higher. It is not the lowest because it's higher than countries such as Australia and the U.S., but this percentage continues to grow.
At the same time that this percentage is growing, the 55- to 64-year-old age group is sizeable and the percentage of children age 14 and under in the population is shrinking. From a more regional perspective, the west of the country is younger than the east. Provincially, Newfoundland and Labrador is the oldest, along with the other Atlantic provinces, and Alberta is the youngest in the country.
That said, there is a large variation in the age structure within provinces, most notably at the census division level, which can be seen in great detail in Statistics Canada's recent release of the annual demographic estimates, sub provincial areas.
Why might an aging population pose economic concerns? First and foremost, an aging population is considered to be correlated with lack of population growth, which will then further correlate with a lack of economic growth. I was curious to see what this correlation was between the percentage of age 65 and over and the population growth at the census division level in Canada. I just took this data from the Statistics Canada report that I mentioned and found that, surprisingly, the correlation is negative 0.54, which means that they are a negatively correlated — population growth and this percentage of older adults — but I was actually expecting a correlation much higher than that and closer to 1. I suspect the difference is driven by immigration patterns.
Another concern that I would like to tie to an aging population is that of less participation in the labour force due to mass retirement which would hinder economic growth and increase public expenditure through an increase in the dependency ratio.
Luckily, for Canada and the U.S., at least for now, labour force participation among older adults remains high, but that will of course not last forever and could lead to possibly increased employment opportunities for younger adults in the future.
With regard to public expenditure, the most obvious concern, especially for this committee, is that the aging population will lead to increased public expenditure, mainly in health and social insurance, but perhaps other areas as well. In the recently released first volume of the Handbook of the Economics of Population Aging, which in general should serve as a go-to reference for this committee, which was recently released in 2016, Tim Smeeding and I wrote a chapter on the intersection of poverty and ages. We document a large reduction in poverty among older adults over the last 50 years in the U.S. and in the greater OECD countries, along with an increase in poverty among children and the working age.
So this reduction we partly tie to the workings of the labour market, but it is really driven by vast increases in the amounts of public expenditure that disproportionately target the older adults, which we show for the U.S. in particular in this handbook chapter. So this could be viewed as both a success and a worry.
The bottom line: An aging population will bring concerns about growth, the labour force and public expenditure, but with change comes opportunity through unique solutions. For example, an aging population will bring a higher demand for goods and services provided to older adults, especially health services, and this increased need for the old can create employment opportunities for the young. Perhaps this is where forward-looking public expenditure could be redirected in terms of training the young to fill this need for the old.
Maxime Fougère and co-authors have at least two papers in the journal Economic Modelling in 2007 and 2009 that support this outlook specifically for Canada. Of course the trick would be for the federal government to rearrange resources towards these sorts of human capital investments without making older adults any worse off.
Tim Smeeding and I have a similar conclusion with regard to poverty and aging in our handbook chapter.
Daniel Béland, Professor and Canada Research Chair in Public Policy, University of Saskatchewan, as an individual: Thank you for inviting me to testify before this committee with regard to the issue of aging and retirement security, which is the issue that I will focus on today.
This issue involves long-term commitments on the part of individuals, families, employers and governments. We are lucky in Canada to have built a public pension system that from a comparative perspective is quite effective at fighting poverty and improving economic security among older adults. There is plenty of data by the OECD and scholars, including some of my work and the work of John Myles and many others, who support the claim that our retirement security system in Canada, our public pension system, is effective at fighting poverty, given the percentage of pension spending compared to other nations.
What is important to understand here is that we are facing the challenges ahead, despite the fact that we have been quite effective as a country in terms of reducing the poverty among older people. If you compare the data from the 1970s and if you look at the evolution up to the 1990s and early 2000s, we made tremendous progress.
However, there are some factors that create some anxieties about the future in that area of retirement security. Limited participation in RRSPs and registered pension plans as well as the decline of defined benefit pensions has created new challenges regarding the economic security of older people. Some Canadians do not save enough for retirement, something that the recently announced expansion of the Canada Pension Plan is set to address.
The fact that this proposed reform should maintain the long-term fiscal sustainability of CPP through a moderate increase in payroll contributions is good news for Canadians as economic security and fiscal sustainability must go hand in hand.
I do support the CPP reform announced recently. Today I decided to shift our attention towards Old Age Security and the Guaranteed Income Supplement, which are two very important programs, especially when you deal with the issue of fighting poverty among older people in this country.
As I will show, it's important when we think about the future of Old Age Security and the Guaranteed Income Supplement that we think of these programs in terms of fiscal sustainability, in this case the fiscal sustainability of the federal treasury, and at the same time take into account what is happening in terms of the status of low-income Canadians and how changes to these programs in the name of fiscal sustainability could hurt lower income Canadians.
[Translation]
Canada is above the average of OECD countries in reducing poverty among seniors. These good results are in part due to the creation of the Guaranteed Income Supplement in 1967, a social assistance program that is directly linked to Old Age Security, a modest basic pension. Federally funded and intended exclusively for low-income seniors, the GIS is an explicitly redistributive program, but it is far less controversial than the social assistance programs for the unemployed and provincial programs. The GIS provides a total of over $10 billion annually to low-income seniors.
As to OAS, annual expenditures are now over $45 billion. Since these amounts will increase substantially in the coming decades owing to the aging population, the previous government, the Harper government, had announced a gradual increase in the age of eligibility for these two programs, from 65 to 67, to take effect between 2023 and 2029. Last year, the Trudeau government cancelled that decision in the 2016 budget, in part because it would have had an especially negative effect on low-income seniors who depend more on OAS and the GIS than better off Canadians do.
[English]
Yet, there is the Trudeau government's decision to revert the increase in eligibility age of OAS as a cost of the federal government above $10 billion a year starting in 2030. These are large sums. It might be relevant to think about other ways to improve fiscal sustainability without imposing disproportional losses on low-income, older people who depend so much on OAS and GIS for their economic well-being.
One way to address fiscal concerns over the growing cost of these two programs, without penalizing low-income older Canadians, would be to exclude a larger number of higher income older people from OAS. Right now, people who earn more than $119,000 a year are not entitled to OAS benefits, so at least through the fiscal clawback, if they receive money; in the end they have to give it back entirely.
By simply freezing this income ceiling or lowering or partially indexing this increase in the ceiling over a number of years, the federal government could exclude a growing number of higher income people from OAS coverage, a situation that would increase the fiscal sustainability of the program without penalizing low-income Canadians. This is hardly a new approach, and it is consistent with policies that both Conservative and Liberal governments adopted in the past starting with fiscal clawback on OAS benefits first adopted in 1999, and the senior benefit proposed in 1996 by Finance Minister Paul Martin, which was later withdrawn before its implementation which was set to begin in 2011.
So if you look at the two main federal parties, there is a tradition here of retargeting higher income people in order to save money, and I think that's the way to go. When we think about lower income Canadians, this is a better alternative than increasing the eligibility age of Old Age Security and GIS, two programs that are very closely related.
Increasing eligibility age is not the only way for Ottawa to improve fiscal sustainability in an age of demographic aging. Excluding higher income earners from OAS benefits is simply a better approach if we keep an eye on inequality and equity concerns, in part because of GIS, which is closely related to OAS. Our public pension system is already redistributive, and there is nothing wrong with making it more so, especially if this approach is combined with the legitimate concern for long-term, fiscal sustainability.
Talking about inequality, I would like to conclude my remarks by raising three inequality issues tied to the future of our retirement security system, especially OAS and GIS.
First, in part because I live in Saskatchewan, I am especially aware of the social policy challenges associated with the plight of indigenous peoples who constitute more than 15 per cent of our province's population, and it is growing. Although the median age of indigenous people is lower than the national average, and the social and economic challenges facing indigenous people are rightly central to our policy debates about education, health care and housing, more attention should be paid to the growing number of older indigenous people who are far more likely to face poverty and disability than other Canadians within the same age category. More research and policy attention should be devoted to the issue of the economic security of older indigenous people.
[Translation]
Secondly, since Saskatchewan is accepting more and more immigrants every year, I would like to talk about the residency requirements for OAS eligibility.
At present, in order to receive a full pension, a person must have lived in Canada as an adult, starting at age 18, for at least 40 years. This very lengthy period penalizes immigrants who arrived in Canada after the age of 25.
Reducing the number of years of residency required to obtain full OAS benefits could be considered. Another solution suggested by Patrik Marier and Suzanne Skinner would be to eliminate residency requirements and replace them with access based solely on citizenship. Consideration of these proposals should however include a discussion about the long-term funding of the OAS and GIS. These are issues that must be examined in the interest of fairness to immigrants.
Fiscal considerations are also important however. If we reduced the number of years of residency required, costs would increase. I think we need to bear these factors in mind.
[English]
Finally, when we look at economic security for older people in Canada, the situation of women deserves attention. Older women, particularly those living alone, are especially vulnerable to poverty, something we should keep in mind when we think about strengthening our public pensions, especially a program like GIS which is especially meaningful to fight poverty among older single women.
Overall, when looking at both the long-term fiscal sustainability and social adequacy of our retirement security system, we must pay more attention to more vulnerable populations such as indigenous people, immigrants, women and more generally low-income people of all backgrounds. This is a policy imperative that I hope the members of this committee share.
I thank you for your attention and look forward to the discussion.
The Chair: Before we go to questions, I would like to ask two senators to introduce themselves.
Senator Woo: Yuen Pau Woo, British Columbia. I apologize for being a bit late.
Senator Andreychuk: Raynell Andreychuk, Saskatchewan. I also apologize. We were at another meeting.
Thank you, to both of for the information and hopefully the dialogue. I have many questions on GIS and OAS, but I'm going to leave those and go to my home province, Saskatchewan. You pointed out the interesting and unique situation of Saskatchewan. We have a fast-growing Aboriginal population. They're young. They need schools. We're developing resources on the reserves.
Meanwhile, the seniors who are agricultural- based are moving into small towns and asking for health services, and they're not available. We're now in a climate of cutback with the first debt in a long-time accumulating. I think these problems have been with the province for quite some time.
How does a province balance the needs of the young and the needs of the old? It's not like an urban population. We have Regina and Saskatoon, but we're really talking about isolated communities where we are supporting the reserve structures. There are the indigenous self-government issues. We're talking about co-management on natural resources, et cetera. How do we make that system work? I followed your work. I have been involved in Johnson Shoyama study. We identify these but we have not really tackled them in any way. How does one start to deal with this problem?
Mr. Béland: Thank you for your question. That is not an easy answer because it has a lot of different dimensions.
If you look at Saskatchewan, it's true that we have important needs relative to the fact that we have people living up North in remote areas. I think there are some innovative ways to address some of their needs, for example health needs, through new technologies. For example, we have robots now that can help doctors or nurses from Saskatoon perform their work using remote technology. A lot of things can be done.
In terms of public spending, we have to understand that it's not a zero-sum game and that investing in children's education is extremely important when we deal with indigenous people. In Saskatchewan, as I mentioned, the numbers are even higher when you deal with children. Because of higher fertility rates, among other factors, the percentage of children in Saskatchewan who are of indigenous background is much higher than 15 per cent, as you know. It requires massive investment in education.
A key challenge, too, is the growing number of indigenous people who live outside of the reserve and move back and forth between home, their reserve, and cities. It creates challenges not only for the federal or the provincial government; it creates challenges in terms of coordination of efforts amongst the different levels of government. I think the same remark applies to aging. It's an area where we should spend a bit more time discussing the issues at hand. The federal government has a central role to play in terms of income security in this area, although you have provincial top- ups in terms of pensions. When we talk about the GIS, for example, it's a program that helps all low-income Canadians, including indigenous people. Sometimes there are measures that might not target specific segments of the population that, in the end, will have a positive impact on some of these disadvantaged groups. We have to think about that too.
If you ask what should be done in terms of dealing with these issues in Saskatchewan, I think you need the political will at the provincial level to engage with indigenous communities to bring them to the table. It's quite a diverse environment and there is no strong consensus about what should be done. When you look at the situation in Saskatchewan, there is growing awareness of these problems. That is important in and of itself. That was not the case 30 or 40 years ago, especially at the provincial level. If you look at scholarships and what is done at the provincial level regarding indigenous people, Saskatchewan doesn't do very well. There's a study of Alain Noël and one of his colleagues which shows that in terms of provincial public policy targeting indigenous people, including social policies, Saskatchewan is not doing very well compared to other provinces. There is a problem here that must be addressed at the provincial level. I think some of it is related to a lack of strong political will.
The problem with Saskatchewan in general is that, as a resource-dependent province, we are now in a boom and bust cycle, just like our neighbours in Alberta. I don't think we have dealt with our public finances in Saskatchewan in a way that's very sustainable, because we spend when things are going well. Now we are cutting and austerity is hurting. It is hurting children and older people. For example, there was the termination of our provincial bus company, which is used extensively by seniors and others.
I think we have to look at public finance, at the big picture, but also try to understand that these are really problems that should remain at the centre of the agenda. It's not just that we talk about them, that they are in the back of our mind; they should become central to our agenda.
Senator Pratte: During the debate on the extension of CPP, I saw some studies. I remember one by the Mackenzie group, I think, that showed the majority of seniors, and future seniors, if you took into account their assets, were actually in a good financial situation, and future seniors would be.
I'm wondering what impact that would have. When we're talking about population aging, we're in general talking about the public expenses that will be necessary because of it, health expenses in particular, pensions, and so on. I'm wondering whether the fact that possibly the financial situation of most seniors will be better than what we're usually talking about will have an impact. Of course, we're not talking about seniors that are poor — that's a major concern. Maybe the fact that their situation will be better than what is usually talked about will have an impact on the federal government's revenues — the fact that their pattern of consumption will be different from what is expected. Therefore, maybe there's a positive side that is usually not talked about that we should also keep in the back of our minds.
Mr. Marchand: Yes, I agree. I think the situation is similar to what's happening in the U.S. In the handbook chapter that I mentioned with Tim Smeeding, the relationship of the poverty over the age distribution historically seems to be U-shaped, where you're most likely to be poor when you're youngest, as a child, than when you're oldest. This relationship, over time, has vastly turned to the point that poverty amongst older adults has virtually disappeared. It's in very low single digits — this is with regard to the U.S., but it's similar to Canada and other OECD countries — while at the same time poverty has gone up among working-age individuals and children. A lot of it has to do with this vast increased public expenditure in terms of social pensions and, for Canada, health costs as well. In terms of poverty, seniors seem to be better off. They seem to be wealthier.
This would definitely support the policy that Daniel was advocating. Maybe I'll pass it to you to say more about that, where perhaps these dollar amounts are clawed back for the most well-off Canadians.
Senator Pratte: I'm wondering whether the problem with population aging and public expenses is not maybe a problem that we have to target. That is, rather than seeing it as a government-wide and population-wide problem, see it as a problem that has to be targeted.
Mr. Béland: Yes. I think we agree. It is rare that academics agree on something, which is good.
If you look at the structure of our pension expenditures, the pension system is more targeted than other systems, for example in Germany or in France, where they have high payroll contributions and they don't always do better than Canada in terms of fighting poverty. I think having more targeted policies, especially when you are dealing with policies financed directly by the treasury — and that's what we have with GIS — is the way to go. We should build on what we have. We have created a system in Canada that, if you look at our pension expenditures as a percentage of GDP, other countries don't do better than Canada or even worse than Canada in terms of fighting poverty among older people.
I have published about this subject. I can send you the paper I wrote with John Myles from the University of Toronto some years back, but I think it's still true. We should reinforce that one of the most striking characteristics of our public pension system is that we have GIS, which was created in 1967 as a temporary program. That is, view it as a way to ease the transition from the previous system to the Canada Pension Plan, which was just created the year before. What's really interesting here is that GIS was meant to be temporary, but then we discovered it was quite an effective tool to fight poverty. It was made permanent in the 1970s. Today, it is a tool that is really effective in terms of fighting poverty.
We need more of the same.
I agree with your point about targeting when we deal with OAS, because people who earn $120,000 a year probably don't need an OAS pension, which is quite modest anyway. So we could tweak the system in a way that's actually not really even highly visible and gradually exclude a growing number of higher-income seniors from OAS and save money. At the same time, we could use some of this money to maybe reduce the residency years necessary to qualify for benefits, if we deal with immigrants, or we could use this money to do other things.
It's financed by the treasury so you could use the money for other things. It's not a standalone trust fund like you have with the Canada Pension Plan. OAS and GIS are financed by general revenues of the federal government, which you all know, but it's important to keep in mind.
We have to put our priorities straight. What I want to say here, and I think we agree on this, is that targeting, when we deal with these programs and even with OAS, is the way to go, in my opinion.
Senator Marshall: I know from what you're saying that the number of seniors living in poverty is being reduced, but have you done any work on looking at what the characteristics are of those living in poverty? Is it women living alone? Is it indigenous people? Is it people with disabilities? How much information is there on those different groups?
If you're talking about targeting your resources to certain groups, then you would want to know what those groups are. So what are those groups?
Mr. Béland: We have the data, but I will let our friend here start.
Mr. Marchand: You're right about all of the groups you pointed out. One particular division and comparison we do in the handbook chapter is along gender lines. This U across the age distribution is not only much higher for women — meaning poverty rates are much higher at all ages —
Senator Marshall: But it's women living alone, is it?
Mr. Marchand: There is literature behind that. We don't particularly look at that, but there is a literature behind that. Those would be the worst off among women.
Senator Marshall: Would women be the biggest group in that poverty group? I'm trying to get a handle on this. I think the information we have is that 4 per cent of seniors are living in poverty, and I think 15 per cent of children. But of the 4 per cent, is 1 per cent women? Is it 2 per cent women? What are the different groups, and how big are those groups?
If we're going to target our resources to certain groups, then we should get a handle on how big those different groups are.
Mr. Marchand: Among that 4 per cent, I believe two thirds are women.
Senator Marshall: It is that big? Two thirds of the 4 per cent. Can you carry on? I'd like the numbers.
Mr. Marchand: I was going to go back to this increase in the U poverty rates at all ages being higher for women. Something that we point out is that the growth in poverty rates among women has been particularly high among young women of child-bearing age — 20s and 30s. The increase in the poverty rates is highest for those particular women along the age distribution.
Senator Marshall: Would you know whether that's getting worse, or do you see some improvement? Have you charted it over any period of time?
Mr. Marchand: The gender breakouts we do are 1987 to 2014. Again, this is for the U.S. It seems to be that they're getting much worse for those particular women in the 20s and 30s age distributions.
Senator Marshall: That's incredible.
What's happening with women in the seniors group? Is that getting worse also, or is that getting better? Because the poverty rate in seniors is going down, right? One would think that the poverty rate for women is also going down. But is that true, or are they continuing to be overrepresented in the poverty group?
Mr. Béland: I would have to look at the numbers, but we made progress on all fronts. But these single elderly women were more vulnerable from the start and are still vulnerable today, although they're better off today on average than they were in the 1970s. That's a basic statement of fact.
There is some literature that I could send you. There's an article by Wiseman and Ycas that was published in an American journal. It compares Canada with the United States, the U.K. and other countries. They show that Canada has done quite well in general in terms of reducing poverty among older people.
But regarding single elderly people, the results are not as good as, say, in Sweden, for example. At least at the time they conducted the study, we did as well as Sweden in general, more or less, which is good considering Sweden spends more on pensions than we do, proportionally, as a percentage of GDP.
At the same time, regarding older single women, then the situation was not as good. It doesn't mean we have not made progress over the years. It's just that this is a group that's particularly vulnerable.
There are other groups that are vulnerable. I mentioned indigenous people. We don't talk about issues of aging facing indigenous people as much because it's such a young population on average. It's true that only 6 or 7 per cent of indigenous people in Canada are 65 or older, which is much smaller than for the general population, which is above 15 per cent. But the numbers are growing every year. Also, they are much more vulnerable in terms of facing the risk of poverty in old age. That's something we should keep in mind and discuss more as we move forward.
Senator Marshall: After women, what would be the next biggest group in that poverty category for seniors? Would it be those with disabilities? I'm thinking of programs. There are special programs for people with disabilities. I'm trying to match up the programs with the characteristics of the group.
Mr. Marchand: It's hard to say.
Mr. Béland: Again, you have to break categories down into different subcategories. I mentioned indigenous people in general. It's an issue. If you think about immigrants, for example, it depends on a lot of factors, such as when they moved to this country. If you moved to Canada in your late 40s or early 50s, you don't have your full OAS pension. Maybe you didn't have time to establish your career as much as someone who moved in their 20s.
So you can't say that immigrants in general are more vulnerable. You can break that down into different categories, and you will see a significant difference.
We have to be careful here not to paint that with too big of a brush. But certainly we have identified groups like indigenous people and older single women who face more challenges.
Senator Marshall: Based on where the graph is going, did you say that you see poverty in seniors decreasing in the future? Did I understand you right, or did I just read that into something you said?
Mr. Béland: We have to be careful here. If you look at the data, the decline we witnessed was mainly from the 1970s through the 1990s and early 2000s. In Canada, we don't have an official poverty line, so we have different ways to assess "low income'' or "poverty.'' But Statistics Canada, for example, doesn't have an indicator for poverty — a definition of poverty. It can become quite complicated.
The progress we made is mainly from the 1970s through the 1990s, early 2000s. But now the situation is stagnating. We have even witnessed, depending on the indicator used, a little bump in poverty. Again, it depends which category you're looking at and so forth.
I don't think it's the idea that it will never stop, that it will keep declining. It's not declining anymore, based on the data I have seen. It's at least stagnant. But we have made tremendous progress, and compared to other groups in society, older people are doing quite well on average. But again, when you break down this population into subcategories —
Senator Marshall: You see groups.
Mr. Béland: Yes, exactly.
[Translation]
Senator Forest: Thank you very much for being here. The aging of the population is a very important issue, both socially and economically.
I have two questions, one more general and one more specific. It has been said that the coming cohort of retirees will probably be one of the wealthiest. The lucky ones will have defined benefit plans; others will have defined contribution plans; and others still will have practically no support.
You mentioned 4 per cent. It has been said that the gap is widening between retirees who are well off and those who are much less well off. As Senator Pratte said, retirees who are well off will indeed contribute to our collective wealth and to the GDP. At the same time, these people will place a certain burden on the health care system owing to their numbers. That burden will fall to the federal government. Health care also receives provincial and municipal funding. These people are demanding more and more and want an active retirement. They want services from municipalities that were not offered 10 years ago; then a seniors' club house was all that was provided.
For the three orders of government, this cohort will certainly be better off, but they will also have more requirements. At the same time, these orders of government will have to deal with and pay special attention to those who are much less fortunate. There are people who will demand a lot from governments. There are also seniors who are isolated and who will not be able to make ends meet.
Have you evaluated the impact of this well-off cohort on the three orders of government? These people can be expected to be in better health, since they eat better and exercise. Have you developed an overview of this social and demographic phenomenon?
[English]
Mr. Marchand: The way I'm hearing this is that population aging isn't necessarily a problem, especially for the best off. I think the way I'm reading what you're saying is that there is tremendous opportunity to fill the needs for goods and services for this particular group because they are so wealthy.
This is a point that I'm trying to push as well, because you want to tie that to the future economic growth of the country — there are dollars to be spent by this particular cohort — and how best to fill those needs. It seems like even though this might be a healthier cohort, there is opportunity there for more retraining towards health services for younger people, and this would take place at various levels of the government: local, provincial and federal. In terms of a policy perspective, it's how best to set that priority.
I'm not sure how to achieve that, but I think you're thinking about this exactly the way I'm thinking about it, that there is an opportunity here kind of guide the country based on the demand for goods and services of this particular wealthy cohort.
I would see it as an incentive to invest more in human capital for younger individuals, so more in education and retraining towards filling those needs, but there could be various policy prescriptions there.
[Translation]
Mr. Béland: The aging population also creates jobs. They do represent a significant tax burden, but growth in health care creates jobs. Long-term care requires public expenditures, which are sure to increase. That is why it is important to focus on the people who are really in need.
I think a whole economy is developing around aging. We see this not only in health care, but also in recreation. We have to think of the change in the economy owing to the fact that, one day, more than 20 per cent of the population will be 65 and over.
Being 65 today is not the same as it was 50 or 60 years ago. People are healthier and can work longer, in some cases. For those who do manual labour, it is more difficult to continue working. Seniors are not a uniform group. They are highly stratified, as is the case with all age groups. Some will spend a lot and stimulate the economy by spending, because they have money and recreational activities. We have to make sure that people spend as much time as possible in Canada rather than in Florida or elsewhere.
We have to think of these things. We are talking about large amounts of money that will keep increasing. More and more people are in this age group, many of them have money. We have to think about redistribution in order to benefit the least fortunate, as well as the economic benefits of the aging population and the positive aspect of job creation. We must also try to develop our economy around aging. It must not be seen just as a problem, but also as an economic opportunity.
Senator Forest: Yes, there is an opportunity, but there is also a political reality. We have to admit that 65 is very young. Actually, I turned 65 last week.
Mr. Béland: Congratulations!
Senator Forest: The fact remains that seniors carry significant political weight.
Mr. Béland: For example, older people vote more often that those aged 18 to 25. That is true in Canada and elsewhere. They have disproportionate political weight.
Senator Forest: My second question is perhaps more specific, but it is of great concern to me. Our objective, especially at the federal and provincial levels, is to keep people living in their homes. To keep our seniors in their homes, they need to have a home. Property values have risen in recent years. This is particularly true in certain regions, namely, Vancouver and Toronto. Even in a region such as Rimouski, assessed values have increased by as much as 39 per cent.
We are at the point, in terms of a gap, that seniors can no longer pay their tax bill. Three orders of government are collecting taxes and income tax from the same pool of taxpayers, who cannot always afford those taxes. On the one hand, they are accumulating wealth since their property value is increasing. At the same time, however, they can no longer afford the property taxes.
I tried to implement a program to delay property taxes as a way in order to use the capital in the property while being sheltered from property tax increases. When the property is sold, the owner has to pay the tax bill. Have you considered such a policy? In order to keep seniors in their homes, they have to be able to keep their homes.
[English]
Mr. Marchand: There is a very young market for reverse mortgages. Not only is it young, it's definitely not a fully working market as of yet, but that would be the type of solution that you're talking about, where older adults can pull cash out of their homes that they've invested in and use it for consumption purposes.
From the government's perspective, kind of helping that market along similar to helping a green economy along, those would be the policies that you could target.
[Translation]
Senator Forest: We have seen a lot of that in sectors that are not highly valued. Consider a water way, for instance, that was not highly valued 10, 15 or 20 years ago. Now there are transactions that are making property values explode. This has created an imbalance in the ability to pay of people who have been there for 30 or 40 years.
I tried to establish a pool, specifically for the provincial government, to create a mortgage that would be repaid at the time of resale,
Mr. Béland: That is interesting because, historically, owning a home, for a senior, was often a safeguard against poverty. There is a correlation between the two. This is an important issue.
I think we need to come up with innovative solutions. It is true that we were talking about reverse mortgages, but they have to be properly regulated. We have seen what happened in the United States, and we have to be careful. We are more careful in Canada, and we have to continue to be. For example, there could be a system to reduce property taxes, at least for low-income property owners, for seniors. We need to find a way, however, to find the money somewhere else to make up for those losses.
I have never really thought about this, but you are making me think about it, which is great, thank you. We have to come up with innovative solutions, however, because with the rise in property values, it is true that people who no longer work or who earn less than before have lower incomes than when they were working, perhaps 70 per cent or less than what they had. It is much more difficult to pay property taxes in such a case when property values rise. We have to find a way of helping low-income seniors, especially in the cities where home prices are skyrocketing.
[English]
Senator Neufeld: On the property tax issue, first off, in British Columbia we have a property tax grant that every individual gets and seniors are larger, obviously, than others. Secondly, you can defer your taxes when you reach age 60. You can defer them until you die. When your place is sold, those taxes are paid back to the province. But in the meantime, the province doesn't collect those taxes.
It's a very good system for all those same reasons you talked about because the property values went up so much and they couldn't pay the taxes. They were living in poverty, but with a $2 million home. That's something British Columbia has had for quite a while.
Mr. Béland: You didn't have much of a choice with the real estate market in Vancouver.
Senator Neufeld: This was done long before. This was not new. This is 10, 15 years old.
Senator Woo: I will be old enough to access that benefit in a year's time. You pay a small interest rate below prime, but it's a great financial strategy for a market like Vancouver.
I want to ask a bigger macro question. From a historical perspective, the accumulated wealth on the part of seniors, particularly the boomer generation, to use a gross generalization, is it unlike any we've seen in modern history? How should we think about this accumulated wealth?
It is anecdotal that the boomer generation had it so good. They had all the lifetime jobs, and it's borne out by some empirical evidence, and young people, particularly where I come from in Vancouver, complain that there is this intergenerational inequity in income, for sure, but also in wealth.
I want to focus on the wealth aspect and whether there are some wealth effects we can think about in public policy in dealing with intergenerational inequity. It is a vague question. Do we know anything about the behavioural characteristics of the boomer generation in terms of what they're doing with their wealth before, and if I may say, after they pass?
Is this a way that public policy can nudge a more fair society, a society that minimizes disadvantaged people and reduces inequality?
Mr. Marchand: I will add some numbers to the issue you've raised. This poverty-over-the-age distribution, when you decompose it into age effects as separate from cohort effects or cyclical year effects, it does turn out that the worst-off cohort is the millennial cohort and the end of Generation X, and the best-of cohort is the baby boomer cohort. In the data it is real.
Senator Woo: Are there any public policy implications from that observation?
Mr. Béland: I know the estate tax is not very popular, but this is something worth revisiting. Again, I don't work in this policy area. I think some people have complained about estate taxes in the past, like farmers, and we have to be very careful. When we talk about people who are very wealthy, this is something we need to think about, because this money could be used to help lower-income and younger people. I know politically it's not popular, and I know economists are divided over this issue. Some people call it the "death tax.''
Senator Cools: First of all, I'd like to thank you gentlemen for your years of scholarship and study, and to let you know that in situations like this, senators around the table really appreciate your work. I know that sometimes scholarship can be tedious and difficult, but just know that you do it well. I really respect this. I read a lot, so I am the beneficiary in many ways.
Mr. Béland: Thank you.
Senator Cools: With respect to the baby boomers and why they have done so well in wealth, could it have something to do with the fact that frequently they have double incomes, with the husband and wife both working? Is this a factor in the accumulation of that wealth? That's just a side issue that occurred to me as I was listening to Senator Woo.
My real question is a larger question. You mentioned, almost en passant, that there are large numbers of young women in their twenties and thirties who are living in poverty. That was a question you and I were alive to. If you could respond to those questions, I would be grateful.
Mr. Marchand: With regard to dual income, this has been a phenomenon in the data that's continued past the boomer generation, so this would still favour Gen X and millennials, this matching between high-income individuals and highly educated individuals.
For the young women in their twenties and thirties, as a follow-up paper to the work that I have done with Tim Smeeding, I've decomposed these poverty trends across the age distribution into these age cohort and year effects, as I was saying earlier, but one phenomenon I failed to mention, although I hinted at it, is what Tim Smeeding and I call the "college spike'' in poverty. If you look back to the poverty-over-the-age distribution trend, this "U,'' it is fairly smooth along the left-hand side.
It's declining from childhood to working age, but starting in 1990 — again, this is U.S. data, but it's also shown for the greater OECD — there is a spike around individuals aged 18 to 24. Poverty rates start to decline in this U, and then right when age 18 hits, there's a huge increase in the poverty rates that then fall by about age 24 and it continues along this decline, this U shape.
I'm not far enough along to say exactly what that is. When I say that it's the college spike in poverty, I don't necessarily mean that this is for just college-enrolled individuals, but rather, college-aged individuals. But the college spike is definitely much worse among women than among men. It's way more pronounced for women than men, but I'm not far enough along to explain why that is.
Senator Cools: It certainly is contrary to all the information that says women have done well and women are leading in this and that, so this is running counter to all those other reports that we hear.
The Chair: Mr. Béland, did you want to provide an answer also?
Mr. Béland: I think an issue that is important here are student loans. Nowadays, of course, they are higher and higher because attrition is higher. The U.S. is quite dramatic, but Canada, most provinces — Quebec and Newfoundland and Labrador have lower attrition — have experienced a dramatic increase. Now you have people who keep their student loans for decades; they don't pay them for two or three years after they graduate. When you have people who have more than $100,000 in student loans, it can take a very long time to pay it back, especially if you don't find your dream job after you graduate. That's an issue that could actually really undermine the capacity of people to save. People who go to graduate school and complete their Ph.D. in their 30s may not be able to save for retirement before their 50s because they have to pay their student loans, sometimes for more than two decades. So that can be an important burden that will actually undermine the economic well-being of people and could affect their capacity to save for retirement.
We should think about these things as well, but again, more research is needed about this. Our friend here will do the research and will come back to you with the answers.
Senator Cools: If you are able to share with us anything that you have written on this, please pass it on.
The Chair: As we conclude the first round with Senator Neufeld, we will move to the second round with Senator Andreychuk.
Senator Neufeld: First, I'm happy that you have identified what Senator Woo had asked about redistribution of wealth as a death tax. That's exactly what it is.
What should the cut-off rate be? I don't know, but I think you said it was $110,000 or something.
Mr. Béland: Almost $120,000. That is the level at which everything is clawed back. It starts much lower in the mid- 70s, and then you start to lose part of your OAS pension through this clawback. Then once you are above almost $120,000 — it's increasing every year because it's indexed. A lot of tax provisions. A clawback is being indexed.
Senator Neufeld: Where should it be? You said we should actually think about lowering that and redistributing —
Mr. Béland: You don't need to lower it. You just stop indexing it or you index it in a way that it doesn't increase as rapidly. So more people over time will stop receiving the full OAS pension, who actually won't be able to keep the money any longer. You have to let the time flow.
That's actually what the Mulroney government did in 1989 with the clawback. It was set to increase at a slower rate so that a growing number of people would be excluded from OAS pensions over time. Then that decision was reversed by Paul Martin about 15 or 16 years ago when he was finance minister, but we could certainly play again with the index system. You don't have to lower the amount; you just let it stagnate or increase at a slower rate over time, and in the end, more people will be excluded from receiving benefits. You let time flow, and most people won't realize it until it's too late. So politically, the Mulroney government was quite astute as to what they did in 1989.
Senator Neufeld: If you did that, what kind of money would that generate to actually help those who are in the lower bracket? You've talked about it, so you must have done some work around it, I would assume.
Mr. Béland: Again, it depends on how long you want to stop indexing or index at a lower level. I don't have the precise number because it would depend on whether or not you really want to stop indexing, but you can save a significant amount of money. That's why the Mulroney government did it in 1989. We can look at how much we saved because of that over time, and that would be relatively easy to do. I have not done it, but obviously you would save money because fewer people would get benefits.
Senator Neufeld: Maybe we can look at what that raises somehow through the staff at the Senate. It's something we should look at.
Mr. Béland: It depends on the pace you want it to increase. Or do you want to absolutely stop the indexing for a while? The numbers would be very different. You would obviously save money, but it would depend on how you'd want to do it.
Senator Neufeld: You said that Sweden gives more in financial help in pensions, or maybe I misunderstood you. Maybe you can help me here. I just think it's a little more costly to live in Sweden than maybe in parts of Canada. I'm not saying Vancouver or Toronto but I'm saying in lots of the other parts of Canada. Would you agree with me?
Mr. Béland: I do comparative research. The contribution rate in Sweden for pensions is 18.5 per cent. That's the combined rate, 18.5 per cent. So compare that with CPP and what it would look like after the expansion; it's much lower. I think it's important to understand that. Swedes pay more taxes than we do.
If you look at countries like Germany and France, they pay even more because their contributions are even higher. In Canada, because our system is relatively targeted — the Canada Pension Plan, even after the expansion, will have a replacement rate of only 33 per cent. That's relatively low compared to, again, the pension system in many European countries. That's why I say we should build on that and focus on the people who are really in need.
Certainly, Sweden has a more expensive pension system than we do. I'm not saying we should imitate Sweden. We can be more effective, I think, in terms of targeting, and that's not really what the Swedish approach is about.
Senator Neufeld: When you talk about millennials feeling left out and baby boomers having it all, we weren't called millennials, but when I was a lot younger, when I was the age the millennials are now, I used to look around wondering how everyone else had so much and I was so darned poor. It was a matter of fact. I was just a regular guy out there. I didn't have a whole bunch of stuff.
So I get what you're saying now, that that's being said, but that's not much different than what it was when Senator Marshall and I were young. Would you agree with me? I guess I don't like that comparison, but that's the way it is. I was out there working hard.
The Chair: Mr. Marchand and Mr. Béland, do you have any comments?
Mr. Marchand: Yes. So I think you definitely make an interesting point, that we don't have the observations for what millennials will look like in their 50s and 60s. It is possible they are way better off than current baby boomers when they reach those ages. It could go either way.
However, in terms of decomposing cohort effects during these last 28 years in the U.S., it seems like millennials are the worst-off cohort among all those in the data set. Baby boomers, you're right, are the best off.
I think this brings up a broader point that I haven't really mentioned yet, that millennials and cohorts to come are postponing their entry into the labour market, and this is one of the reasons why they don't look so good in terms of poverty statistics. If that's the future for Canada and the U.S. and other OECD nations, where individuals are accumulating more human capital, going into the labour market later but then maybe staying later also on the tail end, then policy should change to adapt to that. I think part of that is to move funds toward those particular human capital investment years for individuals. This does not mean necessarily cohorts of individuals but rather certain age groups so that they can then make it to the labour market and then build that wealth like the baby boomers have done.
Mr. Béland: I agree.
Senator Moncion: Senator Neufeld, you said that when you were younger, you didn't have any money. There are problems that the younger generation faces now when they buy a house. When I bought my first house, I was making maybe $25,000 a year, and that house was three times the salary I was making. So you bought a $75,000 home with a $25,000 salary and you could make it.
Now our kids make maybe $100,000, but houses are $500,000, $600,000, $700,000. The triple effect is not there anymore as it was when we were younger. The cost of everything has gone up.
You were talking about reverse mortgages. At some point, our children won't be able to buy these houses because they will be too expensive. The older generation will get stuck with their homes; they won't be able to sell them because kids won't be buying them. The people making money will be the ones who are renting out apartments because that's what our kids will be able to afford.
At some point, even for the older people, staying in your home is not the right thing to do as you grow older. That's the way I see it, anyway, because you have to sell your house when there are buyers. There are fewer and fewer buyers on the market because our kids cannot afford it. Some can, but many can't. They're saying to our generation, you're going to have to help your kids buy their homes or they will never be homeowners. A generation shift is going on.
My question is about the government's policy right now that they've put in place for homes. They've hiked up the criteria where our kids, have to qualify for a higher interest rate to buy a house. How do you see this affecting the market, because it will affect the market.
Mr. Marchand: I recognize that this is quite the issue now. It might not be if we see a huge wealth transfer of parents' homes to children. That might be the solution in itself. Has that really taken place as yet? No. If that were to take place, it would alleviate this concern.
The question is: Do we foresee that happening and kind of solving the issue or becoming the problem that really does have the weight that you put to it? I'm just not sure.
Senator Moncion: People live longer. You get an aging population with a little bit more money. However, at some point, when they go into nursing homes, they will need the money to stay there, and staying in a nursing home now is expensive. There are billions and trillions of dollars out there. I have some numbers in my head, but I don't have the information right now. It was said that there is over $73 trillion in mutual funds. You have about $50 trillion in RRSPs and I think there is $94 trillion in Tax-Free Savings Accounts. So yes, the money is there; there's no question. The fact is there's a lot of money there and who will spend it.
Mr. Béland: There is a lot of money, but at the same time the money is not redistributed evenly, as you know. You have people who can afford luxury nursing homes and they are doing so well, and you have people who have to rely on the public system and really struggle to make ends meet.
Nursing homes is a growing industry. I talk about the economic potential of population aging. This is a growing industry. People who have the means to use that and pay, good for them, but I'm thinking more about the people who are left behind. Yes, you have a lot of people who cannot or don't save for retirement. They don't have any RRSPs, and these are the people who we should focus on.
However, you're right that there are enormous sums of money that have been accumulated over time. This has even transformed capitalism. We have an economist here who will tell you about this, because I'm not an economist. It has had a major impact on our economy. Pension funds are really powerful actors, and so they have dramatic consequences. But we should not forget about the fact that despite all this money, you have a lot of people without a registered pension plan or RRSPs, and these are the people that we should focus on in terms of economic security for the elderly, and we should keep them in mind.
There is this strong contrast between these enormous sums of money that have been accumulated in these pension funds and the people who have no occupational pension or no savings for retirement. This is about the inequality of the society in which we live, and we have to keep that in mind. This contrast is quite shocking.
Mr. Marchand: I have two quick thoughts. One is that the long-term care market, like the reverse mortgage market, is young and not yet fully formed. Fostering that market to develop is definitely one way to go, just like reverse mortgages.
Another thought, going back to a word that Senator Woo used, nudging people to make certain decisions and nudging them towards certain behaviour, perhaps one way to think about policy here is what type of policy would nudge this wealth transfer.
Senator Andreychuk: If you look at Sweden, the entire mentality of the country is very different to ours. They look to their government. They're prepared to pay an enormous amount in taxes. I don't think that's the Canadian way, and that's why it's always very difficult to use that example, but we seem to like to reach for it. I'll put that aside.
We haven't touched what I hear a lot of — and I'm go back to Senator Neufeld's point — and that is that we grew up in a country that tried to do better than our parents did, and they helped us through that, and we were savers. Now, I think, starting with the baby boomers and even the millennials, they're spenders, and you see these quaint little things saying, "How are you going to take care of your pension?'' "I'm going to win the lottery.'' There are many people who don't.
Many of your suggestions here reach to people who are going to put something away, but quite frankly, when I was 25 or 35, it was "don't talk to me about pension,'' and I don't think that's changed.
If they're building up a debt on their own personal credit cards, et cetera, and they're spending more, how do you factor that in with all of the data that you're taking up from previous generations? I think we have different concepts at play. That's one question.
The other relates to women, whom we keep talking about, and how they were caregivers, and that says something about the twenties and the thirties. I think it says a lot about their poverty.
What about the grandparents now? We're talking about how they are wealthy. Many of them are looking after their grandchildren and we're hearing a little more about that. Perhaps they look like they have money, but by the time they pay for everyone, aren't we trying to catch something that moves ahead of us all the time, generationally?
Mr. Marchand: With regard to savers versus spenders, the optimistic way to look at this is that everything is just postponed to later ages. Millennials are spending and not saving now; their intention is to save, but maybe they're making this human capital investment and kind of putting everything in at these ages in order for that larger earnings opportunity, which hopefully is there for them, and then they accumulate and save later on in the life cycle. That would be the optimistic hope, there. I don't know whether that's true or not.
Mr. Béland: I think your point about intergenerational transfers is interesting. It is something we don't always capture because it's not public. But it's true that grandparents and parents help their children buy a house or pay their student loans and so forth, and that's something we can capture but it's not readily available. There is a lot going on behind the scenes in the privacy of families, but you cannot count on that, because in some families it works and in other families the parents don't have the money. Maybe they are not on good terms, or things happen.
That's why we have a welfare state and public policies: some families are broken and the family solidarity is not available. If you're lucky enough to live in a family where your parents have money and they want to share, that's good for you, but you have other people who don't face that scenario at all, and it's important to keep that in mind as well.
Senator Andreychuk: Something I haven't looked at in 30, 40 years, is that in Saskatchewan, we had a Parents Maintenance Act. I don't know if it still exists. You had an obligation to look after your children, but then you also had an obligation if your parents were destitute.
I don't know how long that law lasted, but it was an interesting public policy that talked about family responsibilities, as well as government's, from a province like Saskatchewan. I don't think we were the only ones. I don't know if it still exists or not.
Mr. Béland: China adopted a similar law some years back to force children to take care of their parents, but I'm not sure it's the best way to go in our society. That raises a lot of issues in terms of individual rights.
Senator Andreychuk: My point was that there have been a lot of attempts at transferring, et cetera and I question whether they work.
Mr. Béland: Yes, I agree.
Senator Marshall: We were talking about the seniors' poverty rate. You're saying we're making great progress. On the other hand, we're looking at children living in poverty. Percentage-wise, there are more children living in poverty than there are seniors living in poverty. The seniors' poverty rate is reducing because we have all these programs, like GIS and OAS, et cetera. Regarding children living in poverty, has the children's benefit had any impact on the rate of children living in poverty? Have you measured that, or is it too early?
Mr. Marchand: That seems to be a successful type of policy, but nothing that would achieve the rate of reduction in poverty that was seen from the 1960s to the 1990s amongst the elderly. It was just such a rapid decline and there was so much money put towards that specific problem.
Senator Marshall: Are you able to put a number, or a percentage, on the reduction in child poverty as a result, over the last several years? The child benefit was changed last year, but there were also benefits in years before that. Is somebody charting that to see how successful those programs have been over the last several years?
Mr. Marchand: I believe so. I might not be able to find a Canadian citation, but I would at least be able to point to a U.S. citation, so I can follow up on that.
Senator Marshall: That would be great. Thank you very much.
We were talking about targeting the programs to reduce senior's poverty. Have you given any thought to a guaranteed income for seniors rather than targeting certain financial assistance programs, so that if you're over the age of 65 or 67, you're guaranteed a certain income? Have you ever done any work on that?
Mr. Béland: I have not done work on that. You could do it, and in a way, GIS, in tandem with OAS, has a similar effect, although what you're talking about would be a different policy. It depends how high you set the minimum amount, because that could be quite expensive. It depends on how it's done.
We are experimenting with guaranteed income here in Canada and other countries like Finland, not just for seniors, but in general. We have data from previous studies, but I think we have to look in the current context for what's happening with these experiments. I would be reluctant to embrace that without looking at the evidence of the experiments going on right now.
We have to look at not just what's happening in Canada but other countries that are experimenting with this, like Finland. Yes, Canada is different and I'm not saying we should imitate another country, but we should look at these experiments because we can certainly learn from other countries.
Senator Marshall: There is not just one solution; there is a host of solutions and you want to pick the most effective.
Mr. Béland: Absolutely. I agree.
[Translation]
Senator Forest: As my father used to say, "You don't have to do an interview; just look at the way the person walks and you will know if they are healthy.'' My approach is similar to that.
You have both worked in the United States and you may have noticed that, in the past, a lot of seniors used to work in grocery stores, as packers, for example. Now we see the same seniors working in other areas, such as information offices or at golf clubs. The people in these jobs can even have a slight intellectual impairment in some cases.
In Canada, the next generation of workers is a huge challenge. To ensure our productivity, to maintain GDP, the next generation is very important. Immigration is one solution, but not the full or only solution. How do you see the next generation in our organizations and companies?
Have you also noticed that seniors who do not have enough income work, whether in grocery stores, in retail or elsewhere, to make up for their lack of income? Have you noticed this in Canada?
[English]
Mr. Marchand: In this regard, there are almost too many secular changes to pinpoint what the future will look like. You do have these older adults working in these particular jobs nowadays and perhaps into the short-term future. In the long-term future, maybe these jobs are replaced with capital, with machines and that sort of thing. So you have this kind of routine task being replaced by capital and not being done by humans. We might be in this flux where there are lots of these types of jobs to transition out of your permanent employment and maybe work a little bit in retirement, but these jobs might not exist in the future, these types of routine task jobs. When we think along these lines it's really the secular change that we have to get a grasp on.
There are a couple of interesting papers that have come out, mainly from David Autor at MIT and co-authors along this regard, but it's really a new literature and new phenomenon to grasp, and I think until we grasp what's happening with that secular change it's too hard to tell what this means for aging.
[Translation]
Mr. Béland: That is an important issue for the next generation. We have not talked a lot about immigration and the way our immigration policies are designed. We have focused a lot on the points system. Immigration is part of the answer, but working conditions and a minimum wage are also important. If a person is retired and already has other income, they can afford to work for minimum wage or a bit more to top up their income. But if it is their only income, or even if the person is working part time because they do not want to work full time, or if they work full time but at minimum wage, it is very difficult to earn a living and get above the poverty line.
We have to think about this and invest in these jobs. These jobs have to be attractive in some way. If they are not, they will disappear and be replaced by robots. Other jobs will never disappear and workers will be needed to fill them.
Employers will have to be innovative and offer decent wages. This is important because this economy that includes seniors working part time is not a sufficient basis to develop the economy in the long term.
It is true that an increasing number of seniors work part time after retirement, sometimes simply because they are bored and want to keep busy and get out of the house. Sometimes they are people who retire fairly early, in their 50s or early 60s, but who keep working for another 10 or 15 years, often part time. They collect a pension and keep working. This reality is part of the economy and it must be considered.
There are also future seniors who will work part time because they will be encouraged to do so. Employers will have to make investments though if they want to attract young people to work full time in those sectors. This is an important issue but there is no easy solution.
Young people today often want to do all kinds of things and also want to get a job, but they are often unable to find full-time work, or at least not a full-time job that can support living in conditions or in the big cities where housing costs have increased substantially. We have to think of that as well. Employers will have to find solutions.
The Chair: We will finish with Senator Woo.
[English]
Senator Woo: I have a quick comment before my question. You're both social scientists and I know social scientists love to have real world experiments where you can compare different public policies. I want to recommend that the two of you work together to explore the real world experiment going on right now between Alberta and Saskatchewan, responding to a very similar global downturn in the commodity price shock, maybe a secular downturn in commodity prices, very different responses. This is not a frivolous question. There will be impacts on output and inflation and so on but there will be impacts on social indicators, including health indicators and seniors' indicators. The two of you should keep talking.
My question is a factual one, or at least one that is based on projections. How many years will it take before the aging demographic profile peaks, and how many more years before it normalizes, so to speak, given current rates of life expectancy?
Mr. Marchand: I'll weigh in on your comment.
Senator Woo: Senator Andreychuk asked what is normal: Where the dependency ratio comes down to one that is the average for the OECD. Does that help?
Senator Andreychuk: Thank you.
Mr. Marchand: Just to weigh in on your first comment about boom and bust. My research aside from aging is on the local labour market effects of energy boom and bust in Western Canada, and it's quite interesting that there was a lot of good of the boom in terms of earnings, in terms of employment, but it was not undone in terms of the bust. This is going back historically from the 1970s to 1980s. It might not be true of the current bust. I'm waiting for the census data to come out, but I can definitely follow up with you on that.
In terms of age projections, it's kind of interesting when you think about dependency ratio. We have an increase in seniors in this dependency ratio, but you actually have a loss of children as dependants as well. It's much smaller in magnitude but to some extent in the dependency ratio you do have somewhat of a replacement that moves the dependency ratio a little more favourably in that regard. In the future that might not be the case, but with the projections that I'm looking at this seems to be kind of a hit in 20 years to 25 years. I'm not sure if your projections are roughly the same.
Mr. Béland: One thing I want to add — and you studied this in this committee — is the regional variations, which are so important. It depends on economic cycles. If you look at Saskatchewan our situation actually improved if you compare the two previous censuses, from one to the next, in terms of having a lower percentage of people age 65 and older, just because more people would stay in Saskatchewan, or even younger people coming to Saskatchewan to work, something that has happened in Alberta for a long time. But what's happening now we will see, because there is obviously a bust in both Alberta and Saskatchewan. That ties your comment to your question.
It's a bit uncertain in Saskatchewan right now because of the economic context, but if we look at Atlantic Canada or even Quebec, you have a greater percentage of people age 65 and older and that trend should continue. These regional disparities are very important and they will affect the way the federal government spends but also spending patterns in the provinces. Some provinces have to face a greater burden in terms of taking care of the older people through long- term care and beyond, so health care and beyond.
I think these disparities are important. And I haven't mentioned the territories, which are very young on average, which we don't talk much about. We focus on the provinces. Of course, it's a relatively small percentage of our population, but the territories face challenges that are very different from what you see in the provinces. They have a very young population with a large percentage of indigenous population, especially in Nunavut.
When you talk about indigenous people you have a difference in terms of life expectancy among Inuit and First Nations and Metis, where Inuit have a lower life expectancy than First Nations and Metis, significantly so. So we have challenges to address in Nunavut, for example, that are important, and I would draw your attention to that.
We complain that when people live longer it costs more money, but we want to raise the life expectancy of all groups in Canada and especially reduce the gaps among these groups. We have significant gaps between indigenous and non- indigenous people, especially between the Inuit and the rest of the population, which is a large gap. We also need to address this and think about it as Canadians.
The Chair: As we conclude, on behalf of the Senate of Canada, I would like to thank you for being here this evening and sharing your thoughts. It was very informative. I know that you have the order of reference. If you want to add or send additional information on our order of reference, please do so through our clerk. With that, I declare the meeting adjourned.
(The committee adjourned.)