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The Economic Impacts of the Canadian Aging Population

02 August 2014 By In Blogs

The Economic Impacts of the Canadian Aging Population

Canada is one of the countries that are projected to have the largest aging population in the next 20 years. The growing older population creates concern in the related areas of employment and labour force, social welfare and housing, health ad income security, which will have greater impact on families, societies and the economy of Canada as a whole. A report sampled by the Congress of the Canadian Labour indicated that 72% of the population is not having enough income and 82% of adults are not getting the required heath care services. This shows that in case the economic policies are not changed, the Growth Domestic product (GDP) of Canada will drop drastically in the next 10 to 20 years to the level of the current developing countries.


The existence of this demographic problem might have been contributed by the increase in education levels of the citizens, making women to start giving birth at a later age; currently the women in Canada form the highest number of the labour force (Getzen S100). The increase in birth control measures such as use of pills and condoms have also helped to reduce cases of early pregnancies and reduce birth rates of Canada. The increase in aged population will cause higher spending in public health care and increased government spending on retirement benefits (Getzen S101).

An economic model can be used to explain the scenario of economic impacts of the aging population in Canada. Overlapping Generations Model, (OLG), which was developed by Maurice Allais in 1947, explains the consequences of demographic change (Lugauer 709). According to this model, a worker is born and lives in two periods (i.e. young worker ad old worker). The total utility of a worker at the time he/she is young and at old age is equated as:

Ut = u(c1, t) + u(c2,t + 1)

t represents the period the worker is born

c1, t represents the workers consumption when young

c2, t + 1 represents the workers consumption at old age

At middle age, she can work, supply labour to the economy and receive a wage (wt). The equation for this is: c1,t + kt + 1 + bt + 1 < wt

If the wage equals the expenditure during working period, then the worker is expended to depend on the government for his/her expenses during old age. On the other hand, if the wage is excess and the worker saves, then the dependency level at old age will be minimal (Lugauer 711). This is represented by the equation below; the old retires and lives off her/his capital and bond income:

c2, t + 1 < rt + 1kt + 1 (Savings) + Rt + 1bt + 1(bond)


According to Serow, it is necessary for the Canadian government to come up with policies that will reduce the impact of aging population in the coming years (999). He stated that some of the necessary policies could be:

Extension of working times: since there is increased life expectancy, reduced strenuous jobs and a later age to the entry to the job market, the government of Canada should consider increasing the times of work so that people retire at a later age to reduce the dependency ratio.

Reforms to increase participation rate: the participation rate of Canadian middle age has dropped drastically and there is higher participation rates for men than women. If the government decides to encourage people through increased incentives and reforms such as increased leave periods can encourage a large number to join the employment bracket.

Social reforms to encourage child birth: most families will be willing to give birth if education systems and child care services are made affordable. The Canadian government can offer free education and affordable health care services to attract more people to give birth for the future work force (Serow 800).

In sum, the labour force is very important to the economy of every country. Countries such as United States, Japan and Canada whose aging population is expected to rise should take precautions on the reduced birth rate to ensure that there will be people to offer labour in the future.


Read 1475 times Last modified on Saturday, 02 August 2014 08:21
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