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Hundreds of thousands of experienced workers are on the sidelines, even as a labour shortage tightens its grip on the Canadian economy.

Immigration has been touted as a solution, but that process would take months or years, even without mounting backlogs. Subsidized child care will add to the labour pool, but that expanded national system will take several years to fully roll out.

Luckily, there’s a huge cohort of workers, with ample experience, that could fill many of those vacancies: older Canadians, including seniors. As the chart below shows, labour-force participation rates for Canadians aged 55 to 59 are significantly lower – a gap of 10 percentage points – than for the core-aged adults (between 25 and 54). That drop-off in participation accelerates for younger seniors, aged 60 to 64, with the participation-rate gap doubling to 20 percentage points. And for those Canadians 65 and older, the gap is bigger still.

Those participation rates have risen over the past quarter century, with baby boomers more likely to continue working than the seniors that preceded them. But the pandemic slowed, and for the oldest seniors, reversed that upward trend. The latest labour force survey, released on Friday, shows participation rates for workers aged 55 and older losing ground, dropping to 36.1 per cent in June. Outside of the economic contraction in the spring of 2020, participation rates for that cohort haven’t been that low since July, 2012.

Closing that grey gap could add hundreds of thousands of veteran workers to the labour force. In a recent research note, Jean-François Perrault, Scotiabank senior vice-president and chief economist, and Robert Asselin, senior vice-president of policy at the Business Council of Canada, argue that the aging of the Canadian population is at the root of the growing labour shortage.

Mr. Perrault and Mr. Asselin point out that there would be an additional 259,000 workers in the labour force if the participation rate for Canadians aged 55 to 59 was the same as the immediately preceding age cohort of 50 to 54. Repeat that thought exercise for the three older age cohorts, and more than one million extra workers would enter the labour force. All told, they wrote, 1.4 million older workers could in theory return to the labour market, if given the right incentives.

The Scotiabank note acknowledges that it’s unrealistic to think that seniors alone are the solution to Canada’s labour crunch. But the number-crunching does illustrate that hundreds of thousands of workers could be brought back into the paid labour force.

That would not only help businesses, but could prove to be a boon to governments as well as they try to cope with the increased costs of an aging population. The increase in the number of seniors in the next decade and a half is projected to push up the ratio of Canadians aged 65 to those of working age.

Last year, there were 31 retirement-aged Canadians for every 100 people aged 20 to 64. Even under Statistics Canada’s scenario of a slow-aging population, that ratio will jump to 39:100 by the middle of the next decade. That ratio would rise faster, and keep on rising, under the fast-aging scenario, with lower fertility and immigration rates and longer life expectancies. By 2068, there would be 56 Canadians aged 65 and older for every 100 between the ages of 20 and 64 – an unsavory recipe for a combination of sharply higher taxes and much reduced retirement benefits.

Even without such a doomsday scenario coming to pass, there is still ample evidence of the growing fiscal pressure from the aging of Canada’s population, and the associated decrease in labour-force participation.

In each budget, the federal government tallies its spending on children’s benefits and what it labels “elderly benefits.” Much more is spent on elderly benefits than children’s benefits, but in recent years the gap has been narrowing, as this third chart shows.

The ratio of elderly benefits to children’s benefits fell sharply in the past decade, reflecting the federal Liberals’ creation of the Canada Child Benefit, which greatly boosted monthly payments to families with children. (Those figures do not include health care costs, which are heavily weighted toward seniors.)

But payments to older Canadians are projected to grow much more quickly in coming years, pushing that ratio back up again. In part, that is because there are simply more older Canadians. But the Liberals have also moved to increase Old Age Security payments for Canadians over 75, starting this month.

More significant was a decision the Liberals took at the start of their term to reverse the Conservative policy of gradually raising the age of eligibility for the OAS and the Guaranteed Income Supplement to 67 from 65, starting in 2023.

If that policy had not been reversed, the cost of those two programs would be lower – and seniors would have had more of an incentive to stay in the work force: “That would have made a huge fiscal difference,” said Frances Woolley, University of Carleton economics professor.

It’s too late to revisit that decision now, according to Prof. Woolley. Any such increase in the age of eligibility would need to be announced years ahead of time and phased in gradually, she said. That means it would not take full effect until the 2040s, long after the fiscal crunch from the retirement of the baby boomers had come and gone.

In any case, it would be “politically suicidal” for the Liberals to reverse their reversal, Mr. Asselin said. He and Mr. Perrault argue there are other more targeted policies that could still make a difference, including a national version of Quebec’s tax credit for working seniors. The federal Liberals promised a similar credit in last year’s election, but this spring’s budget only said the government “intends to engage with experts” on the matter.

Other possibilities they suggest include revamping the rules for OAS and GIS to allow seniors to earn more from working before facing reductions in those benefits, or even lump-sum payments to entice older Canadians to re-enter or stay in the work force.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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