An aging population requires a rethink of how we view the job market

The working age population is growing, and growing older

by Stephen Gordon

Paul Edmondson / Corbis

This is a paragraph from Chris Sorenson’s recent cover story on the state of the Canadian labour market:

Is it any wonder critics are poking holes in the Harper government’s claims about all the jobs created since the recession? Jim Stanford, an economist with Unifor, the new union created by the merger of the Canadian Auto Workers and the Communications, Energy and Paperworkers, recently wrote in a report that the addition of more than one million jobs since 2009 is far less impressive, when one considers that Canada’s working-age population has grown by 350,000 people per year during that time – among the fastest in the developed world. In fact, the gradual decline in Canada’s unemployment rate has more to do with declining labour-market participation: Frustrated job-seekers who give up on their searches altogether are not counted in the official statistics. A better measure of job-market performance, Stanford argued, is the overall employment rate, which looks at how many working-age Canadians actually have jobs. That figure currently sits at 61.8 per cent, barely improved from the pit of the recession and below the level it was a decade ago. Without vigorous job growth that exceeds increases in the population, things aren’t going to get any better. “No wonder it still feels like a recession in the labour market,” Stanford notes. “By this key measure, we are hardly better off than during the darkest days of the financial crisis.”

Well, no. There are no doubt some discouraged workers who have left the labour force, but there’s another, far more compelling explanation for the declining participation rate: population aging. The working age population – here I too am using the measure published in the Labour Force Survey for those 15 years old and over, and which is used to calculate employment rates – is indeed increasing by about 350,000 people a year. But here is how that population increase is distributed across different age groups:

The leading edge of the baby boom generation was born in 1947 and reached retirement age two years ago; the wave of people aging into retirement has begun in earnest and will accelerate over the next few decades. Expressing those increases in age group populations as a fraction of the increase in the total population yields some startling statistics. The 65-and-over age group accounts full more than half of the growth in the working-age population over the past three years, and the 55-and-over age group accounts for almost 90 per cent. I find these numbers so astonishing that I’m going to repeat them in bold italics:

The 65-and-over age group accounts for more than half of the growth in the working-age population over the past three years

The 55-and-over age group accounts for almost 90 per cent of the growth in the working-age population over the past three years

Not all of these workers are leaving the labour force out of frustration. In fact, the employment rates in these groups is increasing:

 

But these increases have not been strong enough to compensate for the fact that labour force participation rates drop rapidly as people approach and pass the age of 65. A better measure of the strength of the labour market is the employment rate of the ‘prime’ working-age population, namely those between 25 and 54 years of age:

 

The employment rate of the prime working-age population fell from its peak of 82.6 per cent to 80.0 per cent, and notwithstanding the disappointing data for December, it has recovered most of that loss and is now 81.4 per cent. Not yet a full recovery, but certainly much better than the ‘darkest days of the financial crisis.’

Paul Krugman noted the effects of population aging on employment rates more than a year ago, and he suggested a rough-and-ready correction by using constant weights for the age group-specific employment rates. I reproduced this exercise for Canadian data on Econowatch here, under the counterfactual scenario in which the relative size of the age groups remained constant. This graph updates the exercise, using the population weights for October 2008, the pre-recession employment peak:

 

The constant population weight measure shows a significant recovery, even as the reported measure – which assigns ever-increasing weights to older age groups – is going sideways.

Population aging is changing the labour force, and it’s also changing the way we should be looking at employment data.

[Update: The charts and the numbers have been updated from the original post to reflect the December 2013 Labour Force Survey release.]




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An aging population requires a rethink of how we view the job market

  1. There is no limit on the number of jobs.

    • More brilliant economic analysis from our resident “economist” troll.

      • Ahhh Rick passing through on his afternoon shift. Slim pickens today though Rick….sorry.

        • .

          • Slim Pickens in Dr. Strangelove (funny moments) ..go find it

          • Not the actor, the phrase…’slim pickings’

        • LOL there is no need to downvote that folks, three dots is not a comment.

      • Trolls who live in glass houses…

        • Trolls who live in glass boats……..hard aground on a lee shore.

          HAHAHAHAHAHAHA

          • Take a noggin there Cap’n Billy. You seems to be off da rails a bit i sea.

  2. It’ll be interesting to see how the difference (pensions, benefits, etc.) between public and private sector labour “markets” play out over the next 5 years.

  3. Poor Chris Sorenson … gotta teach him about quoting Jim Stanford ..
    he’s never gonna hear the end of it.

    • Be interesting to hear his come back. I think you might have to give this round to SG. But is it over? Maybe not?

    • Lucky for Sorenson he didn’t quote Suzuki.

  4. “Well, no. There are no doubt some discouraged workers who have left the
    labour force, but there’s another, far more compelling explanation for
    the declining participation rate: population aging.”

    The group left out here appears to be those under 25. What of them? The perception i’m getting from the media [and opposition parties] is that we have something of a youth unemployment crisis. Even if we factor in the usual skills disconnect, why in your scenario of a fairly robust recovery is this the case?
    In addition your demographic argument does nothing to dispel the notion or possibility that many of the new jobs being created are not in fact p/t or inferior in some way.

    • “Dubbed ‘confirmation bias’ by psychologist Peter Watson, it is as simple as it is dangerous: Once we form a belief, for any reason, good or bad, rational or bonkers, we will eagerly seek out and accept information that supports it while not bothering to look for information that does not — and if we are unavoidably confronted with information that doesn’t fit, we will be hypercritical of it, looking for any excuse to dismiss it as worthless.”

      Dan Gardner, “Future Babble”

      • I don’t suppose we’ll ever hear you say people are rational agents. I mean we’d never create a discipline that assumes, uncritically, that people are utility maximizing machines. ;)

      • Yes i know what CB is thanks.[i imagine even profs of economics have to be wary of it]
        To be clear. You find my questions hypercritical in general because i’ve made this error?
        You feel there isn’t a youth unemployment crisis – the media and opposition has it wrong?
        You object to my suggestion your demographic argument[ which i can see the evidence for] doesn’t prove that we are producing more good jobs than are being lost?
        To be clear on my part. I don’t have an agenda[ other than being a Liberal - does that count?]. I’m [in my own humble way] merely testing your work Mr G.
        http://milescorak.com/2012/01/06/facts-about-the-labour-market-the-hidden-and-missing/?relatedposts_exclude=5148
        I think we can scratch #2 then.

      • If that were true, nothing would ever change….religion, science, ideas, the world….even the strange notion that the future is babble.

        • Change occurs by coincidence, happenstance and accident, not by deliberate design, and certainly forecasting adds ZERO to the process. Gardner, Taleb and others have published some good literature on the subject. You should avail yourself to it, although you’d first have to get around your own confirmation bias. Judgeing by your comments, that won’t be easy. You may find it not worth the effort.

          • No actually it doesn’t. It may seem random to you, but most of it is quite predictable.

            You see, it’s my field.

          • Then you really do need to read Dan Gardiner’s book, and The Black Swan by Taleb, at the very least. Because they in turn ridicule, then dismiss the professional forecasters. As in ALL of the professional forecasters. And all with ample evidence. Nobody likes to be told what they do for a living is uselss. Your resistance to their message is thus understandable, though that doesn’t make it defensible.

          • That’s their problem, not mine. And no, ‘forecasting’ is not my profession.

            To say ‘nobody knows the future’ is simply to admit failure, and retreat to the back of the cave.

      • And how do economists avoid this?

      • I think kcm2 asks a good question about younger folks, which doesn’t discredit your article or to my ear have his head in the sand.
        Maybe you could do a follow up on the 18-25 group as a cohort, their status and their influence on the numbers and also how the changing workforce demographics is or is not affecting them.

        • Damn goalposts. Where did they go this time?

          • Why so defensive?

          • The goal posts start dancing around randomly when you-know-who shoes up.

    • You’re starting to sound a lot like Justin Trudeau. When confronted with evidence that contradicts your instinct is to deny it because it doesn’t “feel” right to you.

      It should be fun watching Trudeau over the next year trying to promote his idea that the middle class is in crisis, while all the evidence collected points to the middle class doing quite fine. Then again, economics is too hard for Trudeau, so he’ll probably just throw Freeland out there and let her take the heat.

      • Even by your standards that’s a pathetic attempt to slag JT.
        Go away and look up the meaning of the word empirical…you may find it in a book of some sort or other if you have access to any.

        You just don’t pay attention do you? Do you think SG is the only legit pov out there?[ i can assure you he doesn't] There have been other pov posted here @ macleans by other economists, some of whom take issue with some of SG’s work. That’s what people do who want to puzzle out riddles, even in economics. Economics is not a pure science, and even if it were there is no body out here who can claim to have all the answers or even understand all the contradictory data sets.
        Why am i wasting my time relaying any of basic 101 stuff to someone like you i ask myself?
        http://www2.macleans.ca/2013/09/26/the-battle-for-the-middle-class/
        Edumbcate yourself NotRick.

      • Thanks for introducing crass partisanship, Rick – it was what was missing from the discussion.

        • Nice to see you took the bait.

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