Canada's aging population could spur growth with policy change: report

An aging population doesn’t have to lead to lower productivity and slower economic growth in Canada if governments change polices to encourage more innovation and competition across various sectors, says a new report.

The Fraser Institute document, written by former Statistics Canada chief economic analyst Philip Cross, calls for the removal of regulatory hurdles that inhibit growth, citing new technologies such as ride-share service Uber as one example.

Cross also suggests governments open up sectors such as telecommunications and finance, and says governments should encourage unemployed people to move to jurisdictions with less people are out of work.

“Canada’s population is getting older, and there’s nothing we can do about that, but the right government policies will help spur economic growth despite our millions of aging baby boomers,” said Cross in releasing the report titled, Is Slow Growth the New Normal for Canada?

He challenges previous reports that suggest Canada is headed for a prolonged period of slow growth in part because of the aging population.

“Average growth rates will be slower; get used to it,” said a Bank of Montreal report released last year titled, Destiny Dictated by Demography?

BMO forecast muted economic growth of between 1.5 and 2 per cent until the end of the decade. Its economists also noted that Canadian real GDP growth has been slowing from about 6 per cent in the 1960s to 4 per cent in the 70s, 3 per cent in the 80s, and 2.5 per cent in the 90s.

“[It is] to the point where 2 per cent is now seen as nearly normal,” the BMO report said.

A CD Howe Institute report released last summer suggests policymakers should learn to live with this “slow-growth recovery” by focusing more on unemployment and less on monetary and fiscal measures.

The report, written by McGill University economist Christopher Ragan, recommended a temporary unemployment program that sees recipients repay the amount after a few years, more labour mobility across regions and sectors, and more training for people laid off in one industry to get a job in another.

"Policy makers need to emphasize the importance of addressing these challenges that have faced Canada since the onset of the global financial crisis, and will continue to face over the next few years," the Ragan report said.

The new Fraser Institute report refutes arguments that an overhang from the last recession and an aging population are weighing on growth across the western world.

“Some argue that governments have exhausted their ability to stimulate the economy; others cite the uncertainty created by the unprecedented monetary and fiscal stimulus in the United States in response to the financial crisis and recession as a major drag on the recovery itself,” Cross writes.

His argument is that slow growth soon after a major recession isn’t unusual, and doesn’t mean it will continue.

“There is reason to believe that pessimism about growth will prove to be an over-reaction to the current environment, just as happened in the 1930s and 1970s,” Cross writes. “These past periods of prolonged slow growth ended when governments adopted better and more predictable policies.”

When looking at Canada alone, Cross says sluggish post-recession growth isn’t unusual when compared with the previous two decades.

He points to the low 5.8-per-cent adult unemployment rate and Canada’s strong ties to the faster-growing U.S. economy, which he says should help it overcome the recent slump in commodity prices.

“A further boost to growth would come from a better policy framework, especially in central Canada where provincial government debt continues to increase. More policy stimulus is not needed in North America at this time; more predictable policies would serve better,” Cross writes.

“Canada’s aging population, combined with the lingering effects of the ’08 recession, has made some economic analysts unduly pessimistic about economic growth. But pro-growth policies work in any economic environment.”

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