Industrial Alliance Research Chair on the Economics of Demographic - PowerPoint PPT Presentation

Industrial Alliance Research Chair on the Economics of Demographic Change Population Aging: Issues and Outlooks for the Régime de rentes du Québec (Québec Pension Board) Pierre-Carl Michaud Professor of economics, ESG UQAM CIRANO and RAND

Outline  Demographics difficult to forecast over the long term  Recent labour market trends  Employment projections for 2050  Major issues  Productivity  Patterns of household consumption  Long-term outlooks for the Régime

Demographics difficult to forecast over the long term

Context  The ISQ’s new projections (2014) are much more optimistic regarding the future size of the population  Despite a forecasted decline in increases in life expectancy  The 20-64 age group will decrease between 2015 and 2030 to return to the 2015 level by 2050  Without an increase in employment rates, loss of a significant driver of economic growth and RRQ contributions

Recent labour market trends

Change in participation rate by age group – men 100 80 Participation rate (%) 60 40 20 0 1976 1981 1986 1991 1996 2001 2006 2011 Years Âge: 50-54 Age: 50-54 Âge: 55-59 Age: 55-59 Âge: 60-64 Age: 60-64 Âge: 65-69 Age: 65-69 Source: Statistics Canada, Labour Force Survey

Change in participation rate by age group – women 100 80 Participation rate (%) 60 40 20 0 1976 1981 1986 1991 1996 2001 2006 2011 Years Age: 55-59 Age: 60-64 Age: 65-69 Âge: 50-54 Age: 50-54 Âge: 55-59 Âge: 60-64 Âge: 65-69 Source: Statistics Canada, Labour Force Survey

Source: OECD age group, 2011, OECD Employment rates of the 55-64 Employment rates: 55-64 age group (%) 100.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 0.0 Iceland New Zealand Sweden Norway Switzerland Japan Korea Israel Australia United States Germany Chile Denmark Canada Estonia Finland United Kingdom Netherlands OECD Quebec Mexico Ireland Portugal Czech Republic Spain Austria France Slovak Republic Greece Luxembourg Belgium Italy Poland Hungary Turkey

(Employment rate of 55-64 age group) Source: OECD 25-54 age group, 2011 employment rates of the age group in proportion to Employment rates of the 55-64 (Employment rate of 25-54 age group) 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Iceland New Zealand Sweden Korea Norway Israel Japan Chile Switzerland United States Mexico Australia Estonia Ireland Canada Denmark Germany OECD United Kingdom Finland Quebec Netherlands Spain Portugal Czech Republic Greece Turkey Slovak Republic Italy France Hungary Austria Belgium Luxembourg Poland

Factors that explain the increase in employment among older men  Supply  Changing composition of labour force in terms of education level  Changes in women’s work  Increasing life expectancy  Demand  Changing nature of work, less physically demanding  Pension plans moving from DB to DC plans

Reasons for retiring Trends in reasons for retirement in retirees General Social Survey 1994-2007, 68 years and older Men Women Portion Portion Health Mandatory ret. Early ret. Technology Unemployed Source: Lefebvre, P., P.- C. Michaud and P. Merrigan (2012). ”L’évolution récente des comportements de retraite au Canada”, in Le vieillissement démographique : de nombreux enjeux à déchiffrer , Institut de la statistique du Québec

Work after retirement Portion of responders working after retirement General Social Survey 1994-2007 Men Women Portion Portion 55-60 yrs 61-65 yrs +65 yrs Source: Lefebvre, P., P.- C. Michaud and P. Merrigan (2012). “L’évolution récente des comportements de retraite au Canada”, in Le vieillissement démographique : de nombreux enjeux à déchiffrer , Institut de la statistique du Québec

Reasons for returning to work Trends in reasons for working after retirement General Social Survey 1994-2007 Men Women Portion Portion Financial Don’t like ret. Caregiver Health Job offered Source: Lefebvre, P., P.- C. Michaud and P. Merrigan (2012). “L’évolution récente des comportements de retraite au Canada”, in Le vieillissement démographique : de nombreux enjeux à déchiffrer , Institut de la statistique du Québec

Starting age for RRQ pension benefits, by cohort 100 70 90 Portion of age 60 population (%) 69 80 67 70 66 60 65 50 64 40 63 30 62 20 61 10 60 0 Year during which cohort turned 60 Source: Régie des rentes du Québec (Québec Pension Board)

Recent labour market trends  Sustained increase in participation of men aged 55 and over  Increase in participation by women of all ages  Reasons for retiring are changing  Increasingly important phenomenon: going back to work after retiring, for a variety of reasons

Employment projections for 2050

Employment rates by age – RRQ 2012 projection 100 90 80 70 Employment rate (%) 60 50 40 30 20 10 0 20 25 30 35 40 45 50 55 60 65 70 75 80 Age Taux d'emploi 2015 Employment rate 2015 Taux d'emploi 2030 Employment rate 2030 Taux d'emploi 2050 Employment rate 2050 Source: Régie des rentes du Québec Source: Régie des rentes du Québec (Québec Pension Board)

Sensitivity of projections  Use of Chair’s SIMUL microsimulation model  Population projections at the individual level  Characteristics highly heterogeneous  Dynamic employment models (based on LISA – Canadian tax files)  Three alternative scenarios  No increase in employment or education rates  Increase in employment rates only  Increase in education level only

Alternative projections 1.13 In 2050, our scenario 1.11 Number of jobs (2015 = 1) involves an employment 1.09 rate for the 55-64 age 1.07 group that is comparable to Norway’s in 2015 1.05 1.03 1.01 0.99 0.97 0.95 2015 2020 2025 2030 2035 2040 2045 2050 Year RRQ Reference SIMUL Reference Référence RRQ Référence SIMUL Aucune hausse No increase Hausse des taux d'emploi Increase in employment rate Hausse du niveau d'éducation Increase in education level

Annual rate of growth in employment according to scenario Scenario 2015-2025 2025-2035 2035-2050 Without increases in education or -0.17 -0.07 0.14 employment rate With increase in -0.02 0.14 0.32 employment rate With increase in 0.01 0.03 0.20 education RRQ reference 0.04 0.28 0.16 SIMUL reference 0.19 0.27 0.41 Note: Average annual growth rate (AAGR). The AAGR for the 2000-2015 reference period was 0.64.

Major issues Productivity and patterns of consumption

Productivity  The increase in labour productivity in Quebec has been around 1.1% per year over the past 20 years (Centre for Productivity and Prosperity, 2014)  What impact has aging had on productivity if the latter depends on  Age?  Education level (human capital)?

Age, education and productivity  The findings from economics research are ambiguous in terms of the relationship between age and productivity:  Skirbekk (2003), Dostie (2011, Canada), Aubert and Crépon (2006, France), van Ours and Stoeldraijer (2011, Netherlands)  The relationship between education and labour productivity is quite strong  Armstrong et al . (2002): 1981-1995 ~50%, 1995-2000 ~20%  If the population is aging but has a higher level of education, what is the impact on aggregate productivity growth?

Relative productivity Without a With a university university degree degree Men < Age 35 1 1.438 Age 35-55 1.167 1.513 > Age 55 1.137 1.344 Women < Age 35 0.851 1.142 Age 35-55 0.991 1.226 > Age 55 1.034 1.309 Source: Dostie (2011). “Wages, Productivity and Aging”, De Economist 159(2)

Productivity and education – SIMUL 1.07 1.06 Level of productivity (2015 =1) 1.05 1.04 1.03 1.02 1.01 1 0.99 2015 2020 2025 2030 2035 2040 2045 2050 Projection year Référence SIMUL SIMUL reference Sans amélioration éducation Without improvement in education

Rate of productivity growth Scenario 2015-2025 2025-2035 2035-2050 SIMUL 0.25 0.18 0.09 reference No increase in 0.01 0.12 0.09 education Note : Average annual growth rate (AAGR).

Patterns of consumption  Economic activity and employment at the industry level could be significantly affected by aging:  Total household consumption decreases after a certain age  Composition of household spending varies considerably with age

Average household spending – SHS 60,000 Household spending (2009 $) 50,000 Education Éducation 40,000 Loisir Leisure Santé Health 30,000 Transport Transportation Vêtements Clothing 20,000 Dép. cour. & Ameublement Household ops. and furnishings Logement Housing 10,000 Nourriture Food 0 20 25 30 35 40 45 50 55 60 65 70 75 80 85 Respondent’s age Source : Statistics Canada, 2010 Survey of Household Spending

Projections – SIMUL and SHS  We can take average spending by age and category (Statistics Canada’s 2010 Survey of Household Spending) and then  Apply to it the population structure projected by SIMUL to  Obtain a projection of aggregate patterns of consumption for 2015-2050