Over the hill: Canada's demographic challenge.

Canada's population is aging. Demographic findings released by Statistics Canada project the 65 years and older population to rise from 3.92 million in 2001 to roughly 9.2 million people by 2041, or approximately one in four Canadians. The median age for the Canadian population has increased from 29 years old in 1981 to 39 in 2005. Over the same time period, the youth-dependency load, those aged 0 to 14 years of age, as a percentage of the population shrank by 5 percent. This shift in the demographic profile has serious policy implications for Canada. Canadian policymakers will have to deal with both a shrinking labor force and an increased burden on social services.

Though the ultimate causes of the increasing aging of the population are hard to pinpoint, the approximate causes of Canada's senescence are clear--a low mortality rate along with declining birth rates has produced an age distribution with fewer younger-aged cohorts and more old-aged cohorts. Improvements in medical technologies, public health, and hygiene over the last few centuries, along with a host of other factors, have led to lower overall mortality. Furthermore, a decreased need to have more children to ensure infant survival, wider availability of contraceptives, and greater female involvement in the labor force over the last 50 years are also causes for lower fertility rates. Those in prime child-bearing years such as those aged 20 to 24 have seen birth rates plummet from just over 20 percent in 1956 to around 5 percent in 2003.

Lower old-age mortality and higher life expectancy pose serious challenges to Canada's social security system and public finances. The Canadian Pension Plan (CPP), Canada's pension system, will now require reform in order to remain solvent in the future. As Canada's workforce begins to shrink and the number of social security dependents increases, CPP will be unable to cope with larger social security disbursements and fewer received payments. The dependence of senior citizens on social security in Canada makes sustainability all the more important. Roughly half of a Canadian old-age retiree's income comes from social security disbursements from CPP and from Old-Age Security payments, which provide a supplement to CPP income for retirees. For female senior citizens, 60 percent of their incomes come from CPP and Old-Age Security payments. While there have been serious considerations to begin investing pension contributions to convert the CPP into a partially funded system, this will only mitigate but not solve the problem of higher levels of payments and lower levels of revenues funding those payments. Increasing contribution amounts to social security, cutting benefits, and raising the retirement age beyond 65 may be inevitable.

Social security reform, however, is only one of the challenges an aging Canada will face. Since Canadians will live much longer after retirement and will do so on fixed incomes, creating more social programs to sustain the well-being of elderly Canadians and building infrastructure to support those programs will be a public prerogative. More retirement homes, for example, will need to be built in order to shelter senior citizens. The payment for services such as retirement housing, especially for fixed-income retirees, may need to be subsidized by the Canadian government. Canada's public health system will also have to bear the increased strain of having an older population; there will be a shift of resources away from treating less prevalent diseases to addressing circulatory system diseases and malignant neoplasms, both of which rank high in Canada's cause structure of mortality.

Ultimately, in order to sustain its population growth, Canada should consider encouraging pro-natalist policies and immigration. But immigration as a means of "importing" higher fertility may prove ineffective as a long-term solution. Statistics Canada performed a recent study based on Census data and found that immigrant women from high fertility countries converged reasonably quickly to native-born Canadian fertility rates. A more promising solution may be pro-natalist government policies. For instance, amid plunging EU birth rates, France has produced replacement level fertility rates of around 2.1 and is projected to have its population increase from 61.5 million to around 75 million by 2050. Though precise sociological causes are difficult to pin down, tax breaks, friendly housing policy, and worker protection for maternal and paternal care seem to have played a role in this sustained fertility and population trajectory. The adverse effects of an aging population may be reduced if Canada enacts similar pro-natalist policies.

Canada's demographic situation poses grave threats to its future prosperity, but as long as the government takes action, the country will continue to have a vigorous future.

senior editor

JAMES KWOK