Ageing Population and Immigration in Canada: An Analysis with a Regional CGE Overlapping Generations Model *

By Fougere, Maxime; Merette, Marcel et al. | Canadian Journal of Regional Science, Summer 2004 | Go to article overview

Ageing Population and Immigration in Canada: An Analysis with a Regional CGE Overlapping Generations Model *


Fougere, Maxime, Merette, Marcel, Harvey, Simon, Poitras, Francois, Canadian Journal of Regional Science


Abstract

This paper uses both a demographic model and a regional overlapping generations model calibrated on Canadian data to evaluate the potential economic-welfare and intergenerational equity implications of increasing the number of immigrants on national and regional labour markets, real per-capita income and wages. The simulations are performed according to alternative scenarios of regional residential location decision of immigrants in Canada. Among the key findings, the simulations indicate that increasing the number of immigrants to achievable targets may ease to a certain extent the anticipated decline in national savings and real per-capita income in the long run and partly accommodate future young generations. However, these benefits will take several decades to materialize. They also suggest that immigrant's regional location decisions may have important consequences on regional labour markets and regional income disparity in the future.

Introduction

The population in Canada and other industrialised countries is ageing and consequently the ratio of elderly to the working-age population (ratio of 65+ to the 15-64 population) is expected to increase dramatically over the next several decades. (1) The trend in retirement decision also indicates that older Canadian workers retire earlier than in previous decades. (2) A direct consequence of ageing population is that the transition of the baby-boom generation from work to retirement is expected to lead to job opportunities in all major occupational groups. In particular, some occupations/sectors where workers are generally older or tend to retire earlier may be more affected (e.g. Social Science, Health and Primary Industries). (3) This in turn could result in a relative scarcity of workers and the trend towards early retirement could intensify the situation.

According to the conventional view, the transition of baby-boomers from work-to-retirement could also potentially have important perverse socio-economic effects in the future, such as a decline in national savings and in real per-capita income. (4) It could also put increased pressures on the cost of public pensions and health care, and have negative intergenerational equity implications. However, the relative scarcity of workers is likely to result in increases in real wages, which would provide some compensating effects to workers.

A wide range of policies can be considered to help accommodate some of the consequences of ageing. In this respect, the Canadian government has already taken steps forward by reforming the Canada and Quebec Pension Plans (CPP/ QPP) and by adopting a strategy of gradual reduction in the ratio of public debt-to-GDP. Another key policy instrument is Canada's immigration, which reflects a range of socio-economic objectives including economic growth, family reunification and humanitarian objectives. In this respect, in comparison to other industrialised countries, Canada has one of the highest inflows of immigrants relative to its population. In fact, without the contribution of immigration, both the population and the labour force would eventually decline in the future.

Since the annual flow and the skill composition of new immigrants to Canada is an important factor of labour force growth, there is no doubt that current immigration trends contribute to enhancing the balance between the working-age population and retired people. It is, however, more difficult to quantify the economic-welfare gains associated with immigration and to evaluate the additional gain that would be associated with an increase in the number of new immigrants.

Another important factor to consider when we look at migration flows is the residential location decision of new immigrants, given the potential implications on regional disparity. In fact, according to the stylised facts, recent trends in new immigrant's residential location indicate that a large proportion of them choose to live in central Canada (province of Ontario) in much greater proportions than the province's share of the Canadian population. …

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