Is Ageing a Drag on Productivity Growth? A Review Article on Ageing, Health and Productivity: The Economics of Increased Life Expectancy

By Sharpe, Andrew | International Productivity Monitor, Spring 2011 | Go to article overview

Is Ageing a Drag on Productivity Growth? A Review Article on Ageing, Health and Productivity: The Economics of Increased Life Expectancy


Sharpe, Andrew, International Productivity Monitor


TWO STYLIZED FACTS DOMINATE the economic landscape. First, productivity growth in Canada has slowed down since 2000 and is well below that in the United States. Second, the population is ageing, both in the sense that the average age of the workforce is rising and that an increasing share of the population is 55 and over. Many observers see these trends as a threat to the future standard of living of Canadians. They also see the trends re-enforcing one another, as it is believed that older workers are less productive than younger workers so their growing share of the workforce will be a drag on productivity growth. In the past, more heat than light has been shed on this issue. What has been missing in the literature is a rigorous empirically-based analysis of the ageing-productivity nexus. The volume under review fills this hole or gap.

The book Ageing, Health, and Productivity: The Economics of Increased life Expectancy, published in 2010 by Oxford University Press and edited by Pietro Garibaldi from the University of Torino, Joaquim Oliveira Martins from the OECD, and Jan van Ours from Tilburg University, contains two reports prepared by two teams of researchers for the Italian Rodolfo DeBenedetti Foundation. The first report on health expenditures, longevity and growth, examines such issues as the relative importance of ageing and technological progress for the growth in health expenditures, whether health is a luxury good, and the impact of health on productivity and growth. The second report on age and productivity discusses the topics of age and absenteeism, age and working capacity and presents an empirical analysis of the relationship between age and productivity. It is this second report that is the focus of this review article. (2)

The objective of this review article is to address the evidence of the effect of ageing on productivity and to set this issue in the wider context of weak productivity growth and the ageing and increased life expectancy of the population. This review article contains three parts. The first section sets the context for the discussion by presenting basic information or data on productivity, aging and longevity trends in Canada. The second section provides a synthesis of the volume's key findings, which are largely based on European experience. The third and final section discusses the implications of the findings for Canada.

The Context

An understanding of the basic statistical reality should be the starting point of any analysis. This section presents a brief overview of trends in productivity, and aging in Canada.

The most relevant measure of the aggregate labour productivity performance of the Canadian economy is trends in business sector output per hour. (3) According to official estimates released by Statistics Canada, output per hour in the Canadian business sector grew at the meagre average annual rate of 0.7 per cent from 2000 to 2010, less than one half the rate of advance of 1.6 per cent experienced in the 1973-2000 period (Chart 1). (4) Even more disconcerting, labour productivity growth picked up in the United States since 2000 and grew at a 2.6 per cent average annual rate, more than triple that of Canada. This growth differential has resulted in Canada's relative level of output per hour falling from 84 per cent of the U.S. level in 2000 to 70 per cent in 2010. Canada definitely has a productivity problem.

[GRAPHIC 2 OMITTED]

The very large baby boom cohorts born between 1947 and 1966 have driven, and will continue to drive, the age composition of the Canadian population throughout their life course. When the baby boom generation entered the labour market in the 1960s, 1970s, and 1980s the average age of the employed persons or the workforce fell to a low of 35.4 years in 1980 (Chart 2). Given the much smaller size of the post-baby boom cohorts and the aging of the baby boomers, the average age of the workforce has progressively grown since 1980 and by 2010 had reached 40. …

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