Last week the Government of Newfoundland and Labrador announced the hiring of former campaign manager Ross Reid as deputy minister of population growth. Premier Dunderdale said that “our demographic is scary” and we should pursue a population growth strategy to mitigate the effects of our aging population. Time will tell whether this is a serious initiative or simply a patronage appointment as some have alleged (here, here and here, for example). In any case, the issue is a serious one deserving of attention. So how scary are our demographics and how should we deal with the problem?
The population of the province peaked at 580,000 in 1992, the year the cod moratorium was declared. It subsequently plunged to a low of 506,000 in 2006 and is currently growing slowly at a rate of about 1,000 people per year.
This population decline was driven mostly by young adults departing for mainland Canada. The result (dramatically presented in this flash animation) is that we have shortage of people 25-40 years of age. Combined with the baby boom bulge of people aged 45-60, these demographics are likely to cause some economic disruption in the coming decades.
To give you a sense of the problem, I’ve charted working age people (20-65) as a share of population according to two population projections. The projections only went to 2036, so I extrapolated by assuming constant rates of birth, death and migration after 2031.
Working age people make up about 63% of the population today and this is projected to drop to just over 50% in 20 years. Surprisingly, the drop is more severe in the high growth scenario because this scenario assumes a higher birthrate and newborns take a long time to enter the workforce.
Babies are not the answer
One plausible strategy for dealing with our aging population is to boost the birthrate, perhaps by increasing the baby bonus. However, such a policy suffers from a several flaws.
Since people normally do not join the workforce until adulthood, any new policy to boost the birthrate probably won’t have a significant effect on the labour pool until about 2035, by which time most boomers will already have been retired for several years. To boost birthrates now would be too little, too late.
This plan also suffers from a more fundamental problem unrelated to the baby boom. Under current trends, by 2031 life-expectancy in Canada will be about 85 years. If the population were uniform in all age groups up to 85, working age people would make up 53% = (65-20)/85 of the population, which is about where the projections say we are headed. Since children take just as long to enter the workforce (20 years from age 0 to 20) as retirees spend in retirement (from age 65 to 85), increasing the birthrate will simply shift the burden from caring for the elderly to caring for children, without improving the ratio of working people to non-working people.
Furthermore, though we have so far been treating retired people and children as interchangeable, they are actually rather different economically. Retired people contribute to the economy in many ways: they volunteer with charities and community groups, they provide child care, they receive federal and private pensions that contribute to economic demand and to provincial taxes, and the wealthy ones are a source of investment capital and philanthropy. Children on the other hand are mostly useless from an economic perspective: they have few skills, they don’t work, and they have no money. They also receive many years of public education at a cost comparable to the cost of providing healthcare to seniors.
The fact of the matter is that in modern economies children are an expensive long-term investment, not a source of cheap labour. This fact explains low fertility rates in advanced countries and declining fertility rates in most developing countries (the fertility rate is the average number of children a woman will have in her lifetime).
Immigration is the key to winning the demographics game
The most feasible strategy for bending our demographic curve is to boost net immigration of young adults. This means both encouraging our young people to stay and encouraging other young people to move here. Most migration to and from Newfoundland and Labrador is inter-provincial, though international immigration is becoming an important source of population growth.
An analysis by Statistics Canada found that inter-provincial migration patterns of English speaking Canadians are largely explained by personal characteristics of migrants and the job market: migrants are mainly young people in search of good jobs. The study estimated that decreasing the unemployment rate by 1% would decrease the rate of out-migration by more than 10%. If the effect on in-migration is even half a big as this, then decreasing our unemployment rate to the Canadian average would increase our net inter-provincial migration by about 5,000 people per year, which is equal to the total number of births in NL per year. If we solve our unemployment problem, then population growth will take care of itself.
Foreign immigration has grown significantly, now netting about 1,000 people per year, and has a lot of potential for further expansion. Consider that Manitoba, which the premier mentioned as an example we could learn from, is now accepting almost 16,000 immigrants per year. Foreign immigration rates seem to be responsive to factors other than labour market conditions. From personal experience, I know that established immigrants help attract new immigrants by encouraging friends and family to join them in their new home. A 2008 Harris Centre report highlighted foreign credential recognition and work opportunities for international students as promising strategies, but also called for further study of the issue. The provincial government has an Office of Immigration and Multiculturalism that prepared a nice strategy document in 2007, but is not clear from their website what has happened since.
Dealing with the problem
I hope I’ve convinced you that to tackle our demographic challenges, we should focus on retaining and attracting young adults rather than boosting the birthrate. My impression from the premier’s scrum is that she understands the importance of immigration and this is somewhat reassuring. In contrast, recent statements by Dale Kirby of the NDP focused on measures to support couples who want to have children. I contacted Dr. Kirby about this and he referred me to a report on early childhood education. While I think there is good evidence that early childhood education is a smart investment for long-term economic development, I don’t think it makes sense as a population growth strategy. We should instead focus on expanding job opportunities for young people and on attracting and retaining skilled immigrants to make up for declining birthrates.