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

Industrial Alliance Research

Chair on the Economics of

Demographic Change

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

0

20

40

60

80

100

1976 1981 1986 1991 1996 2001 2006 2011

Pa

rtic

ipa

tio

n r

ate

(%

)

Years

Âge: 50-54 Âge: 55-59 Âge: 60-64 Âge: 65-69Age: 65-69 Age: 60-64 Age: 55-59

Source: Statistics Canada, Labour Force Survey

Age: 50-54

Change in participation rate by

age group – women

0

20

40

60

80

100

1976 1981 1986 1991 1996 2001 2006 2011

Pa

rtic

ipa

tio

n r

ate

(%

)

Years

Âge: 50-54 Âge: 55-59 Âge: 60-64 Âge: 65-69Age: 50-54 Age: 55-59

Source: Statistics Canada, Labour Force Survey

Age: 60-64 Age: 65-69

Employment rates of the 55-64

age group, 2011, OECD

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

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Hu

ng

ary

Turk

ey

Em

plo

ym

en

t ra

tes:

55

-64 a

ge

gro

up

(%

)

Source: OECD

Employment rates of the 55-64

age group in proportion to

employment rates of the

25-54 age group, 2011

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

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ge

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(Em

plo

ym

en

t ra

te o

f 2

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4 a

ge

gro

up

)

Source: OECD

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

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

Trends in reasons for retirement in retirees General Social Survey 1994-2007, 68 years and older

Men Women

Health Mandatory ret. Early ret. Technology Unemployed

Portion Portion

Work after retirement

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

Men Women

Portion of responders working after retirement General Social Survey 1994-2007

55-60 yrs 61-65 yrs +65 yrs

Portion Portion

Reasons for returning to work

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

Men Women

Trends in reasons for working after retirement General Social Survey 1994-2007

Financial Caregiver Health Job offered Don’t like ret.

Portion Portion

Starting age for RRQ pension

benefits, by cohort

0

10

20

30

40

50

60

70

80

90

100

Po

rtio

n o

f a

ge

60 p

op

ula

tio

n (

%)

Year during which cohort turned 60

70

69

67

66

65

64

63

62

61

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

0

10

20

30

40

50

60

70

80

90

100

20 25 30 35 40 45 50 55 60 65 70 75 80

Em

plo

ym

en

t ra

te (

%)

Taux d'emploi 2015 Taux d'emploi 2030 Taux d'emploi 2050Employment rate 2015 Employment rate 2030 Employment rate 2050

Age

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

0.95

0.97

0.99

1.01

1.03

1.05

1.07

1.09

1.11

1.13

2015 2020 2025 2030 2035 2040 2045 2050

Nu

mb

er

of

job

s (2

015 =

1)

Year Référence RRQ Référence SIMUL

Aucune hausse Hausse des taux d'emploi

Hausse du niveau d'éducation

RRQ Reference

No increase

Increase in education level

Increase in employment rate

SIMUL Reference

In 2050, our scenario

involves an employment

rate for the 55-64 age

group that is comparable

to Norway’s in 2015

Annual rate of growth in

employment according to

scenario

Scenario 2015-2025 2025-2035 2035-2050

Without increases

in education or employment rate

-0.17 -0.07 0.14

With increase in employment rate

-0.02 0.14 0.32

With increase in

education 0.01 0.03 0.20

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 university degree

With a university 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

0.99

1

1.01

1.02

1.03

1.04

1.05

1.06

1.07

2015 2020 2025 2030 2035 2040 2045 2050

Leve

l of

pro

du

ctivity (

2015 =

1)

Projection year

Référence SIMUL Sans amélioration éducationWithout improvement in education SIMUL reference

Rate of productivity growth

Scenario 2015-2025 2025-2035 2035-2050

SIMUL reference

0.25 0.18 0.09

No increase in

education 0.01 0.12 0.09

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

0

10,000

20,000

30,000

40,000

50,000

60,000

20 25 30 35 40 45 50 55 60 65 70 75 80 85

Ho

use

ho

ld s

pe

nd

ing

(2009 $

)

Respondent’s age

Éducation

Loisir

Santé

Transport

Vêtements

Dép. cour. & Ameublement

Logement

Nourriture

Leisure

Health

Transportation

Clothing

Household ops. and furnishings

Housing

Food

Source : Statistics Canada, 2010 Survey of Household Spending

Education

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

Projections of actual total

spending – SIMUL

1

1.05

1.1

1.15

1.2

1.25

1.3

1.35

1.4

2015 2020 2025 2030 2035 2040 2045 2050

Leve

l of

spe

nd

ing

(2015 c

on

sta

nt$

= 1

)

Projection year

Santé Logement ÉducationVêtements Dép. cour. & Ameublement NourritureTransport Loisir

Education

Food

Housing

Household ops. and furnishings

Leisure

Health

Clothes

Transportation

Rate of growth in household

spending Category 2015-2025 2025-2035 2035-2050

Health 1.17 0.91 0.56

Accommodation 0.82 0.77 0.59

Education 0.38 0.98 0.67

Clothing 0.69 0.66 0.53

Household ops. &

Furnishings 0.66 0.56 0.47

Food 0.59 0.51 0.37

Transportation 0.65 0.43 0.36

Recreation 0.51 0.45 0.35

Note : Actual spending (in constant $). Average annual growth rate

(AAGR).

Long-term outlook

for the Régime

A changing society

From a demographic and economic point of

view, two major forces:

Rise in life expectancy

Enhancement of human capital and its effects on

labour and productivity

The composition of the population will change

over the course of the coming decades

It is important to take these composition effects

into account

Indirect impacts of aging on

the Régime

In contrast with the Régime, most governmental

social programs – health, long-term care, old-

age pensions – are funded on a pay-as-you-go basis

The pressure on workers’ disposable income

could slow progress in employment and

productivity

How important is it to take these risks into

account?

Collaborators on this project

Luc Bissonnette, Jean-Yves Duclos and Steeve

Marchand (Université Laval)

David Boisclair and François Laliberté-Auger (UQAM)