HRSDC-IC-SSHRC Skills Research Initiative

Working Paper Series

Population Ageing and the Effective Rate of Retirement in Canada
by Maxime Fougère, Simon Harvey, Jean Mercenier and Marcel Mérette.

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Abstract

Although the population is living longer, the trend in most OECD countries is towards older workers to retire at an earlier age. If current trends persist, the negative labour supply shock generated by early retirement behaviour will intensify in the future with population ageing. To address this question in more details, this paper evaluates the potential economic cost of early retirement trends in Canada at the national and regional level in the context of population ageing. This exercise is done using a regional overlapping generations model. The paper’s key findings indicate that the long run economic costs of early retirement, in term of unused production capacity are quite large. Consequently, the benefits of working longer could be substantial. For example, the marginal effect of working one more year would generate additional economic gains equivalent to 3.5% of real per-capita GDP in the long run, while achieving and maintaining an average retirement age at 65 would provide economic benefits of about 12% of real per-capita GDP. In addition, future labour market pressures would be reduced substantially. The effective age of retirement also varies quite significantly across region. Correspondingly, achieving an effective retirement age at 65 in all provinces would generate the largest long run economic gains to the provinces where the average retirement age is the lowest.