Tombe: Population aging doesn’t have to slow us down

Good discussion and analysis of an aging population and the economy:

…The lesson for Canadian policymakers is not that we need not adapt to rapidly changing demographics. It is that slower growth is not a necessary consequence of them.

If we respond to labour scarcity by adopting new technologies, shifting the composition of economic activity, and boosting productivity, we may fully offset the drag of an aging population on growth.

That requires investment. If barriers prevent firms in Canada from investing at the levels they otherwise would, or prevent economic activity from reallocating toward more capital-intensive sectors, then we may well find that aging is a drag on growth after all. But it is not a future we are stuck with.

There is also value in ensuring that policy is not artificially increasing labour scarcity, just in case innovation doesn’t save the day. Some policies encourage people to exit the labour force. Others weaken work incentives by raising taxes to fund ever more generous elderly benefits. Considering reversing these policy choices should be a part of the conversation.

Canada’s population will age. Whether it slows our growth is a separate question, and the answer largely depends on us.

Trevor Tombe is a professor of economics at the University of Calgary, the Director of Fiscal and Economic Policy at The School.

Source: Population aging doesn’t have to slow us down