Don’t Worry, Be (Demographically) Happy!

By Jim McNiven

Back in the early 1980s, when the entrance of the Boomers (b.1946-64) was reaching its peak in the Canadian economy, youth unemployment was seen as a major crisis. A whole generation, probably including yourself, was predicted to end up on the trash heap of the economy. Governments created programs to employ youths, initiated training programs to make youths ready for the job market and pressured employers to add young people to their workforces. Universities added extra years to things like teacher education, not really because this might produce better teachers, and community college work hour requirements for advancing from apprenticeships to journeymen were increased, not because higher skill levels were needed, but because these kept students out of the job markets for an extra year. A student is defined as not being unemployed—get it?

As well, governments and the media touted the joys of retirement, especially early retirement. Remember ‘Freedom 55’? With every economic slowdown in the 80s and 90s, workers were given financial settlements to go off to the golf course or the beach and live in bliss during their ‘golden years’. Only farmers and corner store owners stayed on until they died, but these were seen as eccentrics.

Eventually you and your peers found work and prospered. Now, as the first Boomers reached 65 in 2011, a different tune has been starting to play. Seventy is the new sixty: pensions weren’t meant for the young-old of today, because they live too long and cost too much. Bismarck set the first public pension age at 70 in 1889 because it looked like something was being done for the elderly, even though few German workers made it to that age. Clever politician, that Bismarck. We are told today that we need to raise our retirement age from an absurdly young 62 (partial) to 67 and maybe higher (70-75?) and get back to his example. You have to be almost dead to qualify.

You might wonder what all of  this is about. It is simple. In the 1980s we had youth unemployment and in the 2010s, we have a youth shortage, a result of 40 years of not producing enough kids. So Canada has to keep its 1980s youths in those jobs that opened up when a lot of the Boomers’ elders were forced or enticed out of the workforce. There’s no bliss hanging around the golf course anymore. It all resides in the fun and friends you have in the office. Just look at today’s stories of people who are working into their 80s. Those farmers and corner store owners had it right all along.

Around 1995, the proportion of people over 65 in the Canadian workforce hit a low and it has gradually been rising. That is why Boomerswork.ca is in business. A couple of the reasons for the rise are physical and social: people in their 50s and 60s are in better health and nobody is giving them weird looks because they want to continue working. As well, strictly by coincidence of course, pension plans are being changed and not to the advantage of the pensioner. The old defined benefit pension is being phased out in favour of the defined contribution plan. Returns on savings are so low that companies and governments are beginning to shed these old obligations in favour of workers assuming the risk for their own retirement income. Sounds like the ‘nanny state’ is backing off in favour of personal responsibility. Oh yeah. The point is that crappy pensions mean people will have to work longer now, just when the Canadian economy finds itself on the edge of a decline in its workforce numbers and needs them to keep working. The Japanese showed us the way. They have the oldest society in the world and the largest proportion of a workforce made up of 65-70 year-olds. And they have a crappy pension system to boot.

So, the youth unemployment crisis of the 1980s will be mirrored by the youth under-replacement crisis of the 2020s, or before. We will dump the remnants of the 1980s programs and incentives to get rid of World War II Vets and replace them with vigorous young people with new ideas. Then we’ll develop new programs and incentives to keep on the savvy, experienced workers who are really not all that old and who bring discipline and a 9-5 work ethic to their jobs.  Let the young people be the eccentric entrepreneurs with their artsy and electronic start-ups. Once the Boomers pass through their 18-year cycle in 2030, these younger ones can take over nd the story will change.

I know this sounds cynical—it is. But there’s a ‘bad moon rising’ if we don’t get this transition right in Canada and keep playing around with nostrums. Go back and read one of my February blogs, ‘Who’s a Boomer?’

If you want to see what a mess Canada could get itself into by papering over its similar demographic problem, spend an hour on Japan with hedge fund manager Kyle Bass. He gave a lecture recently at the University of Chicago. He got the 2007 crash right, and the commodities boom right and I wouldn’t bet against him. Consider along with him what ignoring demographics has done to create two lost decades of flat economic performance and a crushing debt in Japan.

Watch lecture here:

 http://media.chicagobooth.edu/mediasite/Viewer/?peid=f15d95d054e8442ab0cc1c60321383101d

Canada needs a more sensible discussion about this problem than we get through advertising spin and government social marketing, or we risk imitating the Japanese ‘lost decades’ and their probable result.