The economics of demography

Imagine if a new province of two million people joined Canada. Think of Iceland but with six times more people, or maybe Alaska and Montana combined. This new province would be Canada's fifth biggest.

Imagine if a new province of two million people joined Canada. Think of Iceland but with six times more people, or maybe Alaska and Montana combined.

This new province would be Canada’s fifth biggest. It would be big economic news. Politicians would announce trade missions, newscasters would read job figures breathlessly from the teleprompter, and fresh PowerPoint slides would adorn screens in corporate boardrooms.

While a new province is an outlandish idea, the fact is that around two million new people did join Canada’s economy over the last five years. But most people didn’t pay much attention since steady growth of the working population thanks to children growing up and immigration isn’t newsworthy.

However, population trends have huge effects on our economy. The news often covers economic growth data, but seldom mentions that around half of Canada’s growth since 1990 has been due to population growth. Or, more precisely, growth in the working population.

In advanced countries near what economists call the “technological frontier,” growth in productivity – defined as output per hour of work – usually hovers between one to two per cent per year. Productivity and working population growth are the major drivers of economic growth. If your working population goes up 1.5 per cent per year, and your productivity goes up by 1.5 per cent, then your overall economic growth will be a solid three per cent.

Three per cent economic growth is something we’ve come to expect. It drives strong topline growth for established businesses and tax revenues for governments. Even governments and firms with shaky management can do alright in this environment, since every year brings incremental revenue that can hide a multitude of managerial sins.

The picture is very different, however, once your working population stops growing. You might still get 1.5 per cent productivity growth, but if more people retire than enter the workforce then headline economic growth will be flat.

According to Statistics Canada data, this is exactly what appears to be happening in some parts of Canada. While our national averages are fine, they hide major variations by region. Of those two million people mentioned above, 96 per cent live in urban Canada. And population growth has been highest in B.C., Alberta and central Ontario.

In Quebec and the Atlantic provinces, 16 per cent of the population is 65 years or older. In Alberta, that figure is 11 per cent. Statistics Canada produces a telling chart of the “age pyramid” of Alberta compared to Newfoundland. Alberta has more children and people in the 20-45 age range. Newfoundland has a big bulge of 50-65 year-olds and fewer children, which means its “pyramid” is shaped more like a spinning top.

This, of course, presages growing health-care costs and a shrinking labour force.

These dry statistical facts will eventually turn into real-world drama. Flat tax revenue and growing health-care costs will squeeze budgets for education, highways and everything else. Stagnant revenue growth for businesses will put pressure on profits and jobs. Nest eggs will shrink, since most Canadians have a significant portion of their net worth tied up in houses or small businesses. Neither will be easy to sell for a good price in a low-growth future.

Meanwhile, a visit to the rapidly growing urban regions of B.C. and Alberta tells a different story. I was just in Coquitlam, which has boomed to having four times the population of the Yukon. New highways are full of new cars going from new housing developments to new malls. Everyone can think of themselves as an economic genius. House prices keep going up. Even the most obscure food stalls in the Coquitlam mall had queues. My hotel was in a bad location by the train tracks, with a mediocre restaurant and rooms with a weird smell. It was full.

We in the Yukon have witnessed in recent years the boom effect of sustained population growth. Our percentage of over-65s is even lower than Alberta’s. Yukoners aged four and under grew 14 per cent over the last five years, triple the figure in Nova Scotia.

The fast-growing regions of Canada each have a narrative to tell. Alberta has oil and gas it can produce and export profitably even if prices slip somewhat from today’s levels. Perhaps the sector won’t continue to boom as it has, but it is not going away. Greater Toronto, despite the challenges in the manufacturing sector, has a diverse range of financial services, head offices and other sectors that draw in money from the rest of the country. Vancouver has inflows of immigrant capital and, only partly jokingly, the marijuana industry.

The question for us is what the Yukon’s narrative will be. Will transfer payments continue to grow in coming decades? Will the previous years’ exploration boom lead to sustainable mining production? Or do we run some of the same risks as Atlantic Canada?

Any Yukoner who owns a house, a mall or a hotel with a weird smell will be very interested in the answer.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels.