Finlayson & Peacock Op-Ed: Why B.C. labour force participation is down in an up market (Business in Vancouver)

In an environment where jobs are plentiful, many employers are struggling to fill vacancies, and wages are rising, one would expect more people to be clamouring to join the work force. This is precisely what has happened in B.C. over the past couple of years: strong employment growth helped to push the labour force participation rate higher. By the end of 2017, 65.3 percent of the province’s working-age population was employed or actively seeking work, two percentage points higher than in 2015.

But the recent bump runs counter to the longer-term trend, which has seen the labour force participation rate drift lower. In fact, participation peaked in the early 1990s, when 67 percent of British Columbians over the age of 15 were in the workforce. This peak was reached even though the unemployment rate at the time was double the current level. Jobs were harder to find then, but a bigger slice of the population was part of the labour force.

With the most vibrant job market in decades, why isn’t the combined population of workers and would-be workers expanding briskly? There has been some growth, to be sure. Just as economic theory predicts, when job opportunities multiply, more people enter (and remain in) the labour market. But with population aging, the labour force participation rate has trended lower because people are less likely to work after age 55. Fully 87 percent of British Columbians between the ages of 25 and 54 are in the work force, whereas among those over 55 the share is only 37 percent. This means that the overall labour force participation rate is destined to continue slipping as more people move into age groups with less attachment to the job market. At the same time, with lower fertility rates fewer younger people will be stepping into the work force. Population aging and lower fertility rates both put downward pressure on the 15+ labour force participation rate.

Even so, looking at five-year age cohorts shows that participation rates have trended upwards for every age group except the 15-19 cohort. For older workers, the shift has been dramatic. Over the past decade, the proportion of people aged 60 to 64 years in the work force rose by more than 10 percentage points. The share of seniors aged 65 to 69 engaged in the labour market also surged from 18 percent to 31 percent over the same period. Participation rates for other five-year cohorts have also increased, but more modestly (generally by 2-3 percentage points).

Looking ahead, older workers can be expected to have an even larger presence in the work force as the 55+ population continues to swell. The ranks of older workers will be further bolstered by other factors. One is rising educational attainment: labour force participation generally increases with years of education. The proportion of Canadians aged 55+ with a university degree soared from 9 percent to 20 percent over the past two decades.

Some research also suggests work and leisure complementarities have an effect as older men are more likely to stay in the job market if their spouses are also working. If so, recent increases in female participation have probably helped to lift labour force participation among men aged 55+. Other research indicates that older cohorts with lower levels of accumulated wealth are also more likely to stay employed. Canadians collectively have taken on a great deal of debt since 2000, a trend that extends to older cohorts. The proportion of households headed by someone aged 55 to 64 with an outstanding mortgage has crept higher over time; the same trend is evident among people over age 65.

Health status is also a consideration when individuals decide whether to stay in the work force. Life expectancy at age 55 is now roughly three years greater for both men and women than it was in the mid 1990s, providing an additional impetus for more older adults to opt for work over a life of ceaseless leisure.

At the turn of the century, just over 1 in 10 workers in B.C. was over age 55. By 2017 the proportion was more than 1 in 5. Given population aging and the likelihood that participation rates for the 55+ age group will continue to rise, employers and policy-makers need to recognize that older adults are apt to play an even more prominent role in the labour market. This calls for a recalibration of public and private sector pension plans and a commitment to establish more flexible work arrangements to accommodate the preferences of the rapidly growing cohort of workers aged 55 and over.

Jock Finlayson is the Business Council of British Columbia's executive vice president and chief policy officer; Ken Peacock is the council's chief economist and vice president.

As published by Business in Vancouver.