Social and Economic Dimensions of an Aging Population


Vol. 4 No. 1

Spring 2002

SEDAP (Social and Economic Dimensions of an Aging Population) is a multidisciplinary research program studying a wide range of aging-related issues and is funded by the Social Sciences and Humanities Research Council of Canada. SEDAP is centred at McMaster University and involves researchers from that institution as well as from the University of British Columbia, Université de Montréal, Queen's and the University of Toronto.


I. SEDAP Research Papers

SEDAP Research Papers are available on the SEDAP website at no cost. Paper copies may be obtained for a nominal charge. Please contact Mrs. Gail Kalika, Department of Economics, KTH-426, McMaster University, Hamilton, Ont., Canada, L8S 4M4.

Brief descriptions follow of the most recently released papers in the SEDAP series.

SEDAP Research Paper No. 65:

The Retirement Incentive Effects of Canada's Income Security Programs

Michael Baker (Department of Economics, University of Toronto), Jonathan Gruber (Department of Economics, MIT) and Kevin Milligan (Department of Economics, University of British Columbia)

Canada's federal income security programs for seniors consist of the Canada/Quebec Pension Plans, the Old Age Security pension, and the Guaranteed Income Supplement and Allowance. In this paper, the authors attempt to estimate the labour market effects of these programs.

The authors use the Longitudinal Worker File (LWF) developed by the Business and Labour Market Analysis Division (BLMA) of Statistics Canada. It is a 10 percent random sample of Canadian workers for 1978-1996 and contains information from three administrative files. The T-4 file from the Canada Customs and Revenue Agency contains earnings data from T-4 tax forms issued annually by employers. The Record of Employment file of Human Resources Development Canada contains information issued by employers on earnings interruptions of employees. BLMA's Longitudinal Employment Analysis Program file provides information on the company size and 3-digit industry of the jobs in which the employees work.

The main difficulty with the LWF is that it begins in 1978 while to calculate entitlement to CPP/QPP benefits requires earning histories back to 1966 when those programs began. The years 1975 to 1977 are filled in by reference to T-4 earnings records for those years. Cohort-specific earnings growth rates calculated from the 1972, 1974 and 1976 census family files of the Survey of Consumer Finance (SCF) were applied to a three-year average of an individual's last valid earnings observations in the LWF sample to estimate earnings histories to 1971. For the remaining five years, earnings growth rates implied by a cross section age profile estimated from the 1972 SCF were used, discounted for inflation and productivity gains using the Industrial Composite wage for 1966-70. (This method, of course, does not predict absences from the labour market.)

Estimation is done on a sample of 550,839 observations on 110,972 males and 347,775 observations on 71,066 females. The authors find that the Canadian Income Security system has substantive effects on the retirement decisions of males and females, and that the estimated effects are larger and more robust for males. They conclude by noting that these results may potentially have important implications for Income Security policy, as reforms may affect the timing of retirement decisions.

SEDAP Research Paper No. 66:

The Economic Well-Being of Older Women Who Become Divorced or Separated in Mid and Later Life

Sharon Davies (Centre for Gerontological Studies, McMaster University) and Margaret Denton (Centre for Gerontological Studies and Department of Sociology, McMaster University)

For males and females aged 65 and over, this paper compares those who are in their first marriages with those who become divorced or separated at age 45 and older. The data set used is Statistics Canada's Survey of Labour and Income Dynamics (SLID) for the year 1994. In addition to various types of income, other variables included in the analysis are years of schooling, visible minority status, whether the dwelling is owned by a member of the household and whether income is below Statistics Canada's Low-Income Cutoff measure. Values were assigned in instances of missing data.

The analysis compared married females aged 65+, married males aged 65+, divorced/separated females aged 65+ and divorced/separated males aged 65+. Among the paper's findings are:

  • Government transfers are the largest source of individual income for all four groups.
  • Married women receive the lowest average individual income of the four groups, while divorced or separated women have the lowest family income (adjusted for number of family members).
  • 62% of divorced or separated women live below the before-tax Low- Income cutoff, compared with 27% of divorced or separated men.
  • Divorced or separated women and men are significantly less likely than married persons to live in a dwelling owned by a member of the household.
  • Divorced or separated women have significantly more years of schooling than the other three groups.

    SEDAP Research Paper No. 67:

    Alternative Pasts, Possible Futures: A "What If" Study of the Effects of Fertility on the Canadian Population and Labour Force

    Frank T. Denton, Christine H. Feaver and Byron G. Spencer (Department of Economics, McMaster University)

    In this paper, the authors explore the implications for today's Canadian population if there had been no "baby boom" or subsequent "baby bust". The authors go back to 1951 and carry out a series of "what if" simulations for different fertility scenarios, then recalculate the 2001 population accordingly. They also simulate two other population scenarios for comparative purposes, one in which there is no migration in or out of Canada, and the other in which labour force participation rates are held constant at their 1951 levels.

    The authors find that the current age structure of the Canadian population and labour force has been shaped not so much by the baby boom but rather the subsequent baby bust. Eliminating the baby boom in their experiments reduces the size of the 2001 population and labour force somewhat but leaves the age structure roughly similar to what it actually was in 2001. Eliminating the baby bust, on the other hand, greatly increases the 2001 population and labour force growth rates, leads to major shifts in the age distribution (with a median population age of 27 years compared to the actual 37) and a much higher dependency ratio, given the larger number of child dependents. Eliminating all immigration and emigration lowers the 2001 population by 28 percent and the labour force by 29 percent. Holding labour force participation rates at 1951 levels has a very large effect on the sex distribution of the labour force but very small effects on its age distribution.

    The paper concludes with a number of projections for the future population and labour force. The authors find that even under the scenario of quite substantial increases in fertility rates, the proportion of older people in the population would still rise appreciably. Moreover, dependency ratios would increase quite sharply as more child dependents were added to the numbers of elderly dependents. Increased rates of immigration would have immediate impacts on the labour force, but even a doubling of recent rates of immigration would have only a minor effect on population age distribution. The authors' interpretation of these projections is that it is hard to see how the population/labour force dependency ratio in future could ever rise to the levels it reached in the baby boom period, and that one should thus be careful not to overestimate the prospective "dependency burden" in the coming decades.

    SEDAP Research Paper No. 68:

    Baby-Boom Aging and Average Living Standards

    William Scarth and Malik Souare (Department of Economics, McMaster University)

    There is widespread concern that the aging of the baby boom generation may put strain on our public finances, and that average living standards may suffer as a result. According to conventional wisdom, when the baby boomers are old, the much smaller number of workers in the next generation will face high tax rates (and consequently lower living standards) if the pay-as-we-go public pension and public health care programs are to be maintained. But there is significant disagreement about the possible magnitude of these effects, since studies involve different assumptions and it is difficult for one researcher to perform sensitivity tests with another's complicated and extensively disaggregated model.

    The authors use a standard two-period overlapping generations framework to assess this concern. In the model, each cohort proceeds through a "young" period (when individuals work, consume, pay the taxes that support the public pension, and save) and through an "old" period (when they consume their savings and public pension benefits). The authors then examine how the initial steady state in the model is disturbed by a demographic event that is intended to simulate the existence of the baby boom by introducing a cohort that is ten percent larger than both the generations that precede and follow this group. This demographic development makes the overall dependency ratio rise by ten percent as the baby-boom cohort moves from its working period to its retirement period, and this is what is expected by demographers in North America over the next thirty years.

    The model is then subjected to several major changes in assumptions, concerning whether individuals plan ahead at all, whether they have accurate expectations over the time horizon of two generations, and whether or not the government allows a tax-free private saving plan for retirement. The authors report that all versions of the model support the prediction that there will be a fall of about two percent in the average living standards of those alive when the baby boomers are retired. Compared to what has been at stake in other major policy debates, the authors regard this predicted reduction in living standards as significant but certainly manageable. Thus they conclude that their analysis suggests that the aging population cannot be dismissed as a trivial phenomenon, but nor should it be regarded as a crisis.

    SEDAP Research Paper No. 69:

    The Invisible Retirement of Women

    Lynn McDonald (Faculty of Social Work, University of Toronto)

    The author posits that male models of retirement based on labour force participation are inappropriate to apply to women, at least before the 1960s when women's labour force participation rates increased dramatically. Historically, single women who worked in the paid labour force "retired" into unpaid labour in marriage and married women "retired" from the unpaid labour of marriage into widowhood and/or back into the paid labour force, while some women worked all their lives in the periphery of the economy.

    The author examines historically the concepts of aging and retirement for both men and women in Aboriginal, agrarian and industrial Canada. She looks at women's experiences in the workforce during the Great Depression, the Second World War, during the time of the Old Age Security Act in 1951 and at the time of the introduction of the Canada/Quebec Pension Plan in 1966.

    The author concludes that the "baby boom" women born between 1947 and 1966, whose labour force participation will span most of their adult life for the first time in history, will be the earliest cohort of women to retire en masse and their history is in the making. In earlier history, however, women's role in the advancement of retirement as an institution has been secondary.

    editor: Deb Fretz -
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    Last revised: Apr 9, 2002.