Structural Influences on Participation Rates: A Canada-U.S. Comparison

TABLE 1 The American and Canadian labour market
Per cent change

Demographic Effects

Since 1976, the population of working age has
grown at a faster pace in Canada than in the
United States primarily because of our higher rate
of immigration (Table 1). Until 1989, however, the
labour force (and employment) grew faster in
both countries because of an increase in the par-
ticipation rates. In the 1990s population growth
accelerated in Canada, exceeding the increase in
the labour force, which had slowed markedly but
less than employment. By contrast, population
growth decelerated in the United States and even
though labour force growth also slowed it contin-
ued to outstrip population growth. Even if em-
ployment and the labour force had posted the
same increase as they had in the United States, the
participation rate would still have fallen by about
one percentage point, assuming the population
growth remained as it was.

In order to have matched the performance of
the U.S. participation rate for 1989 to 1997, Can-
ada’s labour force would have had to increase by
almost 14 per cent, implying a similar growth in
employment, assuming the previous relationship
between the labour force and employment
growth was maintained. While, faster population
growth can be expected to give rise to faster eco-
nomic growth and, therefore, higher employment
and participation rates, the acceleration in the rate
of new entrants to the labour market may have
been more than the economy could immediately
absorb, in an era of record downsizing in both the
private and public sector.

Compositional Effects

At any point in time, the aggregate participa-
tion rate, which is a ratio of the labour force to the
population of working age, is the current
weighted average of the widely varying participa-
tion rates of the different age/sex groups. Each of
these groups may be subject to different sociologi-
cal and economic influences, which may change
over time. For example, the decisions of college
students to work may be influenced by the avail-
ability of grants, loans and subsidies to education.
Many older people’s decisions about permanent
withdrawal from the labour market may be af-
fected by the existence of public or private pen-
sion plans. The ages for peak participation in the
labour force are 25 to 44 years (a rate of more than
80 per cent since the beginning of the 1980s).
Rates for the 20-24 age group were fairly similar
until 1989. Teenagers’ rates are considerably
lower than any of the groups aged 20-54. Rates
drop dramatically after age 54 but particularly af-
ter 64, when they are less than 10 per cent.

Because there have been major swings in birth
rates since the 1920s, the population shares of
these various age groups have changed signifi-
cantly since 1976. Such changes have the poten-
tial to affect the aggregate participation rate even
if the specific age group participation rates were to
remain unchanged. The major development has
been the replacement of the aging baby boomers
(those born from 1946 to 1965) by the baby bust
generation over the past two decades. The first
baby boomers passed age 44 in 1991 and were re-
placed in the 25-44 age group by the first of the
baby bust generation (those born after 1965). But
other cohorts are also having an impact. For ex-
ample, people born in the low birth rate Depres-
sion years entered the 65 and over group in 1995.
It is the combination of the shifts in movements of
relatively small age groups that may have an ef-
fect on the aggregate participation rate but for
simplicity we focus here on three broad groups.

The core group, which is aged 25 to 54, rose
from about 50 per cent to 51 per cent of the work-

Canadian Business Economics

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