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



Chart 4 Participation rates and the effect of changes in
the age composition of the Canadian population


™ Actual With participation rates of age groups fixed
at 1976 levels


Chart 5 Projected Canadian participation rate

Actual participation Projected participation rate
rate                      with age groups at 1997 levels


ing age population in the mid-1970s to about 58
per cent in 1996 in both Canada and the United
States, with most of the growth having occurred
in the 1980s.5 Since the participation rate of this
age group is higher than that of youth and of peo-
ple aged 55 and over, it plays a major role in deter-
mining the level of the aggregate participation
rate. However, the drop of about half a percentage
point in its participation rate from 1989 to 1997
accounted for less than 10 per cent of the drop in
the aggregate rate over that period.

In contrast, the youth share (ages 15-24 in Can-
ada and 16-24 in the United States) fell dramati-
cally in the 1980s as the baby boomers completed
their passage through this age group. In Canada
the share dropped from more than 26 per cent in
the 1970s to 19 per cent by the end of the 1980s
and to under 17 per cent by the mid-1990s. In
spite of being only about a third of the size of the
population aged 25-54 in 1989 and a decline of
about 2.5 percentage points in its population
weight in the 1990s, the drop in the youth partici-
pation rate in Canada after the 1990-91 recession
accounted for almost 60 per cent of the fall in the
aggregate participation rate from 1989 to 1997.6

The participation rates for the 55 and over age
group, are very low relative to younger age
groups, particularly in the case of females. The
rate of permanent departure from the labour force
picks up after age 55 and accelerates rapidly after
age 65. Currently in Canada the participation
rates for men fall from 73 per cent in the 55 to 59
age group to only 16 per cent for ages 65 to 69. A
similar pattern is observed for women, whose
participation rates are considerably lower. The
share in the population of working age of the 55
and over group has risen from 22 per cent in 1976 to
about 25 per cent in the mid-1990s. Because of their
longer life expectancy, the share of older women is
significantly higher than that of older men.

An estimation of the compositional effects can
be made by keeping the participation rates con-
stant for a base year. Chart 4 illustrates the effect
of weighting the 1976 participation rates of major
age groups by each year’s population shares.
From 1976 to 1984, the effects of compositional
changes in the labour force population on the ag-
gregate participation rate were roughly neutral,
but since then the effect has been increasingly
negative. Compositional changes are estimated to
have accounted for about one percentage point,
or about one third, of the overall decline in the ag-
gregate participation rate from 1989 to 1997.
7
Dugan and Robidoux (1999) make a similar esti-
mate for the United States and find the effect of
compositional changes was almost neutral from
1989 to 1996.8 The move of the baby boomers into
the 55-plus group in the next decade is projected
to raise the share of this age group in the popula-
tion of working age to almost 30 per cent by 2006
and its compositional effect on the aggregate par-
ticipation rate will become much larger after 2000
(Chart 5).

Canadian Business Economics

Summer 1999




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