A sectoral and occupational analysis of population ageing in Canada using a dynamic CGE overlapping generations model

This paper quantifies the sectoral and transitional-dynamic impact of population ageing arising from the combination of two important structural changes that will affect the Canadian economy and its labour market. The first is the negative labour supply shock that will arise from slower labour force growth. The second is the change in the composition of consumption demands due to an increase in the proportion of older consumers. This situation is not unique to Canada and will apply to most industrialized countries. The analysis is done using a sectoral and occupational computable general equilibrium model with overlapping generations. The paper's key finding is that, though the negative labour supply shock will largely dominate, there will also be some significant sectoral compositional shifts due to final-demand changes. In particular, the sectoral share of health services in total GDP may increase by nearly 50%, from 4.8% of GDP in 2000 to 7% in 2050. It is also estimated that real wages may need to increase twice faster in health occupations than in the rest of the economy to prevent shortages in health services supply. In addition, finance, insurance and real estate activities will also benefit to a certain degree over the next 20 years from the restructuring of final demands. On the other hand, the combined sectoral contributions to GDP of education, construction, manufacturing, and wholesaling and retailing will fall by 3.3% of GDP between 2000 and 2050. This in turn would reduce wage pressures in processing and manufacturing occupations and in trades.