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Thought Leadership

2010


"'New workplace order' looms as boomers head to retirement"

This article was published in The Toronto Star on March 9, 2010.
Written by Don Drummond.

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The Canadian workforce is the most culturally diverse and dynamic in the world. There is much to be gained by utilizing everyone to their full potential, but the blinding speed with which the workplace is changing requires flexibility on the part of employers.

The looming retirement of the baby boomer generation is a key development. With more than a third of the entire labour force preparing to retire over the next two decades or so, this represents one of the most significant shifts in the workplace seen in the last half-century. Employers will be faced with labour force growth that will slow to a crawl and they will need to find new and innovative ways of utilizing Canada's current labour pool.

To that end, immigrants, aboriginals, women and older workers must be utilized more efficiently as these groups form an extremely large, yet under-represented portion of the workforce.

Unfortunately, each group faces its own unique hurdles. Immigrants, for example, face significant difficulties with respect to language and credential recognition, while aboriginals must deal with achieving higher levels of education in the face of crippling social and cultural stereotypes. Women have not been able to close the earnings gap relative to men or penetrate the top corporate ranks within the organizational structure, while older workers are finding it difficult to secure the work arrangements that will help them transition into retirement.

In addition, higher education is an absolute necessity to fill the skill needs of future jobs, but access barriers to post-secondary institutions continue to prevent young Canadians in the lower-income brackets from pursuing it. Education has already come to define the great dividing line between those with wealth and affluence in society from those without. Programs designed to alleviate these access barriers are mostly being utilized by wealthier families. Also, they are unable to distinguish those who face legitimate financial difficulties from those who do not.

This speaks to inefficiencies in the system. For instance, the amount of government transfers per student going toward those in the lowest income quartile is only $925 more than those going to students in the highest income quartile.

Most alarming is the fact that, on average, students in the highest income quartile are receiving more universal subsidies, which include tax credits and other transfers that do not distinguish between economic status. And they also receive almost half the funding given based on financial needs, including grants, bursaries, and student loans, of those in the lowest income quartile receive.

Over the past quarter-century, the gap between the rich and poor has been growing steadily. Real, before-tax earnings have only been growing for the wealthiest Canadians, while those of the middle-income and lower-income brackets have either stayed stagnant or have outright declined.

This has resulted in working-aged adults becoming the biggest at-risk population of falling into poverty. Transfer programs such as Old Age Security and the Canada Child Tax Benefit have been fairly effective at combatting poverty among seniors and children, but the two programs designed to help working-aged adults through transitions in employment, the employment insurance (EI) program and the provincial welfare programs, are fraught with problems.

The EI program has very high eligibility requirements and, as a result, a low coverage rate relative to those who are unemployed, while the welfare programs create significant disincentives to pursue paid employment. The disincentives can be so great that the gain in employment income may be outweighed by the loss of benefits, such as subsidized housing and medical care.

In addition, the strict asset limits imposed on those receiving benefits prevents them from building any kind of buffer against fluctuations in employment and earned income, which mounts additional difficulty on those who wish to exit welfare. Singles no longer qualify for welfare in Ontario if they have more than $580 in liquid assets. Thus, welfare programs are an airtight box: it's extremely difficult to get in, and for those already in, even harder to get out.

Lastly, the nature of employment in Canada today is significantly different from that of the past. Traditional industries like manufacturing are giving way to services-based sectors, and full-time, well-paid jobs with benefits and a pension are being replaced by temporary and contract jobs with no benefits. Employer pension plan coverage is declining rapidly and so the burden of saving for retirement has fallen increasingly on the individual. Simultaneously, many Canadians are not saving for themselves and this is threatening the income security of future generations of retirees.

Employers must come to terms with this "new workplace order." Ignoring the trends now could lead to significant consequences in the near future.

Consider the changes in labour supply, and the need for Canadian firms to do a better job at utilizing the skills of Canada's under-represented workers.

This will require a more inclusive work environment that addresses the unique issues faced by these groups. Language training for immigrants and extensive on-the-job training for people drawn from non-traditional labour pools will be crucial. Stereotypes regarding the career paths for females need to be broken down and the educational gap between the genders closed. More flexibility in terms of work arrangements, such as increased part-time or contract employment, will provide the proper incentives for older workers to remain in the labour force.

The challenges, however, should not obscure the opportunities at hand. Our nation has much to gain if we recognize and adapt to the trends that shape the "new workplace order." Moving forward, this must be a business imperative.

 

Executive Headshot :  Don Drummond
Don Drummond
Former Senior Vice President and Chief Economist
TD Bank Financial Group

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