MAJOR TRENDS IN THE LABOUR MARKET IN QUEBEC AND IMPLICATIONS FOR POSSIBLE SCENARIOS FOR THE FUTURE

Transcription

1 MAJOR TRENDS IN THE LABOUR MARKET IN QUEBEC AND IMPLICATIONS FOR POSSIBLE SCENARIOS FOR THE FUTURE Presented at the RRQ conference on demographic, economic and financial outlooks by Paul Fenton, Senior Vice-President and Chief Economist NOVEMBER 29, 2012

2 TABLE OF CONTENTS 00 Introduction Population Participation rate Unemployment rate Number of hours worked Hourly wages Payroll 07 Annex 2

3 INTRODUCTION Objectives Present a realistic reference scenario for payroll trends in Quebec up to In developing such a scenario, we identified and described the major trends that will influence Quebec s labour market in the coming years. This scenario reflects the major trends observed in the labour market and current government policies. Present alternative scenarios, both optimistic and pessimistic ones. 3

4 INTRODUCTION Key messages: Reference scenario Number of hours worked Despite an increase in the participation rate for all age groups and a decrease in the reasonable unemployment rate, the aging of the population will mean that growth in the number of hours worked will be low (0.06% per year on average). Nominal average salary 3% increase per year: 1% productivity (average) + 2% inflation (Bank of Canada target). Nominal payroll Average increase of approximately 3.1% per year up to Between 1997 and 2011, annual growth was 3.7%. 4

5 INTRODUCTION Key messages: Alternative scenarios OPTIMISTIC (BUT POSSIBLE) SCENARIO Assuming an unemployment rate by age group that is the lowest ever observed and a productivity rate of 1.5% per year (representing the average for a period of high productivity, i.e ), we obtain an annual growth rate of 3.6%. Nominal payroll at 2056 in the optimistic scenario is 19% higher than for the reference scenario. PESSIMISTIC (BUT POSSIBLE) SCENARIO Assuming 0.6% productivity growth annually, a rate consistent with the lowest sub-periods observed since 1980, we obtain an annual rate of growth in the nominal payroll of 2.7%. The unemployment rate is the same as in the reference scenario. The nominal payroll at 2056 in the pessimistic scenario is 14% lower than for the reference scenario. Note: The scenarios presented are based on existing government policy. Any significant policy changes could have an impact on major trends in the labour market. 5

6 INTRODUCTION Simulation of payroll trends in Quebec Illustration of methodology used Payroll Hours worked * Average hourly wages Employment * Hours worked per employee Work productivity + Inflation rate Labour force population * 1 Unemployment rate Note: Variables in black are those for which we created assumptions to simulate payroll trends. Participation rate * Population (age, sex) We present these assumptions in the next few graphics, starting with the Population variable. 6

7 SECTION 01 Population (age, sex) POPULATION A demographic deficit that is difficult to avoid 7

8 POPULATION Demographics ( ) The population aged 65 and up has risen more quickly than the working-age population (15 to 64) 4 % Annual growth to and up and under Sources: CDPQ Analyse économique et stratégies de répartition de l actif, Statistics Canada 8

9 Demographics ( ) The birth rate started decreasing again slightly two years ago Rate per Birth rate (per 1000 inhabitants) Sources: CDPQ Analyse économique et stratégies de répartition de l actif, Statistics Canada 9

10 POPULATION Demographics ( ) Significant increase in immigration rate, which is approaching that of Ontario Rate per Immigration Rate (per 1000 habitants) Ontario 10 8 Canada Quebec

11 POPULATION Demographics ( ) Main assumptions associated with ISQ projections 1. Mortality Assumed changes in mortality are based on trends ( with over-weighting for ) in the change in mortality quotients by age and sex for Quebec as a whole. 2. Fertility Total fertility rate of 1.65 (1.70 in 2010). 3. External migration: contribution of +30,000 from migration Gradual convergence in the number of international immigrants to 47,500 from Emigration of -7,500. Gradual convergence of net interprovincial migration at -10,000 as of Note: The graphics on the following pages have been prepared using ISQ projections. 11

12 POPULATION Demographics ( ) A major demographic deficit about to start % Annual Population Growth Total population Working-age -0.4 population (15 to 64)

13 POPULATION Demographics (2011 vs. 2056) 12.3% increase in 65 and over group; decrease for all other age groups 45 to à 64 years; ans; 29.4% 29.4% 65 ans et plus; 15.7% 65 years and over; 15.7% Weight of main age groups in total population ,979,663 inhabitants 0 to à 14 years; ans; 15.6% 25 à 44 ans; 26.8% 25 to 44 years; 26.8% 15 to à 24 years; ans; 12.5% +12.3% -5.7% 65 ans et plus; 28.0% 65 years and over; 28.0% 45 to à 64 years; ans; 23.7% 23.7% -1.1% 0 to à 14 years; ans; 14.5% 15 à 24 years; ans; 10.1% 9,212,825 inhabitants 25 à to 44 years; ans; 23.6% 15 to % -2.4% 13

14 SECTION 02 Hours worked Average hourly wages LABOUR FORCE PARTICIPATION RATE Increasing presence of women and persons aged 55 and over in the labour force 14

15 PARTICIPATION RATE Women are behind the increase in the participation rate in Quebec 80 % employed or looking for work Men 65 Total Women

16 PARTICIPATION RATE Participation rate for women increasing for all cohorts % employed or looking for work * Cohorts (year of birth) * * Each curve presents the labour force participation rate for each cohort of women as they age. For example, the light blue curve corresponds to the participation rate for women born around 1960 from the start of their working life (age 15-19) up to the age group they are currently part of (age 50-54), which is obviously the last for which we have data à 19 ans 20 à 24 ans 25 à 29 ans 30 à 34 ans 35 à 39 ans 40 à 44 ans 45 à 49 ans 50 à 54 ans 55 à 59 ans 60 à 64 ans 65 à 69 ans 70 ans et plus *The starting point for the curves depends on the availability of the data history. Given that Statistics Canada s database does not start until 1976, it is impossible to obtain, for example, the participation rate for age groups below 50 to 54 for a woman born in

17 PARTICIPATION RATE Illustration of methodology Projection of participation rate for women from the 1950 cohort when they are between the ages of 65 and % employed or looking for work Most recent historial data for 1950 cohort Calculation of average ratio (1950/1945) when data overlap: Cohorts (year of birth) Projection 1950 = 1945* à to ans à 39 to ans à 44 to 44 ans 45 à 4549 to ans à 54 to ans à to ans à to ans à to ans 17

18 PARTICIPATION RATE Projection of participation rate for women Changing trends for a number of age groups by cohort 100 % employed or looking for work Cohorts (year of birth) à 19 ans 20 à 24 ans 25 à 29 ans 30 à 34 ans 35 à 39 ans 40 à 44 ans 45 à 49 ans 50 à 54 ans 55 à 59 ans 60 à 64 ans 65 à 69 ans 70 ans et plus 18

19 PARTICIPATION RATE Projection of participation rate by age cohort Methodology With this approach it is possible to take into account the major differences in patterns for women in terms of their labour force participation depending on the age cohort they are a part of. For women from the 1950 and subsequent cohorts, we had to project the participation rate for some age groups since not all of the historical data is available. (For the 1950 cohort, for example, there is no data for the 65 to 69 and the 70 and over age groups). The approach involves projecting the pattern for each cohort on the basis of the increase in its participation rate in relation to the previous cohort for the age groups for which we have historical data. In other words, to establish the projection for a particular age cohort, we relied on the pattern for the previous cohort, taking differences into account when the historical data overlap, as captured by the average ratio of the participation rate between a particular cohort and the one before it when the historical data overlap. This approach is illustrated in the following slide by the projection of the participation rates for women born in 1950 when they are between 65 and 69 years of age. 19

20 PARTICIPATION RATE The participation rate for men does not really change according to age cohort 100 % employed or looking for work Cohorts (year of birth) à 19 ans 20 à 24 ans 25 à 29 ans 30 à 34 ans à 39 ans 40 à 44 ans 45 à 49 ans 50 à 54 ans 55 à 59 ans 60 à 64 ans 65 à 69 ans 70 ans et plus 20

21 ANNEX According to our assumptions, the participation rate will increase for almost all age groups Reference Scenario: Simulation of Participation Rate 100 % employed or looking for work Hommes Total Femmes 0 15 à 19 ans 20 à 24 ans 25 à 29 ans 30 à 34 ans 35 à 39 ans 40 à 44 ans 45 à 49 ans 50 à 54 ans 55 à 59 ans 60 à 64 ans 65 ans et plus 21

22 PARTICIPATION RATE Changes in participation rate in relation to profile by age and demographic scenario 80 % employed or looking for work Men * The aging of the population is more significant than the projected increase in the participation rate by age group Total Women * Assumption for men: Age 15 to 54: average of past 10 years 55 and over: average for

23 PARTICIPATION RATE The impact of the demographic crunch is five times greater than that of the increase in participation rate by age group The green curve represents our projection of the participation rate with demographics remaining constant, i.e. without taking the aging of the population into account. The light blue curve represents the demographic effect if the participation rate were to remain stable at 2011 levels. The red curve is the reference scenario, which includes an increase in the participation rate by age group and the ISQ s demographic scenario Simulation of Participation Rate % employed or looking for work Effect of participation rate Demographic weights constant at 2011 levels Demographic effect Reference scenario Participation rate stable at 2011 levels -10% +2%

24 SECTION 03 UNEMPLOYMENT RATE A few scenarios 24

25 UNEMPLOYMENT RATE Quebec s unemployment rate has decreased in recent years and has converged towards the Canadian average Unemployment Rate % Quebec Canada 6 Ontario

26 UNEMPLOYMENT RATE The unemployment rate now tends to be lower for women than for men % 15 Unemployment Rate Men Women

27 UNEMPLOYMENT RATE Future unemployment rate by age group: Reference scenario The scenario by age group has been developed using the average unemployment rate of the past five years by age group and by sex % Unemployment Rate by Age Group Because of the lack of data by sex for the 65 and over age group, in this case we are using the average for the age group as a whole Men In general, the unemployment rate decreases by age group Women 4 15 à 19 ans 20 à 24 ans 25 à 29 ans 30 à 34 ans 35 à 39 ans 40 à 44 ans 45 à 49 ans 50 à 54 ans 55 à 59 ans 60 à 64 ans 65 ans et plus 27

28 UNEMPLOYMENT RATE Future unemployment rate: Reference scenario Using the average unemployment rate of the past five years by age group and by sex and the demographic scenario, we arrive at the reference scenario for the unemployment rate % Unemployment Rate Men 8.0 Total Women

29 UNEMPLOYMENT RATE Future unemployment rate: Optimistic scenario Use of the lowest unemployment rate observed since 1990, by age group (five-year segments) and by sex. For example, for the 20 to 24 age group, we assume a future unemployment rate of 10.9% for men and 7.0% for women % Unemployment rate for 20 to 24 age group Men Women

30 UNEMPLOYMENT RATE Future unemployment rate by age group: Optimistic scenario Use of the lowest unemployment rate observed since 1990, by age group (five-year segments) and by sex % Unemployment Rate Because of the lack of data by sex for the 65 and over age group, in this case we are using the average for the age group as a whole Women Men 2 15 à 19 ans 20 à 24 ans 25 à 29 ans 30 à 34 ans 35 à 39 ans 40 à 44 ans 45 à 49 ans 50 à 54 ans 55 à 59 ans 60 à 64 ans 65 ans et plus 30

31 UNEMPLOYMENT RATE Future unemployment rate: Optimistic scenario Using the optimistic unemployment rate by age group (5-year segments) and by sex with the demographic scenario, we arrive at the optimistic scenario for the unemployment rate up to Unemployment Rate 8 Men 7 6 Total 5 Women

32 UNEMPLOYMENT RATE Close to zero employment growth anticipated in the coming years even in the optimistic scenario 4,200,000 Simulation of Employment (level) Optimistic 1.1% 4 % Simulation of Employment (annual growth) 4,000,000 3,800,000 Reference 3 3,600,000 3,400,000 3,200,000 3,000,000 Employment growth that can be attributed to the demographic effect (0.1% per year on average) 2 1 Optimistic 2,800, ,600,000 Reference 2,400, Reminder: Employment = Labour force* (1- Exchange rate) 32

33 SECTION 04 Hours worked Hours worked per employee NUMBER OF HOURS WORKED A few scenarios 33

34 HOURS WORKED Hours worked per week and per employee A downward trend over time and by age group Number of hours Hours worked per week per employee by sex Men % Hours worked per week per employee by age group Men ( average) Total Women ( average) Women

35 HOURS WORKED Hours worked per week will continue to decrease gradually because of the aging of the labour force 35.6 Hours worked Historical data Reference scenarios

36 HOURS WORKED Total hours worked will be close to stagnant X 1,000,000 7,000 6,750 6,500 6,250 Simulation of Number of Hours Worked Annually Reference Scenarios 6,000 5,750 5,500 Average annual growth ( ): 0.06% 5,250 5,000 4,750 Historical data 4,

37 SECTION 05 Average hourly wages Productivity Inflation rate HOURLY WAGES Trends strongly dependent on labour productivity and inflation 37

38 HOURS WORKED Wage patterns for men and women, setting aside level, are comparable It is therefore possible to work with the total 24 $/H Average nominal hourly wages (all industries) 20 Men Women 8 4 Difference Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 38

39 REAL HOURLY WAGES Productivity as a factor of real wages Average real hourly wages dampened by GDP deflator and productivity According to economic theory, wages are a dependent function of inflation and productivity Index 1997=100 Real wages However, the relationship is a long-term one. Although the relationship is almost perfect if Statistics Canada s data are used, in the interests of full transparency it is noted that other calculations show a less direct relationship between productivity and wages Productivity Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 39

40 REAL HOURLY WAGES Productivity: Two plans, three sub-periods Three scenarios Average ( ) Work productivity according to ISQ data Average ( ) Averages ( and ) Optimistic scenario(1.5%) Trend scenario (1.0%) Pessimistic scenario (0.6%) Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 40

41 REAL HOURLY WAGES Outlooks for average real hourly wages based on three productivity scenarios Optimistic scenario Reference scenario 32 Pessimistic scenario Wages Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 41

42 INFLATION Long-term outlooks on inflation Review of Bank of Canada s performance in meeting its target 5 4 Average inflation ( ) Total: 2.0% Core: 1.80% Total inflation Target range Core inflation Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 42

43 130 HOURLY WAGES Outlooks for nominal average hourly wages based on three productivity scenarios Optimistic scenario Reference scenario Pessimistic scenario Wages Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 43

44 Payroll SECTION 06 PAYROLL Demographic issues have a major impact on outlooks 44

45 PAYROLL Recap We have created assumptions regarding 1) Demographics ISQ scenario 2) Participation rate Approach by age cohort 3) Unemployment rate Reference scenario by age group: average of past 5 years and lowest historical rate Optimistic scenario: lowest rate historically for each age group 4) Number of hours worked By age and by sex on the basis of the demographic scenario 5) Hourly wages Function of productivity Real payroll = Number of jobs * Hours worked/employee * Real hourly wages 45

46 PAYROLL Changes in nominal payroll On the basis of productivity assumptions and an assumed inflation rate of 2% 10 9 % Simulation of Growth in Nominal Payroll Scenarios with optimistic unemployment rate and real average wage growth converging towards 1.5% + 2% inflation Historical data Scenarios with 1% growth in real average hourly wages + 2% inflation Scenarios with 0.6% growth in real average hourly wages + 2% inflation Sources: CDPQ Analyse économique et stratégies de répartition de l actif, IHS Global Insight 46

47 PAYROLL Comparison of scenarios 900 In G$ CAN Difference in Optimistic scenario 18.9% Reference scenario 13.9% Pessimistic scenario The optimistic scenario is a combination of the optimistic scenarios for unemployment rate and productivity growth. The pessimistic scenario is a combination of the reference scenario for unemployment rate and the pessimistic scenario for productivity. 47

48 PAYROLL Conclusion In light of the major trends in the labour market and existing government policies, an average nominal payroll growth of approximately 3.1% per year could be expected up to It is possible to foresee an optimistic scenario in which a lower unemployment rate raises the payroll level by 1 percent while a more rapid rate of productivity growth raises the rate of average annual payroll growth by 0.5 percent to 3.6 percent. The cumulative effect of these changes is significant. In this optimistic scenario, payroll up to 2056 is 19% higher than with the reference scenario. At the same time, it is also possible to foresee a pessimistic scenario in which slower productivity growth reduces the rate of payroll growth by 0.4 percent per year. In this pessimistic scenario, payroll up to 2056 is 14% lower than with the reference scenario. 48

49 SECTION 07 ANNEX 49

50 ANNEX Demographics ( ) The decrease in the number of workers per dependent person will continue; Between 2011 and 2030, significant change in profile for the age pyramid Number of Workers per Dependant Person pop. aged / (pop. 65 and over + pop. 14 and under) Demographic period % 95plus , , , ,000 50

51 ANNEX Labour force participation rate Lower in Quebec than for Canada as a whole Participation Rate Average Age at Retirement % 72 % 70 Ontario Canada Ontario Canada Quebec Quebec

52 ANNEX Labour force participation rate significantly higher for all age groups % to 24 % % to to % 60 % to and over

53 100 % ANNEX Education will increase the participation rate, particularly for women Participation rate in Quebec according to highest diploma/degree obtained (individuals aged 25-54) University Men 100 % Women Secondary Post-secondary 90 University Post-secondary Secondary

54 ANNEX Education: Upward trend Percentage of population aged with an advanced degree % Women 55 Men

55 ANNEX But will the graduation rate level off? Percentage of Quebec population with an advanced degree 90 % age group age group age group age group

56 ANNEX Quebec businesses are not investing enough to increase their productivity 10.0 Investments in Equipment and Machinery as a % of Nominal GDP U.S Canada Quebec Sources: Analyse économique et stratégies de répartition de l actif, IHS Global Insight, Statistics Canada, ISQ 56

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