HRPD Committee Report
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- I. A LABOUR MARKET PROFILE OF OLDER WORKERS
- II. BARRIERS TO ADJUSTMENT AND SUPPORT MEASURES to facilitate adjustment
- A. High Wage Expectations and Prolonged Job Search
- B. Barriers to Training
- C. Bridging the Gap Between Permanent Displacement and Retirement
- D. Immobility
- E. Age
- F. Employment Benefits and Support Measures
- G. Phased-in Retirement
- H. Pre-emptive Measures
- CONCLUSION
INTRODUCTION
Over the next twenty years, Canada faces the prospect of a rapidly aging workforce confronting the challenges of a labour market that demands newer and more modern skills. The heightened demand for modern technical skills in today's workplace has created a growing crisis for displaced low-skilled older workers, especially those residing in parts of the country where opportunities for re-employment are very limited.
Very often, Canadians remain in seemingly secure jobs for decades, only to discover that their jobs have been made redundant, their skills rendered obsolete, and their prospects for the future dependent on emergency retraining measures in the midst of personal financial crises. There is rarely any preparation for the career crisis that awaits older workers in rapidly changing industries. There is little or no training offered to workers beyond the confines of their current job category, and even less counselling to prepare for the inevitable changes to come.
Assistance is provided only when older workers are struck with the prospect of long-term unemployment. While many have the requisite educational background to pursue retraining, many regard such an investment as uneconomic, because of their pressing need to be re-employed or their short time in the labour force until retirement. Strong family and community attachments limit the mobility of older workers, presenting yet another obstacle to their re-employment, and limiting retraining options.
These age-related barriers underlie the current, and seemingly growing, structural unemployment problems facing older workers. In the last 20 years, relative unemployment among these workers has worsened and we seem to have fewer measures today to deal with the current plight of many displaced older workers. Furthermore, the effectiveness of current labour market measures designed to address these problems is largely unknown as many provinces and territories are still making the transition to greater autonomy in the design and delivery of Employment Benefits and Support Measures. In view of these issues and the prospect of a much older worker force just years away, the Committee decided that it was time to examine this very important issue. The timeliness of this study was also enhanced by the fact that 1999 was declared by the United Nations General Assembly as the International Year of Older Persons. In addition, the Forum of Labour Market Ministers is also studying the problems of older workers and, in this context, the Minister of Human Resources Development Canada asked the Committee to provide some guidance on a number of problems specific to older workers. Specifically, the Committee was asked to consider the following questions:
- How deep and widespread are the difficulties confronting older workers?
- What are the most appropriate measures for the Government of Canada to use to address constructively the problems of older workers in finding new jobs?
- How might the Government of Canada best ensure that its measures harmonize with and complement provincial/territorial programs and actions by non-governmental organizations?
- Is mobility a realistic option for older unemployed workers?
- Should there be one generic program for older workers or a menu of smaller scale programs? If the latter, what types of measures should be available?
As the Committee commenced its study on older workers in the latter part of April 1999, it was not possible to complete its work before the summer parliamentary break. Thus, what follows is an interim report that outlines a number of issues and policy areas that will require more study in the days to come. Our interim report consists of two sections. The first section provides a profile of older workers in today's labour market, while the second section outlines some of the unique barriers facing unemployed older workers. This section also discusses a number of policy issues and potential solutions for improving labour market adjustment among older workers. The Committee intends to continue studying these issues when Parliament reconvenes in the fall.
I. A LABOUR MARKET PROFILE OF OLDER WORKERS
Over the past two decades, structural changes (e.g. globalization and technological change) have challenged the adjustment capacity of the Canadian labour market. The impact of these structural changes has been widespread, as witnessed by the increase in unemployment among workers of all ages. Of specific interest here, is the relative deterioration in the labour market position of older workers, defined as individuals 55 years of age and over.11
Probably the most dramatic labour force trend among older workers during this period has been the steady decline in labour force participation, a trend that is also manifest in the steady decline in this group's employment rate and the marked drop in the average age of retirement. Between 1976 and 1998, the participation rate of individuals 55 years of age and over dropped 23%, compared to a 6% increase in the rate for all ages. Chart 1 illustrates that the decline in labour force participation among older workers is primarily confined to those 60 years of age and older. In just over two decades, the participation rate of workers aged 60 to 64 declined 23%, and that of workers aged 65 and over by 32%. Although not illustrated in Chart 1, older workers with the least amount of education, especially men, have been major contributors to the decline in labour force participation during this period.
CHART 1 - Age-Related Participation Rates
Not surprisingly, the downward trend in older workers' employment rates mirrors their falling participation rates. The proportion of the population 55 years of age and over with a job declined from 30.5% in 1976 to 22.9% in 1998. The employment rate among workers 60 years of age and over registered the largest decline during this period. In addition to the major drop in the proportion of employed older workers, significant changes have also occurred with respect to the jobs of employed older workers, especially in terms of part-time work and self-employment. Among adult workers, the incidence of part-time employment increases with age; this relationship has strengthened in the last two decades as a result of the rapid growth in part-time employment among workers 55 years of age and over (see Chart 2). Between 1976 and 1998, the proportion of employed older workers in part-time employment increased by more than 70%, roughly 1.4 times that found for all ages. Female workers across the labour force have a significantly higher incidence of part-time employment than men, and this remains true for older workers. Most older part-time workers have chosen this type of employment; in 1998, only 16% of older workers were classified as involuntary part-time workers (i.e. could not find a full-time job or full-time hours were not available because of business conditions).22 This suggests that many older workers are using part-time employment as a bridge between full-time work and retirement.
CHART 2 - Part-time and Self-employment Rates for Older
Workers
Chart 2 also illustrates the rapid growth in the incidence of self-employment among older workers. Even though such employment is typically higher among older workers than in other age groups, the rate of growth in the number of older self-employed workers has accelerated since the beginning of this decade. Today, approximately 40% of all male workers 55 years of age and over are self-employed, as are 25% of older female workers. Recent growth in the incidence of self-employment among older workers may reflect a tendency to start a business after accepting an early retirement. Moreover, older self-employed workers tend to stay in the labour market longer than their paid counterparts.
Until recently, older workers typically faced a lower risk of layoff than did younger workers. According to data presented to the Committee, in the late 1970s about 5% of workers between the ages of 55 to 64 experienced a permanent layoff, the lowest proportion of any age group. By the mid-1990s, the risk of a permanent layoff among older workers was two percentage points higher. It is now above the risk for workers aged 35 to 44 and 45 to 54 and is higher among older men than older women. It is also higher among older workers with the least amount of education and those residing in Eastern Canada. When unemployment does occur, older workers experience longer spells of joblessness than those in any other age group. This is illustrated in Chart 3, which provides two measures of the relative increase in unemployment duration among older workers between 1976 and 1998. One measure depicts the ratio of the average spell of unemployment (in weeks) of older workers to that of all ages, while the other captures older workers' share of long-term unemployment (i.e. a spell of unemployment lasting 53 weeks or more). According to these data, between 1976 and 1998 the average spell of unemployment among older workers increased by 67% and that of all ages increased by 47%. During the same period, older workers' share of long-term unemployment increased by 25%. In 1998, the incidence of long-term unemployment among older workers was twice that in the labour market as a whole. Structural factors appear to play a larger role in influencing older workers' transitions from unemployment to employment than they do for other age groups.
CHART 3 - Relative Unemployment Duration among Older Workers
While the Committee was reminded that older workers continue to experience lower rates of unemployment than do their younger counterparts, it is important to note that the relative labour market position of older workers has markedly deteriorated over the last two decades. This trend is even more remarkable in view of the extent to which members of this group have withdrawn from the labour force. The unemployment rate of individuals 55 years of age and over, expressed as a ratio of the national unemployment rate, increased by 41%, from 0.54 in 1976 to 0.76 in 1998.33 Within this age group, the relative unemployment rate of workers aged 55 to 59 increased by 50%, that of those aged 60 to 64 by 30% and that of those aged 65 to 69 by 22%. As indicated by the data presented in Chart 4, these relative changes in older workers' unemployment rates between 1976 and 1998 also varied from province to province. British Columbia is the only province where relative unemployment among older workers fell during this period, while it rose most markedly in Quebec, Nova Scotia, New Brunswick and Newfoundland.
CHART 4 - Changes in Ratio of the Unemployment Rate of
Older
Workers to the Rate of All Ages, 1976-98
Given the decline in labour force participation by older workers during the last two decades, it is not surprising that the average age of retirement also went down in this period. Chart 5 shows the average age of retirement declining steadily from 65 in 1976 to 61.5 in 1996 (the latest year for which data are available). In the same period, the average age of retirement among men declined from 65.4 to 62. A slightly larger decline was witnessed among older women, dropping from 64.5 in 1976 to 60.7 in 1996. According to data collected in the 1991 Statistics Canada Survey on Aging and Independence, in that year 60% of men and 70% of women retired before the age of 65, while it was estimated that 27% of male retirees and 38% of female retirees left the labour force before the age of 60.44 Unlike the cluster of retirements at or around the age of 65 some 25 years ago, the age distribution of retirement today is considerably wider.
CHART 5 - Average Age of Retirement
Although a number of factors have contributed to the trend in early retirement, witnesses appearing before the Committee identified two that are key. The first pertains to the difficulties experienced by many displaced older workers as they try to become reemployed. Once laid off, some older workers immediately withdraw from the labour force, while others choose this option only following a lengthy period of unsuccessful job search. In this latter case, older workers are essentially pushed into retirement. Changes to Canada's retirement income system - both public and private - constitute the other major contributor to the early retirement trend. Growth in the incidence of, and level of support provided by, pension plans in the past 30 years have given many older workers the opportunity to withdraw from the workplace before reaching the age of 65. Although since the mid-1980s personal choice has been given as a leading reason for retirement, the Committee is aware that some retirees may prefer to report this as a reason for their retirement when, in reality, other factors were involved. Chart 6 provides a breakdown of the reasons for retirement during the periods 1983 to 1988 and 1989 to 1994. For many older workers, involuntary retirement can be triggered by poor health, mandatory retirement, unemployment or a golden handshake; Chart 6 shows that these reasons accounted for some 57% of retirement activity between 1989 to 1994, and an almost identical percentage between 1983 to 1988. The Committee was also reminded that retirement is not a permanent state, as some retirees subsequently return to the labour force. According to Statistics Canada, in the 1990s about 13% of older workers returned to the workforce following retirement, a percentage unchanged from the 1980s.
CHART 6 - Reasons Given for Retirement
The labour market prospects facing tomorrow's older workers are uncertain and will depend not only on conditions prevailing on the demand-side of the labour market, but also on the size and skill composition of these older workers. We do know that the labour force is aging and that this process will become more rapid as the baby boom ages. The Committee was told that today individuals aged 55 to 64 account for 13% of the working age population; in just 15 years this will rise to about 20%. In other terms, the ratio of 15 to 24 year olds to 55 to 64 year olds is expected to drop from 164% in the early 1990s to 88% by 2015.55 This trend is somewhat worrisome given that older workers are predisposed to age-related adjustment problems. The Committee was told, however, that tomorrow's older workers will be more highly educated than today's and that this alone could help them adjust more rapidly to unemployment than older workers are doing today. While this may be true, we also know that workers' skills depreciate over time and that many older workers find investing in training to be uneconomic. We also know that older workers, because of their high wage expectations, tend to have prolonged periods of job search and that, moreover, they are relatively immobile. All of these factors may contribute to unemployment problems among older workers in the years to come. And, despite the prospect of higher educational qualifications among older workers of the future, their labour market problems could intensify in concert with labour force aging.
The aging population, combined with the growing trend toward early retirement, also presents fiscal implications. On the expenditure side, come increased social security costs and potentially higher labour market adjustment costs. The prospect of higher unemployment among older workers and an increase in the size of the non-active population both point to lower government revenues. Thus, future policies may need to be reoriented so as to provide stronger incentives for older workers to remain in the labour force longer. And, given what appears to be a significant level of involuntary retirement, older people may welcome the opportunity to extend their working lives.
II. BARRIERS TO ADJUSTMENT AND SUPPORT MEASURES to facilitate adjustment
Although the risk of layoff among older workers is low, as noted in the previous section, the risk of permanent displacement has increased in the past two decades, especially for those with the least amount of education. And once these workers are displaced, their ensuing period of unemployment is typically much longer than that of any other age group in the labour force. This is largely because unique age-related factors serve to impede the transition from unemployment to employment. Our witnesses identified several unique adjustment barriers facing older workers and measures for dealing with them.
A. High Wage Expectations and Prolonged Job Search
Older workers are paid higher wages than younger workers, primarily in reflection of the productive value of many years of work experience. When older workers are laid off they generally look for jobs that offer similar wages to those when they were employed. In many instances, however, the skills of displaced older workers are not valued as highly in alternative employment, which does not offer comparable job opportunities. As the time spent looking for a new job increases, unemployed older workers gradually begin to realize that they must lower their wage expectations in order to become reemployed. These extended periods of fruitless job search undoubtedly contribute to the relatively long spells of unemployment experienced by this age group, as evidenced by the graphic illustrations presented in Chart 3.
Provided a job offer is accepted quickly, the high wage expectations of older workers can be offset through temporary payments designed to supplement their earnings in lower paying employment. This mechanism would be paid for by the reduction in EI benefits that would otherwise be paid.
Some of our witnesses stated that earnings supplementation can encourage older workers to broaden their job search and thereby quicken the transition from unemployment to employment. Concern was expressed over the fact that policy-makers are reluctant to use this measure, even though it is one of the Part II Employment Benefits and Support Measures.
The Committee intends to examine whether the above measure should be used to advantage under the Labour Market Development Agreements (LMDAs) currently in place. The Committee also intends to examine the benefits of supplementing lower-wage jobs in comparison to supporting longer-term training efforts that would prepare workers for higher-paying opportunities.
The relative demand for more highly educated and skilled workers has unquestionably increased in the past 20 years in response to several factors, including technological change. This trend is expected to continue in the future and has contributed to long-term unemployment among older workers, many of whom entered the world of work with relatively little education and were employed in jobs requiring skills that are no longer needed today. According to data compiled by Statistics Canada, there are proportionately twice as many older workers today with less than a high school diploma than among workers 25 to 54 years of age. Furthermore, and particularly important from a policy perspective, evidence presented to the Committee suggests that many older workers have literacy levels below those required to enter a "low skill" job. According to data compiled by the International Adult Literacy Survey in 1996, almost two-thirds of the Canadian population aged 56 to 65 have low-level literacy skills and are consequently considered incapable of performing today's entry-level jobs. There is no doubt among members of this Committee that displaced older workers with these skill characteristics face extremely limited opportunities for reemployment. The skills they do have are obsolete; for them to obtain a job in today's labour market requires a significant investment in training.
Assuming an older worker is equipped with the education necessary to acquire the new skills demanded in today's workplace, self-financed training may be uneconomic, as the imminence of retirement may preclude an adequate return on the investment in training. The limited time horizon for recouping the cost of training is also thought to contribute to the low incidence of employer-sponsored training among older workers. Thus, older workers generally regard the acquisition of "human capital" at their own expense unattractive. This is supported by survey data (1994 Adult Education and Training Survey) presented to the Committee which shows that the incidence of job-related education and training among 55 to 64 year olds is about three times lower than among workers aged 45 to 54 and roughly four times lower than among 25 to 34 year olds.
Obviously, some older workers are not averse to training and, in all likelihood, more older workers would be willing to accept it if financial assistance were provided to offset some of the risks associated with an investment in training that may not provide stable employment until retirement. One witness told the Committee that some older workers become more interested in training once they appreciate the need to acquire new skills and realize that some financial assistance will be available. The latter serves to illustrate that some older workers may lack the financial resources to invest in training, especially where they need basic educational upgrading before they can obtain more marketable skills. Since most agree that active, rather than passive, labour market policies are desirable, policy-makers must be prepared to help older workers who lack the financial resources to acquire new skills and who reside in labour markets where job opportunities exist. In this context, excluding severance pay for the purposes of EI benefits might be considered along with extending additional EI support to long service workers who lack funds to finance their own training.
The Committee intends to further study the concept of an EI Training Account in which training credits would accrue over the working lives of EI contributors. Any such study must, of course, examine the feasibility of delivering this initiative within the context of LMDAs. This matter is also discussed in Section H below.
C. Bridging the Gap Between Permanent Displacement and Retirement
Most of our witnesses confirmed the existence of a subpopulation of permanently displaced older workers who need adjustment assistance to bridge the gap between the time they are displaced and retirement. These workers lack marketable skills and cannot easily acquire new ones because they lack a basic education, are unable or unwilling to invest in training for the reasons outlined above, and reside in areas with limited or no employment opportunities. Aside from EI benefits and social assistance, these workers have nothing.
While it would be preferable for structurally unemployed older workers to invest in training or, for those with marketable skills to move to become reemployed, in reality many of these workers will take neither of these paths. Until recently, this fact had been explicitly recognized in federal labour market policy for many years and income support was provided to bridge the gap for some older workers between permanent displacement and retirement. The last initiative of this sort was the Program for Older Worker Adjustment (POWA), which ended in the fiscal year 1996-97. The Committee heard that this program was terminated for several reasons, including its limited availability, restrictive program parameters, cost and ineffectiveness in helping older workers adapt to a changing economy. Nevertheless, some witnesses lamented the end of POWA and expressed the need for its replacement.
The Committee is mindful that many older workers will not participate in training, but nevertheless need some support to bridge the gap between their remaining time in the labour force and retirement. This is thought to be especially relevant for low skilled displaced workers residing in high unemployment regions of the country. Presumably, in the absence of a POWA-like measure, some of these workers turn to social assistance. In 1997 (the latest year for which data are available), there were approximately 569,000 social assistance recipients 55 years of age and over across the country. Of these, 221,000 (14.5% more than in 1996) were between the ages of 55 and 64. In 1997, social assistance recipients aged 55 to 64 received an average annual social assistance payment of $7,000, accounting for 16.8% of total outlays on social assistance.66
Despite its passive nature, income support is really the only realistic avenue available for helping some displaced older workers, though of course, active elements can and should be considered in devising a measure to address their needs. One approach that warrants serious attention is the creation of part-year jobs in community service projects whereby these workers could participate voluntarily and remain attached, albeit tenuously, to the labour force until retirement. This approach has been used sparingly in Canada; it is still considered experimental and available only on a pilot project basis (e.g. New Brunswick Job Corps Program and a proposed pilot project for unemployed older workers in Cape Breton). Federal/provincial/territorial policy-makers might consider extending initiatives like these to a wider area so as to permit "hard to employ" older workers to remain attached to work for at least some part of each year until reaching retirement. It is thought that many regions of the country could identify a role for an initiative such as this, since it would keep older workers connected to work and, in a limited number of cases, serve as a springboard into private sector employment.
In addition to this, the Committee was told that support could be made available to displaced older workers who, in some areas of the country, are trying to create their own jobs by investing in cooperative initiatives. We were told that the government should consider broadening the scope of Self-employment Assistance (an EI Part II benefit) to include cooperative initiatives as well as exclude severance payments for the purposes of EI benefits so that displaced older workers would be able to invest these funds in order to create their own jobs. For example, the Committee learned that some displaced older workers in Quebec's pulp and paper industry intend to invest their severance packages in a wood processing plant that is expected to create 75 to 80 high quality jobs. If these workers use their severance pay as start-up capital in the project, however, they will be without income support until the new operation begins. The reason for this is that severance payments are at present treated as earnings and, according to section 8 of the Employment Insurance Act, can delay a claim by extending the qualifying period to a maximum of 104 weeks. In the absence of this provision, displaced older workers could invest their severance payments in the project and receive EI benefits, which would thereby provide a bridge between displacement and the commencement of operations at the wood processing plant.
Several witnesses also suggested that the duration of El benefits should be based, in part, on time spent in the workplace. Thus, older workers would be entitled to longer benefits.
The Committee intends to further examine the costs and benefits of excluding severance packages from EI calculations in certain circumstances. This examination will focus on the capacity of such a measure to create jobs, rather than being a general increase in benefits.
The Committee also intends to examine EI's benefit structure in the context of older workers.
As a result of the termination of POWA, the Committee intends to examine measures to support older workers who need financial support to bridge the gap between displacement and retirement.
The Committee also plans to study the problems facing workers who are forced to leave occupations (e.g. firefighters) that have become hazardous for them because of their age.
Another reason for prolonged periods of unemployment among older workers is thought to be their low rates of geographical, occupational and industrial mobility. Of course, the reluctance of older workers to be more mobile is undoubtedly intertwined with their skill characteristics. There is no point in moving, if one does not possess the necessary skills for obtaining employment. Even older workers who do possess marketable skills, however, are thought to be more resistant to moving than their younger counterparts. This view is supported by the data presented in Chart 7, which clearly illustrate a predisposition to geographical immobility among individuals 55 to 64 years of age, than among younger age groups. These data refer to moves between census divisions (intraprovincial) and moves out of a province or territory to some other region in Canada (interprovincial) during the five-year period prior to the 1996 Census. Mobility rates among individuals 55 to 65 are lower for both intra and interprovincial moves, than those among younger age groups, especially individuals 25 to 34 years of age whose mobility rates are close to three times higher.
CHART 7 - Mobility Rates by Age
To the extent that these data reflect labour mobility, the higher propensity for older workers to remain in a local labour market could serve to limit potential job opportunities and thereby prolong unemployment. In reality, however, many unemployed older workers face limited job prospects even if they are willing to move. Thus far in our study, witnesses have not placed a great deal of emphasis on this issue and none has recommended measures to enhance mobility among older workers.
Even if older workers overcome the barriers noted above, their job opportunities may be limited simply because younger workers are preferred to older ones. According to information provided to the Committee, employers reported that being older was the second greatest barrier to employment. According to data presented to the Committee compiled by the Survey of Canadian Employers, 58% of small firms and 57% of large firms confirmed this. The Committee also learned that in a survey conducted by One Voice - the Canadian Seniors Network, staff in human resource development centres (excluding Quebec) identified employers' attitudes as the biggest problem facing unemployed older workers. It is difficult to know how much these negative perceptions of older workers are based on prejudice against age and how much are attributed to the low skills and high wage expectations of older workers. Nevertheless, the potential for agism exists and this issue warrants more study by the Committee. The Committee was advised that all levels of government should encourage strategies that support and promote older workers; one suggestion called on human resource development centres to ensure that they include older workers in their business plans.
The Committee will examine proposed measures to encourage employers to be more receptive to the hiring of older workers. Measures will be considered which might offset the perceived disadvantages of hiring individuals who have reached age 55. These may include tax measures, premium relief or direct support for training.
F. Employment Benefits and Support Measures
At present, there is no federal policy for delivering age-specific adjustment assistance to older workers. In fact, given the new federal/provincial/territorial Labour Market Development Agreements (LMDAs), the provinces and territories have much more control over labour market policies for this group of workers (and others) than ever before. This is especially true for those provinces that have signed full transfer agreements with the federal government. In view of this new approach, the Committee is very aware of today's policy environment and recognizes the importance of pursuing initiatives designed to address the adjustment needs of unemployed older workers within the context of federal/provincial/territorial cooperation. One example of this cooperative spirit is the work of the Forum of Labour Market Ministers, which recently created the Working Group on Older Workers which is currently developing a diagnostic of labour market issues facing older workers.
Some witnesses raised a number of serious concerns pertaining to the existing arrangements for program delivery and their impact on older workers. The Committee was told that service delivery is fragmented and resembles a "silo" system; the delivery of adjustment measures is divorced from case management. Older workers are forced to go to several different places to receive various adjustment services instead of receiving these services from a single provider who can guarantee continuity. Some regarded the duration of current funding arrangements to be too short and, as a result, to generate unstable relationships with program delivery partners. We were told that a holistic adjustment model would serve displaced older workers better.
The results-based focus established under the LMDAs encourages what some witnesses called "creaming." The Committee was told that there is an incentive for program delivery operators to focus attention on those who can reenter the labour market fastest and for the least amount of spending. This approach ensures the greatest chance of success in terms of meeting immediate targets pertaining to EI savings and the number of clients reemployed. While this approach may be effective in helping those who have minimal adjustment needs, it does nothing to help those experiencing serious problems and who need a great deal of help. While the Committee does not object to the emphasis on active measures, it points out the importance of ensuring that this approach not be pursued at the expense of clients - such as permanently displaced older workers - who cannot be easily reemployed and who need long-term adjustment assistance.
One specific example mentioned in our hearings was that the short duration of training makes it virtually impossible for older workers who need basic upgrading to obtain meaningful skills. It seems clear that these workers should be entitled to longer periods of training. Evidence presented to the Committee by Human Resources Development Canada reinforces this view, since program evaluations prior to the introduction of Employment Benefits and Support Measures indicate that training programs for older workers who need basic educational upgrading have not been very effective.
The Committee also heard that little is known about the effectiveness of Employment Benefits and Support Measures. This was confirmed when officials from Human Resources Development Canada appeared before the Committee. Some witnesses expressed a sense of urgency for the LMDAs to be monitored more closely and for timely evaluations to be conducted. In reality, we do not know how well older workers are being served under these agreements or the extent to which they are "falling through the cracks." As evaluation results become available, the program delivery community needs to be informed of best practices.
The Committee intends to devote special attention to concerns expressed about the adequacy and effectiveness of the adjustment services being delivered under LMDAs when it resumes its study on older workers. In addition to the concerns outlined above, the Committee also believes the eligibility criteria currently used to determine access to Part II benefits must be examined. This may become an important issue in the future, given the recent trends in part-time and self-employment among older workers and the tendency for some older workers to retire but then return to the labour market. The existing reach-back rules may deny many of these workers access to adjustment assistance.
The Committee also intends to examine how the introduction of skills loans and grants affects the non-profit sector, which, we were told, is not permitted to issue tax receipts for training.
G. Phased-in Retirement
As discussed elsewhere in our report, the average age of retirement has steadily declined since the mid-1970s. One reason for this is the growth in the incidence and generosity of public and private pension plans over this period. Another reason, and one that concerns this Committee, is the tendency for older workers to be "pushed" out of the labour market. When firms rationalize their workforces, they more often than not target long service workers since they usually command the highest earnings and are most likely candidates for a separation package, including early retirement. In the period 1989 to 1994, roughly 12% of total retirees cited an early retirement package as the reason for retirement, up more than 70% from the period 1983 to 1988. Obviously, some of these workers were happy to retire, while others undoubtedly viewed their retirement as involuntary. Between 1989 and 1994, roughly 13% of all retirees left work because of mandatory retirement, while 12%, an increase of 25% from 1983 to 1988, retired involuntarily because they could not get a job. The Committee believes that new avenues must be explored for extending the working lives of older workers in view of the large proportion of older individuals who find themselves in forced retirement and who would prefer to remain in the workplace.
At the beginning of this decade, public pensions were the primary source of income for approximately two-thirds of individuals 65 years of age or more, while private plans were the main source of income for 18%. Reliance on private plans is expected to grow in the coming years as 55% of workers aged 45 to 64 participated in a private pension plan in 1991. A majority of workers in this age group also contributed to a registered retirement savings plan.77 The Committee was told that the proportion of workers (mainly men) covered under employer pension plans has declined in recent years and is now below 50%. In addition, we do not know the extent to which self-employed workers will be financially secure once they decide to retire. While we are encouraged by the fact that more workers are saving for their retirement, we know little about their saving behaviour and the distribution of these savings. The Committee was told that more information is forthcoming, which will become available once Statistics Canada has collected and analyzed data from its asset and debt survey. To the extent that workers are not preparing adequately for their retirement, a larger proportion of workers may wish to remain in the workforce than is currently anticipated.
The Committee was also informed that a more gradual approach to retirement might be necessary in the future to avoid potential skill shortages. While recognizing that this possibility depends on both the demand for, and supply of, labour, "succession planning," as one witness called it, will probably present a human resource challenge to firms as the baby boom retires. Gradual or phased-in retirement offers one approach for dealing with it.
Pension policy in this country is largely based on the view that individuals will, at some prescribed age, permanently leave full-time employment and begin to draw on their retirement savings. Despite changes in working time and labour force aging - with all of its potential economic ramifications - pension policy has yet to recognize that a growing number of individuals may opt for a period of semi-retirement before completely withdrawing from the labour force. The current pension system is biased toward shorter, rather than longer, working lives as "current tax policies seek to minimize the period of tax deferral for pensions by encouraging early retirement and prohibiting benefit accruals after pensions commence."88 In addition, in many pension plans retirement benefits are based on the last few years of work; this discourages individuals from seeking a gradual transition from work to retirement, since part-time employment would provide a significantly smaller retirement benefit.
The Committee was apprised of the fact that several European countries(e.g. Denmark, Germany, Luxembourg and Sweden) offer workers an opportunity to make a gradual transition from work to retirement. These measures permit workers to reduce working time and supplement their earnings with a partial pension. In Canada, workers may receive a reduced Canada Pension Plan (CPP) payment at age 60, although one is required to have "substantially ceased working," which essentially means earning less than the maximum CPP benefit at age 65. Since pension benefits are not permitted to accrue, both this provision and the earnings threshold impart a disincentive to work while receiving a reduced pension.99
Although this issue received little attention during the recent CPP consultations, several witnesses appearing before this Committee expressed an interest in partial pensions and suggested that a growing number of workers in the future may seek a gradual transition from work to retirement.
The Committee sees a great deal of merit in a federal/provincial/territorial review of the existing retirement system with the aim of making it more flexible and accommodating with respect to gradual retirement. Phased-in retirement could permit older workers to continue working and build up more pension credits while receiving a partial pension. Given the importance of the need to identify measures for accommodating a smoother transition from work to retirement, the Committee intends to further explore the issue of phased-in retirement.
While long-term unemployment is not a problem unique to older workers, it is undeniably more concentrated among this group than elsewhere in the labour market. Thus, an early intervention strategy directed toward older workers who are at risk of becoming permanently displaced might be an effective approach to reducing the overall level of joblessness among older workers. In this context, most of the Committee's witnesses felt that policy-makers should introduce measures that seek to minimize the prospect of long-term displacement by ensuring that workers receive help prior to a layoff. The types of assistance contemplated ranged from pre-closure services (e.g. counselling) to lifelong learning. One witness suggested that lifelong learning be incorporated in a national strategy for addressing the problems of older workers. Another stated that all workers should have the right to engage in lifelong learning.
Not long ago, policy-makers in this country were speculating that many of tomorrow's workers would have to adjust to several career changes during their careers. The Committee was told that, although this notion was somewhat overstated, encouraging lifelong learning remains an important policy objective, since it is known that many workers do engage in narrow occupational changes during their careers, which could be facilitated by that training. Moreover, we know that human capital depreciates over time; lifelong learning is viewed as a means of helping the next cohort of older workers to keep their skills more current and thereby adjust more rapidly to a layoff than many older workers are able to do today.
Despite general agreement that strengthening lifelong learning is a worthy objective, actual policies for achieving this on a wide scale have been somewhat limited. The tax measures announced in the 1998 budget can help finance training for those who have contributed enough to a registered retirement savings plan. However, the Committee is dubious that low-skilled older workers, whose low earnings have not allowed them to save for retirement, are well served by this initiative. We need to identify new levers for encouraging more workers to invest in training while in the workplace. Throughout our hearings we have discussed the possibility of using EI as a mechanism for supporting continuous learning. One idea that certainly warrants further study is the notion of individual EI training accounts. Workers would obtain credits while working and use these credits when necessary to finance training to enhance their employability. Obviously, a scheme like this demonstrates that there is a relationship between the level of financial resources available for training and the years of work; thus older workers would be provided with a source of financing to invest in training when they needed it most.
The Committee is convinced that new financing mechanisms must be explored for expanding lifelong learning practices in the Canadian workplace. Establishing personal EI Training Accounts represent one possible initiative for achieving this end. The Committee will examine this option to determine whether it delivers sufficient incentive for workers to participate in training programs before the onset of an employment crisis. As well, the Committee will attempt to assess to costs of such a program in relation to the savings in EI benefits that it may deliver through the prevention of long-term unemployment.
Although the unemployment rate among older workers today remains below the rate for the nation as a whole, the relative labour market position of workers 55 years of age and over has undeniably deteriorated in the past two decades. Many individuals across this country are concerned that labour market conditions among older workers could deteriorate even further as the labour force ages.
It is clear to members of this Committee that older workers face unique age-related adjustment problems. Many displaced older workers begin looking for a new job that will pay at least as much as the old one. However, in many instances, the skills of these workers command lower wages than they expect and this can contribute to prolonged periods of job search. Structural unemployment is also a serious problem among older workers. Many in this age group have low levels of education and consequently lack the foundation for acquiring the new skills needed in today's workplace. Short payback periods to recoup investments in training and a lack of financing for training also serve to impede training among older workers. The fact that older workers are typically less mobile than younger ones can also serve to limit reemployment opportunities. To date, witnesses have not raised immobility as a major issue and none has indicted that resources should be used to encourage older workers to move.
This interim report represents the first phase of our study on older workers. Thus far, our witnesses have identified many concerns with respect to Employment Benefits and Support Measures and how these are being delivered across the country. We do not yet know how effective these programs are or the extent to which older workers are participating in them.
We suggest that policy-makers consider making use of earnings supplements under Part II of the Employment Insurance Act. The Committee also intends to further examine the possibility of delivering a long-term measure offering "hard to employ" older workers an opportunity to remain attached to work through part-year employment in community service projects until retirement.
The Committee also intends to further study financing vehicles for encouraging lifelong learning. One proposal in this regard is the creation of individual EI training accounts. Such a measure would help older workers in the future to keep their skills current and, it is hoped, find employment quickly in the event of displacement.
Finally, as we note in this report, older workers may in the future desire a more gradual transition from work to retirement. Consequently, more attention will be devoted to the issue of phased-in retirement when the Committee resumes its study after Parliament reconvenes in the fall.
11 Although the Committee's study pertains to workers 55 years of age and over, some of the problems confronting this age group also plague workers under the age of 55.
22 The proportion of involuntary part-time workers of all ages was roughly double that of older workers in 1998.
33 While youths continue to experience much higher rates of unemployment than older workers, the latter have witnessed a relatively larger increase in unemployment than the former since the mid-1970s. Between 1976 and 1994, the ratio of the youth (15-24) unemployment rate to the unemployment rate of older workers declined steadily from 3.23 to 1.96. Although this ratio began to rise in 1995, in 1998 it was 25% lower than it had been in 1976.
44 Caledon Institute of Social Policy, Roundtable on Canada's Aging Society and Retirement Income System, 5 June 1995, p. 9.
55 Statistics Canada, ``Older Workers," Labour Force Update, spring 1998, p. 27.
66 These data were supplied by Statistics Canada and were collected through the Survey of Consumer Finances. The sample on which these estimates were based did not include residents in the Yukon and Northwest Territories, members of households located on Indian reserves and inmates in institutions, including homes for the aged.
77 Susan Crompton, "Facing Retirement," Perspectives, Statistics Canada, spring 1993, p. 31-32.
88 Barbara Hendrickson, "Phased-in Retirement," Canadian Tax Journal, Vol. 44, No. 5, 1996, p. 1311.
99 Effective 1 July 1998, a contributor to the Quebec Pension Plan who is at least 60 years old may apply for a pension before the age of 65 provided the applicant has either ceased working or has entered into a progressive retirement agreement with an employer which reduces the applicant's earnings by at least 20% (Canadian Employment Benefits Pension Guide, No. 446, 19 January 1998, p. 2).