Canada’s labour market faces mounting pressures that cannot be fixed merely by adding more workers, according to a new report from the C.D. Howe Institute, which also recommends raising the retirement age.
In the inaugural “2024 Labour Market Review: Challenges, Trends, and Policy Solutions for Canada,” authors Parisa Mahboubi and Tingting Zhang argue Canada should delay the age of eligibility for full pension benefits, as has been done in other Organisation for Economic Co-operation and Development (OECD) countries.
"One of the most significant factors contributing to the variation in employment decisions across OECD countries is the normal age at which individuals can claim full pension benefits. For instance, in 2022, over 32 percent of Iceland’s population aged 65 and over was employed, although the normal retirement age is 67, with the earliest pension access at age 65. In contrast, only about 14% of Canada’s population in the same age group remained employed despite having a higher life expectancy. This discrepancy can be explained by Canada’s normal retirement age of 65, with pension benefits available as early as age 60," the report explains.
"Cross-country analyses show that policy reforms reducing financial incentives for early retirement were key drivers behind the increase in old-age employment. To address challenges related to aging populations, many countries such as Australia, Denmark, the UK, Japan and Italy have raised, or plan to gradually increase, the retirement age to encourage longer working lives. Denmark and Sweden have even indexed their mandatory retirement ages to life expectancy. Canada should consider similar approaches by raising the normal retirement age and delaying the earliest access age," the authors suggest.
Mahboubi and Zhang find that the rising unemployment rate is primarily driven by a mismatch between labour force expansion and job creation rather than a decline in labour demand. Ongoing challenges like sectoral labour shortages, regional disparities, and declining productivity also persist.
The report makes the case for enhancing labour market outcomes, particularly for seniors and immigrants, by raising the retirement age, improving training programs, easing labour mobility barriers, and streamlining credential recognition for skilled immigrants.
“Job creation has continued, but the labour force is growing even faster, pushing up the unemployment rate,” says Mahboubi. “While this does not necessarily signal weaker labour demand, it underscores the challenge of integrating a rapidly expanding workforce. Addressing skills mismatches and improving the recognition of immigrants’ qualifications will help ensure more workers transition smoothly into jobs that match their expertise.”
The report says immigrants often face barriers to having their foreign qualifications recognized, contributing to underemployment. Canada is experiencing a decline in labour productivity, driven by stagnant capital investment and slow adoption of automation, heavy reliance on temporary foreign workers for low-wage jobs, an expanding public sector with lower productivity, and shifts in the makeup of industries.
“Gradually raising the retirement age from 65 to 67, expanding access to high-quality training programs, and accelerating technological adoption would help address Canada’s aging workforce challenges,” Zhang says.
The report urges all levels of government to coordinate practical policies such as promoting flexible work options to extend seniors’ participation in the workforce, streamlining professional licensing, and enhancing settlement strategies for immigrants — including workplace-specific language training — and supporting businesses in adopting productivity-enhancing technologies.
“We cannot afford to leave talent on the sidelines – whether it’s older workers retiring too soon or immigrants struggling to use their skills,” Mahboubi explains. “The Atlantic provinces, in particular, face some of the country’s most acute demographic challenges, with rapidly aging populations, lower workforce participation among seniors, high unemployment, and labour mismatches compounding regional disparities. If we don’t act now, these gaps will only widen.”
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies.
