It’s interesting to listen to scholars and others talk about the importance of evidence based decision making – and I couldn’t agree more – but much decision making is often done with bad evidence or no evidence at all.
This is certainly the case when it comes to the grey tsunami which refers to
… the large wave of baby-boomers who have … started to reach age 65. The alleged threat is based on the assumption that a relatively larger number of retirees will become dependent on a relatively smaller generation of people in the traditional ‘working ages’ of ages of 15 to 64. And, there has been a secondary worry that longer life spans will mean additional strains on savings and pensions needed to support longer retirements [1].
Both these assertions (dependency and strains on savings and pensions) are simply not supported by good evidence especially as dependency ratios are based on mainstream demographic theories whose basis is not evidentiary at all.
Dependency ratios
Dependency ratios are a theoretical construct and they are defined and explained as follows by Statistics Canada [2]. This is worth quoting at some length .
The total demographic dependency ratio is the ratio of the combined youth population (0 to 19 years) and senior population (65 or older) to the working-age population (20 to 64 years). It is expressed as the number of “dependents” for every 100 “workers”. The demographic dependency ratio is based on age rather than employment status. It does not account for young people or seniors who are working, nor for working-age people who are unemployed or not in the labour force. ….It merely reflects population age structure and is not meant to diminish the contributions made by people classified as “dependents.” …The demographic dependency ratio measures the size of the “dependent” population in relation to the “working age” population who theoretically provide social and economic support.
Dependency ratios – as a theoretical construct – only has one evidentiary component and that is the number of people in the three cohorts:
- children
- adults up to age 65, and
- adults 65 and over.
There is no evidence why 65 is the correct age or why the age of dependency shouldn’t be raised for seniors. The question seems to be seldom raised. There is little evidence of real dependency in any common sense definition of dependency which is defined in the Oxford English dictionary as:
reliance on someone or something for financial support.
Not so dependent
If anything, it may be the case that adults under age 65 are more dependent on seniors.
This idea is explained on the ‘Generation Squeeze’ website:
While risks for younger people grow, many still think seniors are more likely to be economically vulnerable. But today’s retirees enjoy more wealth (especially housing wealth) and are less likely to have low incomes than other age groups [3].
For example, the rate of poverty in Canada is lowest among people age 65+ at 6.0% [4].
In fact, a huge generational transfer of money is about to take place from baby boomers now in their senior years to the next two generations in Canada:
A massive financial shift is set to take place in the coming years as baby boomers pass their assets down to the millennial and gen Z cohorts… CPA Canada says it’s expected to be the largest generational transfer of wealth in Canadian history, with younger Canadians expected to receive a combined $1-trillion in the next few years alone [5].
So who is dependent on whom?
When we think of wealth, one of the primary sources of wealth in Canada is achieved through homeownership (which is already fueling the generational transfer noted above).
Approximately 25% of Canadian households are led by people over the age of 65 years, 75% of these households are owned [6].
Dependency ratios also have a latent assumption that people over 65 do not work but since the end of mandatory retirement (2006 in Ontario) 18 years ago, more and more seniors are working. In fact,
One in four (24%) persons aged 65 to 70 is still working, up from 11% in 2000 [7].
And those numbers are increasing as the real age of retirement from work steadily increases.
It is important to revisit the concept of dependency ratios – which include both children and seniors as dependent – as there is a yawning gap between the two demographics. Children generally do not work. They do not own homes. They are generally not wealthy and they are not on the verge of transferring massive amounts of wealth to adults under age 65. They do not have pensions and few have investments in their name. They do not have RRSPs, RRIFs or TFSAs.
Yet children are lumped into the same dependency ratio calculations as seniors.
Working seniors and jobs
Now let’s turn to an old argument related to the grey tsunami.
The contention is that working seniors are taking away jobs from adults under 65. But Nothing could be further from the truth. Let’s ask Chatbot GPT for the answer we already knew:
The concern that working seniors are taking away jobs from younger adults in Canada is a topic of debate, but the evidence suggests that this is not generally the case. Several factors contribute to this understanding:
- Labor Market Dynamics: The Canadian labor market is not a zero-sum game, where one group’s employment directly reduces opportunities for another. The economy is complex, and the presence of seniors in the workforce can actually create more jobs. For example, older workers often contribute experience and mentorship, which can enhance productivity and generate growth.
- Different Job Types: Seniors and younger adults often work in different types of jobs. Seniors might stay in part-time roles, consulting, or less physically demanding jobs, while younger adults tend to seek full-time positions that match their qualifications. This means the two groups are not always competing for the same positions.
- Workforce Participation Trends: Canada’s aging population means that there are more retirees, leading to potential labor shortages in certain sectors. This could increase the demand for younger workers rather than reduce it.
While there might be instances where seniors and younger adults compete for the same jobs, the overall impact of seniors working longer is not generally seen as a significant factor in reducing job opportunities for younger people in Canada.
Measuring productivity and taxes
Now I would like to get on my own personal soapbox.
First, my own marginal effective tax rate is far higher than most Canadians – which is just fine – but my effective tax rate last year was higher than the highest earning CEO’s in Canada. The highest income tax rate in Ontario for 2024 is 56.16% [8]. Mine was about 58% combining my 43% marginal income tax rate and a 15% clawback on my Old Age Security. Perhaps the highest earning CEO should pay more than me.
Second, I volunteered delivering meals on wheels for 18 years and have served on many community based boards and committees for longer than that. My contribution to Canada’s productivity as measured by Gross Domestic Product (GDP) is exactly zero.
On many occasions when I was unable to deliver meals, staff had to fill in. Their paycheck for that day contributed to GDP but my volunteer effort contributed nothing.
This should tell us less about what it means to be productive than what it tells us about how we measure productivity [9]. If you want to know more, follow the endnote 9 below.
Evidence or theory
And now, I would like to get back to the issue of evidence. Once again, the concept of a dependency ratio is theoretical. It is not a hypothesis based on evidence. And the reality is that it tends to spawn bad evidence since it invites us to take a ‘body count’ approach to social policy-making.
We are invited to assume that seniors, simply because they have crossed an age point exhibit the characteristics of the assumption of dependency even when they don’t in real life.
But if the characteristics of the assumption of dependency — low productivity, low taxation, non-work, lack of wealth, poverty and job stealing — are all not true, then we have evidence that is contrary to what the theory supposes. In other words, the evidence from ratios alone is not relevant.
That means that if evidence based decision making is to prevail, we should start by ditching the theory, not the evidence.
[1] The Grey Tsunami threat: A failure of evidence to drive policy https://canadacommons.ca/artifacts/2071103/the-grey-tsunami-threat/2826401/
[2] Statistics Canada: The dependency ratio https://www150.statcan.gc.ca/n1/pub/82-229-x/2009001/demo/dep-eng.htm
[3] Generation Squeeze: Canada’s broken generational system https://www.gensqueeze.ca/broken_generational_system
[4] Statistics Canada: Low income statistics by age, sex and economic family type https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110013501
[5] The great wealth transfer: How adult kids can start talking to their parents about it https://www.theglobeandmail.com/investing/personal-finance/article-the-great-wealth-transfer-how-adult-kids-can-start-talking-to-their/?login=true
[6] Google search for “seniors home ownership in Canada” https://www.google.com/search?q=seniors+homeownership+in+Canada&oq=seniors+homeownership+in+Canada&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIICAEQABgWGB4yDQgCEAAYhgMYgAQYigUyDQgDEAAYhgMYgAQYigUyDQgEEAAYhgMYgAQYigUyCggFEAAYgAQYogQyCggGEAAYgAQYogQyCggHEAAYogQYiQXSAQg5MjM4ajBqN6gCALACAA&sourceid=chrome&ie=UTF-8
[7] Working after 65: What is at stake? https://policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/04/WorkingAfter65.pdf
[8] 2024 Canadian income tax brackets https://www.fidelity.ca/en/insights/articles/2024-canadian-income-tax-brackets/
[9] GDP: A Brief but Affectionate History – Revised and expanded edition https://press.princeton.edu/books/paperback/9780691169859/gdp?srsltid=AfmBOorufBwYUKB4unjUbiPOB6l7wnAtcdkUFCcFLOFaxdPl9d5z2RUL