Population Aging and Labor Market Interdependence in North America

Mexico City , November 13 th , 2006

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The Secretariat of the North American Commission for Labor Cooperation & Centro de Investigación y Docencia Económicas

Demographic trends in North America will pose significant economic challenges to Mexico , Canada and the United States in the coming decades. Canada and the United States will begin to see the first of the baby boomers reach the age of 65 during the 2010 decade. Together with declining fertility rates and rising longevity, their retirement will slow the growth of the labor force and raise elderly dependency ratios. [1] Canada will age faster than the United States , and Mexico , although still demographically a young country, will exhibit elderly dependency ratios similar to those of its northern neighbor by 2050.

The slowdown in the growth of the Canadian and U.S. workforces will necessitate long-term, sustainable, effective economic and social policies, if these countries are to avoid slower economic growth. Important among these policies is achieving higher labor force participation rates, particularly of women, the disabled and older workers. A concomitant policy is to continue the importation of labor from abroad. [2] During the 1990s and early 2000s, immigrants already accounted for about one half to two-thirds, respectively, of the growth in the US and the Canadian workforce. Present projections indicate that this trend will persist in the near future.

But immigration policy is determined by many factors other than just labor market dynamics and raises difficult and complex issues in recipient and sending countries alike. The net loss of human capital for sending countries is one such issue, particularly as human capital becomes critical in a context where economic growth is increasingly dependent not only on the quantity but also on the quality of the labor force. Labor force quality is indeed a key contributor to productivity, particularly in an era where information technology has become a defining feature of the workplace. A central challenge for policy makers is thus ensuring that labor market entrants have, and labor force participants maintain (through lifelong learning), the skills required by the marketplace.

Investing in skills development is central to all three countries in North America . The retirement of the baby boom generation in Canada and the United States will create new needs for workers of all kinds, but particularly for skilled and educated workers who can respond to the pressures of rapid technological change and intense global competition. Furthermore, while having the highest proportion of highly skilled workers, the United States also has a very high proportion of low-skilled workers. Similarly, Canada 's productivity growth remains generally below that of the United States , despite major gains in the average educational attainment of its workforce.

Although it will not be facing aging of its population until the 2030s, Mexico has a window of opportunity to take advantage of its demographic dividend to foster economic growth and development. Mexico lags behind the developed countries in human capital development and is losing its traditional low-wage advantage to other fast-growing developing economies, such as China and India . Therefore, Mexico requires a strong and sustained effort to boost the skills and the productivity of its labor force before the country starts facing the process of aging.

The three countries of North America could convert the challenges posed by their own demographic dynamics into opportunities if they decided to exploit their labor markets' complementarities and learn from the best practices in the region. For instance, aging of the population will generate a high demand for health care workers and other related services. That the aging process will take place at a different pace in Canada, Mexico and the United States opens a window of opportunity for these countries to plan ahead and design education and training programs that could help them take better advantage of their labor complementarities at different moments in time.

While guest worker programs are often suggested as a natural outcome of labor market complementarities, this conference aims at exploring more innovative ways in which the three countries could benefit from these labor market dynamics. One example is the promotion of investment for skills development in the area of healthcare, particularly for the elderly.

NAFTA has created the know-how for conducting business in North America and a secure legal framework for investment across borders, thereby facilitating the emergence of regional systems of production. The countries in North America could turn these existing economic interdependencies into positive synergies by developing cooperative training and education programs that could enhance core labor competencies of key growing sectors in North America .

The main objective of this seminar, Labor Market Interdependence in North America: Challenges and Opportunities of an Aging Population , is to foster dialogue among stakeholders in North America on these issues and explore innovative public policies and relevant strategies emanating from the private sector and higher-education institutions that promote the three countries' respective labor market needs in North America, some of which are mutually beneficial.

The publication of a monograph with the papers presented at the conference will allow outreach to a broader audience in order to continue that dialogue.

Another objective is to identify issues of common interest for future research on relevant aspects of labor markets in the three North American countries.

The target audience of this seminar will be comprised of public officials of the three countries, particularly from the Ministries of Labor and Education; legislators; unions; business persons, academics and the general public.

PROGRAM

Monday, November 13 th