Bank of Canada: aging may boost wages, cut rates

Wed Apr 4, 2012 1:48pm EDT
 
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By Claire Sibonney

TORONTO (Reuters) - The aging of Canada's population will put upward pressure on wages as the pool of available workers shrinks, and global aging might over time lead to lower interest rates, Bank of Canada Deputy Governor Jean Boivin said on Wednesday.

Aging will also affect the potential of the economy, meaning the level of activity at which it can operate without inflationary pressures, and this is something the Bank of Canada needs to assess, he said.

The high level of household debt in the country makes it even more crucial that individuals adjust their savings behavior and plan over a longer horizon, he said in a speech in Toronto.

"As our society ages, we can either accept a lower standard of living or we can try to be proactive and adjust ... The stakes are high and we cannot afford to ignore them," Boivin said.

"There is no free lunch in that context; something will have to give and someone will have to pick up the tab, so the least we can do is accept this fact and ensure that the bill remains small and that the burden is shared fairly."

The mechanism for upward pressure on wages would be that with relatively fewer people left in the work force, employers will compete to attract talent.

Taken in isolation, he said, the scarcity of labor relative to capital could be expected to lead to higher wages and lower returns on capital in advanced economies, and eventually to persistently lower global interest rates.

Improved productivity, if any, would offset the downward pressure on rates.   Continued...