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Labour crunch isn’t what it’s cracked up to be

'This will throw me out of business in a month!"

It was a common threat from bar owners when cities began introducing no-smoking bylaws about a decade ago. They did seem to have reason to worry. Since so many bar patrons were smokers, the logical fear was that they'd stay away – drinking and smoking and cursing City Hall in the privacy of their own basements.

But an unexpected thing happened when the bylaws were introduced: None of the bars went out of business (or if they did, it wasn't because of the smoking restriction). In fact, after a very short period of time, bars were busier than ever –possibly because of a sizable number of new patrons who had previously avoided smoky bars. The bylaw unintentionally opened up a whole untapped market of customers who liked their beer served with a big side of fresh air.

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As for the smokers, they adjusted. Stepping outside the bar for a cigarette soon became the norm. It all happened quite quickly and – to the surprise of the bar owners – with no negative economic effects at all.

This paradox is explained by the fact that we often misjudge people's ability to adjust to changing circumstances. We are not always the rational agents that the classical economic textbooks once thought we were. But we are, in fact, capable of adapting as the situation demands.

Much more worrisome than adjusting to smoking bylaws is the "crisis" looming in the Canadian labour market. Report after report warns of the demographic tsunami that will wallop the economy as more baby boomers hit 65. The wave of aging workers is undeniable – economists and demographers have foretold it for decades. But are we misjudging people's ability to adjust their behaviour?

It's a mistake to make too much of the age 65. It's not magical. Nothing special happens mentally or physically on the morning of our 65th birthday. Yet we are psychologically stuck on the number because decades ago, in the dawn of modern social programs, it was designated as "retirement age." Sixty-five was selected because life expectancy was 66.

There are three reasons why our aging population will cause no crisis in the labour market. Economic principles and our ability to change lie at the root of all three.

The first is that boomers and Gen Xers are healthier than our predecessors. We have access to better foods and medical care, and we understand more about healthy lifestyles. Life expectancy has steadily risen. We will naturally adjust to working later in life, becoming less desperate to retire and more interested in remaining connected to the work force.

The second reason – admittedly darker than the first – is that some of us will have no choice but to work longer. Many young people today are not saving adequately to maintain their lifestyles if they quit working at 65. Nightmarish reports from big banks leave the impression that we'll all be shivering old people eating cat food from the dollar store because we didn't save enough. While saving for retirement is something we should promote, the whole cat food scenario is based on the outdated notion of quitting work at 65. The economic reality is that by working longer, people have more time to save and less time to burn through their (smaller) nest egg.

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The third reason is that new communication technologies are making it easier for employers to offer more flexible and appealing work environments. Working remotely will become more common, and companies will find ways to offer more part-time or part-year positions for mature workers. Most of us will voluntarily remain connected to the work force well beyond age 65. And while some occupations are too physically demanding for older workers, supply and demand will take over: Wages for these jobs will necessarily rise, thus making them more appealing to younger workers.

People are surprisingly adaptable to changing economic or social conditions. A smoke-free bar seemed financially impossible a decade ago, but today it's normal. It already seems funny to think that people used to just light up in a bar (or an airplane, or a doctor's office).

In the same way, Canadians will naturally stop thinking about 65 as retirement age. It's already happening. With longer life expectancy, less financial capacity, and more flexible work arrangements, it will be perfectly normal to work well into our 70s. And not too long from now, we'll think it funny that 65 used to mean anything special at all.

With this article, Todd Hirsch begins a regular column on economics in Report on Business. He will appear in this space every other Thursday.

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About the Author

Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline. More


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