What is the right amount of immigration for Canada?

As Canada’s immigration levels continue to increase—with an estimated 1.45 million people expected between 2023 and 2025—a question can emerge for many in the country: what is the right amount of immigration for Canada?

A recent Desjardins study looks to address this question, with the context of Canada’s demographic and economic goals (which the government addresses through immigration), as well as the infrastructure of Canada’s public services and federal supports.

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The economic situation

One major objective of Canada’s immigration system is to address labour market shortages, which Canada’s ageing population cannot sustain. There has historically been a positive relationship between Canada’s economic potential (as measured through the country’s economic output gap), and the admission of economic temporary (those on a work permit) and permanent residents (the largest class of newcomers Canada admits every year).

Recently however, Desjardins reports a shift in this relationship, with a greater number of newcomers arriving than the economic output gap justifies. This paired with a low unemployment rate seems to suggest that there are now too many newcomers for economic growth to justify.

However, despite Canada’s renewed immigration efforts in recent years, the national unemployment rate has largely held steady at roughly 5%. Simultaneously, job vacancies have remained elevated over national unemployment. All of this in context suggests that while Canada is approaching its economic potential through immigration, there are still many jobs available in the economy. Noting further that many temporary foreign workers arrive to work in Canada to fill a specific labour market need (often through an LMIA facilitated process) helps understand why this may be the case. Due to these elevated vacancies, and Canada’s inability to fill these positions with its own population, one can reasonably say that continued immigration at the current level is justified economically.

Further to this (and in relation to Canada’s economic potential) is the longer-term effects that economic immigration has on Canada’s economy. Attracting newcomers to Canada helps increase both potential GDP growth, and potential GDP per capita. This is due both to the fact that recent immigrants are more likely to be employed than those born in Canada, and because those immigrating to Canada tend to be younger, yielding more potential work hours and years of work. Notably growth of the working age population (aged 15-64) in Canada was entirely driven by permanent and non-permanent immigrants in 2022. This suggests that from an economic perspective, immigration can help meet Canada’s needs and goals, both in the short and long-term.

The demographic situation

Central to the discussion on the economic benefit of immigration, is Canada’s ageing population. Due to Canada’s national healthcare system, elderly people past working age (above 64) can put a pronounced strain on Canada’s economy. This is due to the fact the medical expenses tend to increase with age, and Canada’s healthcare system ensures that most of these costs are not the burden of the individual.

This effect can be further pronounced in provinces without huge population centres, which have a smaller economy, a wider ratio of ageing to working age populations, and experience less immigration to address their labour market needs. According to the Fiscal Sustainability Report written by Canada’s Parliamentary Budget Officer, provincial government healthcare spending per capita is expected to double between 2020 and 2040, eventually reaching $10,000 CAD per year.

The Desjardins report takes this question further asking what level of immigration would help balance the expenses of Canada’s ageing population with economic growth—essentially enabling a rising standard of living while ensuring sustainability of public finances. According to Desjardins, to enable the current ratio of working age people to the ageing population through to 2040, Canada would need to increase its working age population by 2.2% on average annually. To put this into perspective, in 2022 Canada’s working age population grew by 256,000 new economic permanent residents, and 756,000 work permit holder—representing a working age population growth of just 1.6%.

If Canada wanted to target the historical ratio between ageing and working-class populations (i.e.: the national average between 1990 and 2015) from now to 2040, the Canadian government would need to increase its working age population by 4.5% annually. Under both scenarios, Canada would need to greatly increase working age immigration from 2022 levels—a year which itself represented the greatest rate of working age population growth since 1989.

In light of these figures, economic immigration also seems to be a key solution to Canada’s demographic problems, and the economic toll that these problems can entail. Additionally, is the inclusion of the Provincial Nominee Program (PNP) as Canada’s primary path of economic immigration. PNPs help spread the benefit of economic immigration throughout Canada’s provinces, addressing key labour shortages; and can greatly relieve the stress on provincial economies in the context of the growing medical expenses of their ageing populations.

Is it so simple?

While the above problems make a strong case for increasing immigration to Canada, there are often costs associated with welcoming so many people to a new country, especially in such a short time frame.

One key area this has been revealed is in Canada’s housing market. Due to the rising demand created from Canada’s growing working age population, affordability of all types of housing has fallen in Canada. Further to this problem is the lack of new housing projects being started in the context of higher interest rates, growing production costs, and lack of pre-sale interest. Desjardins initially estimated that Canada would need at least 100,000 new housing starts annually to offset growing housing costs—however the organisation now believes that this number needs revision, due to the high number of temporary residents (i.e.: work and study permit holders) being welcomed annually as well. Absent these housing starts, home buying and rental costs are only expected to increase.

This represents a potentially significant problem for Canada, as lack of affordable housing may deter talented workers from choosing Canada as a destination to settle and decrease the country’s overall openness to immigration.

Conclusion

Immigration is important for the long-term economic success of Canada as foreign-born workers help meet short-term labor market needs and contribute to long-term potential GDP growth. Immigration further supports Canada’s demography, especially in the context of its ageing population. However, surging population growth is causing strains, particularly in the housing market. The government could look to tighten requirements for non-permanent residents to alleviate housing affordability issues, however this could also constrain growth in the working-age population and raise concerns about fiscal sustainability, especially in Canada’s wider provinces. It is important for the federal government to balance immigration policy with a results-driven approach aimed at increasing housing affordability and quality of living for Canadians as a whole.

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