Canada’s mass immigration policy to revitalize the economy amid an aging population has yet to bear fruit. Compared to higher U.S. business investment and productivity, relying on immigration for economic growth has been to the country’s detriment, says a former Statistics Canada chief economic analyst.
“It is a clear fact that these very high rates of immigration have not given the economy a boost. … We cannot absorb this number of people that fast,” Philip Cross, senior fellow at the Macdonald-Laurier Institute, told The Epoch Times on Feb. 27.
Besides labour, capital and technology also contribute to economic growth, said Mr. Cross.
“We just don’t talk about why business investment is so weak in this country. Instead, we’re debating what is the proper level of immigration. We should be debating what’s the proper level of investment, given our population,” he said.
Mr. Cross added that housing, health care, and education are all showing signs of strain from the influx of newcomers. Canada’s rental vacancy rate recently fell below 4 percent after hovering over 6 percent for about 30 years.
“The end result has been a very sharp drop in productivity, in GDP [gross domestic product] per capita,” Mr. Cross said.
Kiki Sondh, an economist at Oxford Economics, said in a Feb. 12 note that improving productivity is one way to achieve more sustainable growth in aging advanced economies. Canada could also increase the domestic labour supply by boosting the participation rates of females or the elderly, she said.
While Ms. Sondh said high immigration can push up the economy’s growth potential, the added strain on public services, infrastructure, and undersupplied housing means sustained migration on this scale is unlikely to be feasible.
“Labour markets would likely struggle to fully absorb the surge in the supply of workers, suggesting that actual GDP growth would lag potential growth,” she said.
The United Kingdom’s Office for Budget Responsibility stated earlier this month that productivity—and not immigration—is key to healthier government finances.
Token Drop
The average age of Canada’s population fell slightly from 41.7 on July 1, 2022, to 41.6 on July 1, 2023, Statistics Canada reported on Feb. 21, noting that such a drop hasn’t happened since 1957–58.“The country welcomed a sufficiently large number of immigrants to have a significant impact,” StatCan said. Population aging is unavoidable, it added.
The baby boom generation drives Canada’s population, the statistical agency said, and for the first time in Canadian history, on July 1, 2023, people aged 65 and older outnumbered those younger than 18.
Canada saw an unprecedented population increase of over 1.2 million in 2023 or 3.2 percent—five times the Organisation for Economic Cooperation and Development average, says a Jan. 15 National Bank report.
The problem of GDP per capita stagnating for six years and poor productivity suggests a population growing faster than available capital, National Bank said.
The federal government said in its November 2023 update on immigration levels that the plan “prioritizes economic growth” among other considerations. Canada aims to add 485,000 new permanent residents in 2024 and another 1 million over the next two years.
An Aging Challenge
In 2012, then-Bank of Canada deputy governor Jean Boivin spoke about Canada’s aging demographic.Mr. Boivin outlined three options to avoid a drastic decline in living standards: more work, greater productivity, and higher savings.
Thus even over 10 years ago, Canada’s productivity was lagging.
“Finding the elusive cure for Canada’s lagging productivity remains a pressing concern, and the demographic challenge makes it even more imperative,” Mr. Boivin said.
Aging populations have long been predicted for the developed world as birth rates drop and people live longer. Canada had the biggest baby boom among the G7, but its aging demographic is not as bad as some other countries like Japan and China, where the population is falling.
Mr. Boivin said Canada’s relatively more favourable demographics is due to more women in the labour force and much higher immigration.
He added that “a key challenge with immigration is to remove the various barriers that keep educated and skilled immigrants from contributing to their full potential.”
At the same time, lower fertility rates and higher life expectancy are common features of societies with higher living standards, he pointed out.
Inflation Dynamic
Ms. Sondh said high net migration, if it represents a larger share of the population, like it does in Canada compared to its G7 peers, would cool inflation relatively faster as the increased worker supply holds down wages.But that desired effect comes with a caveat.
“It’s worth noting, however, that supply-side effects will take time to materialize, whereas the boost to demand may be more front-loaded,” Ms. Sondh said.
Immigrants to Canada tend to arrive in the three biggest cities—Toronto, Vancouver, and Montreal—and put pressure on those cities’ resources for some time before they move elsewhere, Mr. Cross points out.
As the population ages, fewer people work and pay taxes. More people depend on their pensions, and health-care costs rise. Thus, demand rises for fewer resources of public finances.
“That’s going to put increasing upward pressure on government deficits, which means less savings,” Mr. Cross said.
And less savings means less business investment and lower productivity, which is exactly what Canada has to avoid, he added.
