With Canada’s immigration levels set to surge, expecting approximately 1.45 million new immigrants between 2023 and 2025, a significant question arises: What is the appropriate level of immigration for Canada? Addressing this query, a recent study by Desjardins considers Canada’s demographic and economic goals, the role of immigration in achieving these objectives, and the impact on public services and federal support.
The Economic Aspect
Canada’s immigration system aims to address labor market shortages caused by its aging population. Traditionally, there was a positive correlation between Canada’s economic potential, measured by the economic output gap, and the admission of economic temporary and permanent residents. However, Desjardins reveals a shift in this relationship, with the number of newcomers exceeding what the economic output gap can justify. This, coupled with a low unemployment rate, raises concerns that the influx of newcomers might hinder economic growth.
Nevertheless, Canada’s national unemployment rate has remained relatively stable at around 5%, while job vacancies have consistently outpaced national unemployment figures. This suggests that despite approaching its economic potential through immigration, the Canadian economy still offers numerous job opportunities.
Many temporary foreign workers arrive in Canada to fill specific labor market needs, which explains the ongoing elevated job vacancies. Hence, it can be argued that the current level of immigration is economically justified due to these unfilled positions and the inability to meet them with the domestic workforce.
Moreover, economic immigration contributes to Canada’s long-term economic growth and potential GDP per capita. Recent immigrants have higher employment rates than native-born Canadians, and their younger age profile allows for more work hours and years of productivity. In 2022, the growth of Canada’s working-age population (aged 15-64) was solely driven by permanent and non-permanent immigrants, underscoring the importance of immigration in meeting Canada’s economic needs in both the short and long term.
The Demographic Perspective
Canada’s aging population poses challenges to its economy, particularly in terms of healthcare costs. The burden of medical expenses on Canada’s national healthcare system tends to increase as individuals age, impacting public finances. This problem is more pronounced in provinces with smaller economies and a higher proportion of aging populations relative to the working-age population, where immigration may not have the same impact.
To balance the expenses of Canada’s aging population with economic growth, the Desjardins report indicates that an average annual increase of 2.2% in the working-age population is necessary to maintain the current working-age-to-aging population ratio until 2040. In comparison, Canada’s working-age population grew by just 1.6% in 2022. Achieving the historical ratio between aging and working-class populations (national average between 1990 and 2015) by 2040 would require a 4.5% annual increase in the working-age population. Both scenarios demand a significant increase in working-age immigration compared to 2022 levels.
Economic immigration emerges as a crucial solution to address Canada’s demographic challenges and mitigate the potential economic burden. The Provincial Nominee Program (PNP) plays a vital role as Canada’s primary path of economic immigration, helping distribute economic benefits across provinces, addressing key labor shortages, and alleviating the strain on provincial economies amid the growing medical expenses of their aging populations.
Complexities and Considerations
While increasing immigration presents compelling arguments, it is essential to acknowledge the associated costs and challenges. Canada’s housing market has been impacted by the growing demand resulting from the increasing working-age population, leading to reduced affordability. Factors like higher interest rates, rising production costs, and lack of pre-sale interest have limited new housing projects.
Addressing this housing shortage is vital as failure to do so could further increase home buying and rental costs, potentially discouraging talented workers from choosing Canada as their destination and reducing overall openness to immigration.
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