On Tuesday, Finance Minister Bill Morneau will unveil a mini-budget that is expected to detail a series of efforts to lift economic growth, including a significant increase in immigration, along with plans for an infrastructure bank and an agency to attract more foreign investment.The Canadian Press
Boosting immigration is a big part of Ottawa's plan to save the country from a slow-growth future.
On Tuesday, Finance Minister Bill Morneau will unveil a mini-budget that is expected to detail a series of efforts to lift economic growth, including a significant increase in immigration, along with plans for an infrastructure bank and an agency to attract more foreign investment.
Mr. Morneau is absolutely right to be thinking long-term.
Like most wealthy countries, Canada is experiencing a permanent slowdown in economic activity, brought on by an aging population and slowing labour force growth. Canadians should brace themselves for a dramatic deceleration in economic growth – to roughly 1.5 per cent a year from the average 3-per-cent-plus we've enjoyed for 50 years.
Beware: The government may be overselling the benefits of more immigration. Earlier this month, a panel of advisers to Mr. Morneau urged Ottawa to boost the number of people it brings in each year to 450,000 from roughly 300,000 now, predicting it would boost per capita GDP.
That isn't, however, what a lot of recent economic research suggests. To significantly alter the country's current demographic path would require a much more dramatic increase in immigration – to nearly 900,000 a year – according to a 2015 study by the Centre for the Study of Living Standards, co-authored by Don Drummond, a former top federal Finance official.
"This seems politically and practically infeasible," the study concluded.
It's true that immigration would help slow the greying of the Canadian population, but it can't reverse it. Current immigration levels are slowing that trend, but "its viability in slowing it further is quite limited," the report concluded.
Even current levels of immigration risk reducing Canada's GDP per capita in the long run, according to a 2013 study by a trio of economists from the University of Toronto and York University in the British Journal of Industrial Relations.
The challenge is both political and economic.
Immigration Minister John McCallum has said he isn't prepared to go as high as 450,000, acknowledging there is resistance within cabinet to going much beyond current levels. Recent polls have shown that most Canadians are similarly wary of allowing in more immigrants.
But the main reason immigration isn't a magic solution to the slow growth conundrum is economic.
The crux of the problem is that the labour force is growing much more slowly than in the past. As people age, they work progressively less until they are out of the work force entirely. The relationship between the working population and retirees is known as the age-dependency ratio, and it's been climbing steadily since the 1970s as the baby boom generation matured.
The antidote is to boost the share of working-age people. Workers earn wages, buy homes, pay taxes and become productive members of society. Unfortunately, research about recent immigrants show they aren't doing as well as in the past relative to other Canadians. They are less likely to be in the labour force, even years after they arrive, and they are taking longer to catch up to other Canadians on wages.
Mr. Morneau's Advisory Council on Economic Growth has suggested ways to get around this problem, including selecting immigrants with specific skills Canada needs, and by making it easier for foreign students to become citizens.
Immigrants are generally younger than the overall population. But their demographic impact is limited because they still represent a tiny fraction of the overall population. And they all can't be young and skilled because Canada also takes in refugees and its policies favour family reunification.
If immigration is going to be the answer to slow growth, Ottawa and the provinces must do a much better job of integrating recent arrivals into the economy. That means better language training, upgrading skills and easier recognition of foreign workplace accreditation standards.
It's not good enough to simply raise immigration targets, and then let all these people fend for themselves.
Ultimately, the solution goes well beyond immigration. The Centre for the Study of Living Standards study urges governments to cut high marginal tax rates that discourage work, invest heavily in skills development and eliminate barriers that keep many women, seniors, aboriginal people and the disabled from participating in the economy.
Immigration is one answer. It's not the only answer.