Livio Di Matteo is professor of economics at Lakehead University.
Increased immigration can be justified as a solution to aging populations and labour shortages but there are other benefits. There are benefits to a larger economy and internal market size as well as increased clout in a more global world. Moreover, the diversity of a larger population can be a key ingredient in fostering more innovation and trade growth.
But those outcomes are not assured given our productivity lag. Canadians are only about 70 per cent as productive as Americans. This is the crux of the issue. There is a role for government here in either helping facilitate the solutions or getting out of the way of those who can get things done.
Evidence suggests that immigration often has a negligible effect on a country’s prosperity in per capita income terms. Increases in labour force size are a source of overall economic growth, though this output is divided among a greater population. Output must rise faster than population for per capita income to rise, and the key to that is productivity.
In order for larger populations to have positive economic effects, increases in labour force size need to be accompanied by increases in firm-specific plants, machinery and equipment as well as physical infrastructure in transportation and communication – not to mention housing.
In other words, the solution here is more business investment to raise productivity.
This is a big endeavour, but it can be done. Indeed, it has been done before.
An immigrant to Canada in 1912 arrived during a national development and construction boom that developed the Western wheat economy and featured a soaring national investment-output ratio at upwards of 30 per cent of GDP.
There was investment not only in transcontinental railways but also in manufacturing capacity and urban infrastructure as cities expanded. As a result, while population from 1900 to 1914 grew nearly 50 per cent, the total size of the economy after inflation doubled, and real per capita income soared.
Our current immigration boom pales in comparison to that which occurred during the first decade of the 20th century. Annual immigration now represents just 1.5 per cent of Canada’s population compared to the peak years 1912 and 1913 at 5.1 and 5.3 per cent. The equivalent today would mean nearly two million immigrants a year and we are nowhere near that amount.
Moreover, back then we had nowhere near the technology of today, and arguably our productivity was even lower.
If in the early 20th century a country with eight million people could accommodate 400,000 immigrants a year and boost productivity and economic growth, then surely at 40 million this industrialized country can do better.
The country that put in place three transcontinental railroads during the relatively larger migration boom of pre-First World War should be able to parallel that infrastructure performance for a much more modest population boom.
Canada would also need to make non-economic investments to accommodate that larger population, such as increased spending on national security and additional efforts to address regional anxieties and tensions that more immigration may cause.
This will not come cheaply, but it will be worth the investment. With the highest ever immigration that in 2023 may exceed 500,000 people, Canada’s population is growing rapidly, and the long-term benefits considerably outweigh the transition costs.