A new report released by Desjardins Group on Monday calls for Canada to welcome many more newcomers to offset its aging demographics.
The authors of the report analyzed the necessary population growth of working-age Canadians. They found that the population aged 15 to 64 would have to increase by 2.2% per year until 2040 to maintain the ratio that existed in 2022. What if Canada wanted to return to the average ratio of people aged 65 and more than it had between 1990 and 2015, this group of Canadians is expected to grow by 4.5% per year.
“I feel that the discussion of immigration levels in Canada, as a whole, is focused on the immediate impact on the Canadian housing market,” according to Randall Bartlett, senior director for the Canadian economy at Desjardins. “The report is meant to kind of zoom out and provide some broader economic context around immigration and why immigration to Canada matters. »
The potential rise in immigration levels has sparked debate about Canada’s ability to handle higher flows of newcomers amid a housing crisis, and the economic impact of increasing the number of people living in the country. . Canada’s population grew by more than 1 million people last year, a record. Its total population grew by 2.7%, the highest rate since 1957.
This strong population growth comes as the Liberal government has higher annual immigration targets, which would allow the country to welcome 500,000 immigrants a year by 2025.
Proponents of increased immigration argue that the labor market is able to absorb more workers and that the country needs more working-age Canadians to support the tax base as more and more people are retiring. “We need immigration at a relatively high rate, in fact, to offset the economic impacts of aging — to be able to pay for the health care that Canadian seniors will need,” says Randall Bartlett.
A recent analysis by Mouvement Desjardins reveals that Canada’s plan to increase immigration could boost GDP per capita if newcomers find work in the same proportion as those who arrived recently.
The labor market outcomes of recent immigrants, particularly those who arrived through the economic stream, have improved relative to earlier cohorts. This is partly because of changes in federal immigration policy. In 2018, the median salary of the main applicants for economic immigrants exceeded that of the Canadian population even though they had only been in the country for a year, according to Statistics Canada. “We attract very, very talented people,” says Bartlett. They are able to find jobs and very quickly generate income above the Canadian average. »
But critics argue that relying on immigration to supply workers to the economy can also deter companies from investing in technologies that would boost productivity and reduce reliance on workers. Randall Bartlett thinks the federal government could modulate the flow of temporary foreign workers to encourage such investments.
100,000 housing units to be built
Bartlett acknowledges, however, that housing is a major obstacle. Desjardins estimates that Canada should build 100,000 more homes each year to offset the upward pressure on prices caused by a higher number of permanent residents in the country. A recent analysis by BMO Financial Group found that for every 1% of population growth, house prices typically increase by 3%.
The influx of newcomers to the country is already having an effect on the housing market, which has rebounded this year despite interest rates at their highest level in decades.
In its latest policy rate decision last week, the Bank of Canada flagged the effect of population growth on house prices as one of the factors fueling inflation. “The strong demographic expansion resulting from immigration contributes to both supply and demand: newcomers help to alleviate labor shortages and, at the same time, stimulate consumer spending and support demand housing,” the central bank wrote in a statement about its most recent rate hike.
Randall Bartlett warns that the erosion of housing affordability amid record population growth could hurt social acceptability for immigration, which he believes warrants swift government action. “There is a risk that Canadians will become less open and less positive towards immigration. If this leads to a significant reduction in immigration, Canadians will face a large bill in the future to meet the costs of aging older Canadians. »