The Liberals’ immigration blueprint is unsound, and will hinder the economy it seeks to help

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On the afternoon of June 16, Canada’s population surpassed the 40-million mark.

In a country long lamented by some of its leading thinkers as a low-density also-ran stunted by a lack of bodies to fill its vast expanses and dynamize its sleepy cities, it was to be expected that hitting this milestone would be considered a big deal by some.

The official population estimate came from Statistics Canada, which called reaching the 40-million mark “a cause for celebration.” Our national number cruncher even said Canada was “40 million strong,” seemingly equating population size with strength, an idea that is largely passé in the technology-driven 21st century.

At 2.7 per cent, Canada’s rate of population growth in 2022 was among the highest in the world outside Africa. And almost all of the increase – 95.6 per cent – was the result of immigration. Statscan last month released data showing that the pace of population growth increased even further, to 2.9 per cent, in the 12 months to July 1. The country’s population has not grown this fast since 1957, during the baby boom.

Just why this should be a reason to party is unclear, especially as Canada grapples with a deepening housing affordability crisis that is making life hell for millions of its inhabitants.

Newcomers are not to blame, and they are even more likely than those born here to bear the brunt of the housing shortage. Still, this breakneck population growth is the result of a deliberate policy choice made by Prime Minister Justin Trudeau’s government to ramp up immigration to levels unseen in a century – all based on the shaky premise that this would be good for the economy, if not Liberal fortunes.

Where in the world would they get that idea?

Living next to a loud and proud republic that has historically been a beacon for the globe’s huddled masses has left us with a collective case of size envy. We have watched jealously as the United States attracted the best and brightest, ensuring the superiority of its universities and turbocharging its innovation-driven economy.

For years, some of our own best minds have been telling us we just need to aim higher. The Trudeau government’s 2016 Advisory Council on Economic Growth, chaired by then-McKinsey & Co. global managing partner (and future Canadian ambassador to China) Dominic Barton, insisted that a 50-per-cent increase in annual immigration levels (to 450,000 permanent residents by 2021) would slow population aging and hence reduce “fiscal strain on the system and the need for tax increases or benefit cuts.”

The Century Initiative, co-founded by Mr. Barton and former BlackRock executive Mark Wiseman, has advocated for a “bigger, bolder Canada” of 100 million people by 2100, suggesting this would help sustain our social safety net and enhance our geopolitical influence. “A larger population,” the group insists, “is key for the economic prosperity that makes possible what we value, from high-quality healthcare and education to income security programs, cultural vibrancy and a healthy environment.”

Our current federal government seems to have taken such assertions as an article of faith. “An Immigration Plan to Grow the Economy” is how it describes its policy to increase the number of permanent residents Canada accepts to 500,000 in 2025, or about twice the level we took in before the Trudeau Liberals came to power in 2015.

The Trudeau Liberals have also overseen exponential growth in the number of temporary residents entering the country as low-wage workers and students. Temporary visa holders accounted for 607,782, or 58 per cent, of the 1,044,962 newcomers who entered Canada in 2022. The pace of temporary immigration accelerated further in the first half of 2023, with 697,701 new temporary immigrants arriving in the 12 months to July 1. That is four times the average number of temporary residents who entered Canada between 2015 and 2019, and several more times than the average number who came to Canada annually between 2010 and 2015.

Yet, soaring immigration levels under the Liberals have not made Canada richer, or its social programs more sustainable. If anything, the opposite is true. While the country’s overall economic output, or gross domestic product (GDP), has grown in recent years, Canada’s GDP per capita (also known as per capita income) has failed to keep pace with that of other developed countries and even declined in recent quarters. GDP per capita is a far more meaningful indicator of a country’s standard of living than the brute size of its economy. And Canada’s is falling.

Higher immigration levels are hardly the only reason. The country’s productivity deficit predates the recent population surge. But there is accumulating evidence that the latter is aggravating the former. It will take years to ramp up investments in housing, health care, public transportation and other infrastructure to accommodate the huge influx of newcomers the country has recently taken in. The massive public investments needed will crowd out private investment in new factories, machinery and technology. And with a bigger pool of labour to draw on as a result of immigration, many businesses will be more likely to delay or forgo productivity-enhancing investments. Indeed, it is already happening.

What’s more, the vaunted “points system” Canadian immigration bureaucrats have relied on since 1967 to select applicants (based on education, skills, work experience and proficiency in at least one official language) is increasingly being bypassed in favour of short-term labour-market demands, mostly in low-wage sectors.

“For economists who study this, we just shake our heads,” says the University of Waterloo’s Mikal Skuterud, one of a growing number of labour-market experts critical of the Trudeau government’s immigration policies. “I think we have completely gone in the wrong direction.”

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Besides the huge application backlogs Ottawa’s current immigration policies have created, the thrust of the Trudeau government’s changes are not just wrong-headed from an economic point of view.

This country has avoided the anti-immigration backlashes seen in many European countries and the United States in recent years. A cursory review of Canada’s past suggests it would be naive to think we can escape this trend indefinitely. Canadian attitudes toward immigration have historically tracked economic conditions – and there are growing signs we are at an inflection point.

“We’ve always prided ourselves on having a managed immigration system. That has been key to public support,” says Andrew Griffith, a former director-general of citizenship and multiculturalism in the federal immigration department. “But on temporary immigration, the government has not exercised any meaningful control.”

At its current growth rate, Canada’s population would double by 2048 and surpass the Century Initiative goal of 100 million Canadians well before the turn of the century. Instead of being a cause for celebration, such projections are a serious cause for concern that has even strong supporters of immigration calling for a time out.

Immigration Minister Marc Miller, appointed in July, must table Ottawa’s 2024-26 immigration targets by Nov. 1. He should seize the opportunity to reverse the course set out by his predecessor. A failure to do so would compound Canada’s productivity deficit and further sap public support for immigration.

Why take that risk?

For eight decades after Confederation, Canada struggled to hold on to its immigrants. The country accepted huge numbers of newcomers, relative to its tiny population, during the early part of the 20th century, only to see hordes of them flee to the United States. Thousands of Canadian-born citizens also left for greener pastures south of the border. This outward migration became known as Canada’s “red thread of tragedy.” And it called for radical action.

As the country emerged from the Second World War seeking to reinvigorate its economy amid a vastly altered international order, prime minister Mackenzie King announced a massive shift in Canada’s immigration policy in an early 1947 House of Commons speech. “In a world of shrinking distances and international insecurity,” King told the House, “we cannot ignore the danger that lies in a small population attempting to hold so great a heritage as ours.”

King’s speech is mostly remembered as the first step in the elimination of blatant racial discrimination in Canadian immigration law. The 1885 Chinese Immigration Act – which had placed a tax on newcomers from China before being amended in 1923 to largely ban all Chinese immigration – was repealed altogether. However, that did not mean Canadian immigration policy became colour-blind overnight.

“The people of Canada do not want, as a result of mass immigration, to make a fundamental alteration in the character of our population,” King insisted. “Any considerable Oriental immigration would, moreover, be certain to give rise to social and economic problems of a character that might lead to serious difficulties in the field of international relations.”

Still, King’s speech is important for its articulation of a core principle that would guide Canadian immigration bureaucrats for decades to come.

“The fear has been expressed that immigration would lead to a reduction in the standard of living. This need not be the case,” he said. “The essential thing is that immigrants be selected with care, and that their numbers be adjusted to the absorptive capacity of the country.”

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Even back then, the concept of “absorptive capacity” sounded like coldly clinical bureaucratese. But it encapsulated the cautious Canadian approach to selecting newcomers. While Canadian immigration policy would always include a significant humanitarian component with regard to refugees and extended family members, hewing to the “absorptive capacity” principle meant that most immigrants would be chosen based on their ability to integrate successfully into the Canadian economy. And annual numbers would be adjusted based on the business cycle.

The same senior federal bureaucrat who had coined the term “red thread of tragedy” is also credited with defining the parameters of “absorptive capacity.” In a 1948 lecture, Hugh Llewellyn Keenleyside cautioned that Canada would need to attract more investment if immigration was to yield economic returns for the country.

“We can have 50 million people between Winnipeg and Vancouver – if we are content to have these people living like peasantry of the more depressed parts of China,” Mr. Keenleyside said. “In trying to define the absorptive capacity of Canada there are other factors of much greater importance than the mere superficial area of the country. … The existence of large accumulations of capital available for investment is another important factor.”

Rich immigrants, Mr. Keenleyside insisted, were to be preferred over all others. “There is, for example, an unlimited capacity to absorb millionaires. The immigrant with large financial resources will, by expenditure and investment, be an economic asset to this country, even if the investment is not always directed into channels that would fall within the definition of trustee securities or the expenditure confined to purposes that would be approved by the WCTU,” he said in reference to that era’s enforcer of moral codes, the Women’s Christian Temperance Union. “[T]here is unlimited capacity to absorb men with technical abilities or knowledge which can be utilized for the creation of new products for which there is demand either here or abroad.”

The experience gained by bureaucrats in applying these principles, and the 1960 adoption of the Canadian Bill of Rights, led to a points-based system to pick immigrants irrespective of country of origin or race.

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Ottawa nevertheless continued to strictly tie immigration numbers to economic conditions. Immigration surpassed 1 per cent of the population during the boom years of the 1950s, but sank to barely 0.33 per cent in the mid-1980s, on the heels of the 1980-81 recession. Until last year, the previous peak was 1.7 per cent in 1957, when Canada accepted thousands of Hungarian refugees.

It was Brian Mulroney’s Progressive Conservative government that first severed the link between immigration targets and the business cycle. Despite double-digit unemployment and ballooning provincial welfare rolls, Canada accepted more than 256,000 immigrants in 1993, a number equal to about 0.9 per cent of the country’s population then. Public support for immigration plummeted.

Jean Chrétien’s Liberals slashed immigration levels in the mid-1990s, despite campaigning on a promise to boost them. “What we heard across the country was the need for better balance,” then-immigration minister Sergio Marchi told the House of Commons in late 1994 in announcing a sharp reduction in permanent-resident targets and tighter selection criteria. “Canadians are concerned about the sustainability of Canada’s social benefit system. … We will contribute to the solution by focusing more on those immigrants less likely to require public assistance.”

In 1998, Canada accepted just 174,000 permanent residents, or 0.58 per cent of its population, barely half of the level the Liberals had promised in their 1993 Red Book.

Between 2000 and 2015, Canada’s immigration rate remained relatively constant at around 0.75 per cent of the population, under both Liberal and Conservative governments. And there were only modest increases in temporary workers and international students.

Since then, immigration has exploded, except for in 2020, when it fell to about 0.5 per cent of population during the first year of the COVID-19 pandemic. But Ottawa has more than made up for that single-year drop.

The numbers of temporary residents entering Canada have grown so fast that even Statistics Canada may be having a hard time keeping track of them. In an August report, CIBC economist Benjamin Tal estimated that Statscan had failed to count as many as 750,000 people whose temporary work visas have expired, but who remained in the country awaiting a renewal of their permits, and another 250,000 foreign students who incorrectly identified their place of residence in the 2021 census. Since Mr. Tal’s report, the agency has revised its methodology for counting temporary residents, but experts say it continues to undercount non-permanent residents.

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How did it get to this point?

The Trudeau Liberals fell into the thrall of Mr. Barton and the Century Initiative soon after taking power, ignoring warnings from Prof. Skuterud and other labour economists about the faulty assumptions on which the Barton council’s proposals were based.

One such assumption is that Canada could significantly slow population aging by hiking immigration levels. Canada’s dependency ratio (which measures the number of residents over 65 as a percentage of working-age Canadians) has been rising rapidly as the postwar baby-boom generation retires. But a 2018 C.D. Howe Institute report countered that “no [immigration] increase within the realm of practicality can prevent population aging.” The think tank argued that encouraging Canadians to work beyond 65 and/or raising the official retirement age would be more effective policies.

Prof. Skuterud, his Waterloo colleague Matthew Doyle and Christopher Worswick of Carleton University come to a similar conclusion in a recent Canadian Labour Economics Forum working paper. They write: “There may be a short-run demographic dividend to boosting labour force participation rates through immigration, but immigrants age too and eventually retire. Leveraging this demographic dividend to produce ongoing growth would require a Ponzi-type strategy of continually increasing the immigration rate to undo the increasing size of the retirement-age population.”

That is not the only catch. Many working-age immigrants arrive in Canada with dependent children and spouses who do not work, and are often joined later by retired family members and parents. For example, while about 253,000 of the 406,000 permanent residents Canada accepted in 2021 were admitted in the economic-class category, about one-third of the total were spouses or dependents, according to Immigration, Refugees and Citizenship Canada (IRCC). Another 81,000 permanent residents entered Canada in 2021 under family reunification programs.

“If you were really serious [about lowering the dependency ratio] you wouldn’t allow any parents and grandparents to come in,” Mr. Griffith says. “The demographic arguments for higher immigration don’t really hold water or are vastly overstated.”

Advocates of higher immigration levels, including business lobby groups, also point to Canada’s chronic labour shortage to support demands for more foreign workers. But while more immigration might help some firms fill job vacancies, it cannot alleviate labour shortages throughout the economy – and may even exacerbate them.

That is because newcomers to Canada are also consumers who spend most of their earnings on goods and services here. “The greater demand for labour that this new spending generates can in fact be as large, or even larger than, the initial increase in the labour supply,” Université du Québec à Montréal emeritus economics professor Pierre Fortin points out in a recent article in the online journal Inroads. “The popular belief that population growth will solve the problem of labour shortages macroeconomically is a fallacy of composition.”

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The unsettling truth is that labour productivity, or output per worker, has slumped in Canada since the Trudeau Liberals began ramping up immigration levels.

The drop reflects weak business investment in machinery and information technology. Investment decisions are driven by a host of factors ranging from current interest rates to future business prospects. Suffice it to say that more immigration has not led Canadian businesses to become more productive. More and more immigrants – even those with science, technology, engineering and mathematics (STEM) degrees – are working in low-wage jobs and earn much less than the average Canadian salary.

“The simple reality is that Canadian non-residential investments, most notably in the areas most closely associated with productivity growth, are not keeping pace with population growth,” Prof. Skuterud and his co-authors note. “While the influence of population growth on Canada’s housing crisis is now widely recognized, its influence on Canada’s non-residential capital stock is receiving little attention.”

Recent investment trends, they add, “do not paint a picture of an economy that is able to produce sufficient complementary [capital] inputs to mitigate the adverse effects of increased immigration rates on average economic living standards in the population.”

Prof. Skuterud and his colleagues looked at the earnings levels of immigrants who arrived in Canada as permanent residents in 2006. They found that half of those accepted as economic immigrants had incomes below the Canadian average in 2016, a decade after their arrival. They conclude that the selection criteria used by IRCC “were not effective in boosting the average human capital level of the Canadian labour force.”

This suggests that the points system IRCC has been using for almost 60 years to select permanent residents, officially known as the Comprehensive Ranking System, needs a major overhaul. For instance, under the current selection method, the same number of points are awarded to applicants with a bachelor’s degree, irrespective of their field of study or the university from which they graduated. Permanent-residency applicants also get significantly more points if they apply under the Provincial Nominee Program – which allows provinces excluding Quebec to nominate a certain number of candidates – often bumping those with higher skills and education who apply outside the program.

As the Trudeau Liberals ramp up immigration levels – with 468,817 applicants granted permanent-residency status in the year between July 1, 2022, and July 1, 2023, alone – they have faced an inevitable trade-off that UQAM’s Prof. Fortin describes this way: “The deeper you go into the queue of applicants, the more you are picking those with fewer qualifications and less work experience.”

IRCC conducts “draws” twice a month to select applicants with the highest scores. Based on a maximum score of 1,200 points, cut-offs in most of the draws Ottawa has conducted this year have hovered between 400 and 500 points. However, IRCC also has held several category-based draws for specific classes of immigrants, including agricultural workers, truck drivers and francophones (outside Quebec). CRS cut-off scores in those categories have been markedly lower.

IRCC is also increasingly favouring applicants who already have work experience in Canada, regardless of whether they are burger flippers or neuroscientists. Indeed, about half of the permanent residents Canada accepted in 2022 had already been living here as temporary foreign workers and students. A 2021 Statistics Canada study found that most immigrants with prior work experience in Canada earned more in their first year as permanent residents than newcomers who had not previously worked here, suggesting there are at least short-term economic benefits to this approach.

However, economists worry about longer-term consequences of this shift. In 2021, the CRS cut-off score sank to a low of 75 points (again, out of a possible 1,200) in one draw in which Ottawa invited 27,332 temporary residents to seek permanent residency under a program that fast-tracks applicants with prior work experience here.

“The government is clearly prioritizing plugging holes in labour markets over human capital selection,” Prof. Skuterud charges. “This is unsound policy if the objective is boosting labour productivity and GDP per capita.”

To avoid downward pressure on living standards, Prof. Skuterud says Canada would need to accept only immigrants whose earnings are expected to match or exceed the average Canadian income. Adopting such a rule could mean cutting permanent-residency targets for those in the economic-class category by as much as 50 per cent.

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At the very least, Ottawa needs to slam the brakes on the number of temporary residents entering the country. Their numbers surged 46 per cent in the year to July 1 alone, bringing the total number of non-permanent residents in Canada to 2.2 million people. This massive influx has exacerbated the housing shortage in Canada’s cities and is turning Canadians off immigration.

Canada Mortgage and Housing Corp. projects that 3.45 million additional housing units, on top of those expected under a business-as-usual scenario, are needed in Canada by 2030 to return housing affordability to 2004 levels. But its projection is based on a decline in the rate of population growth after 2025. If current immigration trends continue until 2030, CMHC predicts the country’s housing shortfall would rise to four million units by the end of the decade.

The Century Initiative plan sees population in the Toronto region almost quadrupling to 33.5 million in 2100. That would make Canada’s largest urban agglomeration about the same size as New Delhi today, and only slightly smaller than Tokyo. Under the Century Initiative vision, the Montreal and Vancouver regions would each be home to about 12 million people in 2100, three or four times their current numbers.

Those who insist that Canada’s cities could accommodate this massive growth if they loosened zoning restrictions to encourage densification do not live in the real world. For most people, the “Canadian dream” does not consist of living their whole lives in cramped apartment and condo towers, and no politician wants to burst their bubble. The political class continues to peddle the increasingly elusive goal of single-family home ownership, with greenspace for the kids and dog. Under the Century Initiative plan, the political pressure to open up protected areas such as Ontario’s Greenbelt to development would intensify. It is simply disingenuous to suggest that Canada’s population could reach 100 million without leading to more urban sprawl and congestion.

And for what? For the assumed bragging rights that might accrue to a country of 100 million as opposed to one of, say, 40 million? Would a Canada of 100 million people have any more global influence if its leaders continued to see foreign policy through the lens of diaspora politics, pandering to specific domestic ethnic groups to win votes?

Canada’s biggest economic problem is not that its population is too low. It is that our productivity is not growing fast enough to sustain our standard of living. And Ottawa’s current immigration policy is making matters worse.

In 2021, the Organization for Economic Co-operation and Development ranked Canada dead last among its 38 advanced-country members, with a potential annual GDP per capita growth of 0.7 per cent between 2020 and 2030. That compares with 1.2 per cent for the United States, which has proportionally far less immigration than us. GDP per capita was roughly equal in both countries in the 1980s. Canada’s GDP per capita now lags that of its neighbour by about 25 per cent, and the chasm is growing.

“Population increase, underpinned by high levels of immigration, will continue to be an important driver of growth in Canada’s economy in the years ahead. But long-term improvement in living standards will require higher productivity,” OECD analysts Ben Conigrave and Philip Hemmings wrote in March. “Lacklustre productivity growth since 2015 saw gaps in per capita GDP widen between Canada and better-performing economies, including the United States. Reversing this trend … demands reform efforts equal to those behind recent social policy advances.”

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In just a few years, the Trudeau Liberals have put Canada’s record as an immigration success story at risk. Almost no other country, with the exception of Australia, has welcomed as many newcomers in recent decades with as little social upheaval and as much economic upside as Canada. First- and second-generation immigrants now account for 44 per cent of the country’s population, enriching its cultural fabric and turning our no-longer-sleepy cities into vibrant metropolises. But the flat-out population growth of the past few years threatens to sour more and more Canadians on immigration, lighting a political fuse that could be hard to extinguish.

A backlash against the Trudeau government’s immigration policy has already been under way in Quebec for a while now. Resistance to higher federal immigration levels there stems mainly from concerns – stoked by nationalist politicians – about cultural survival and a dilution of the province’s political influence within Canada.

It would be a mistake to dismiss Quebeckers’ anxieties. The combination of cultural insecurity and a housing affordability crisis could produce a toxic political brew that reinvigorates the sovereignty movement. And another constitutional crisis would only compound Canada’s already daunting economic challenges.

Besides, Canadians outside Quebec are becoming equally unsettled by Ottawa’s immigration targets; more than half of them now think those levels are too high.

Without a major course correction, Canada faces a grim future of unaffordable housing, substandard health care, dilapidated infrastructure and a shrinking tax base as, year by year, its inhabitants grow relatively poorer. That is a recipe for economic decline, if not political bedlam. Let’s not risk going there.

Immigration in Canada: More from The Globe and Mail

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Livio Di Matteo: More immigration will make Canada wealthier – we just need to do it right

Philip Landon: Let’s match Canada’s immigration goals with an ambitious housing plan

Andrew Coyne: It’s not that we have too many people. It’s that we have too few houses