As Canada anticipates a surge in immigration, with approximately 1.45 million newcomers projected from 2023 to 2025, a significant question arises: What is the optimal level of immigration for the nation?
A recent study by Desjardins seeks to shed light on this matter, considering Canada’s demographic and economic ambitions, public services infrastructure, and federal support systems.
Economic Considerations
One of Canada’s primary immigration goals is to address labor shortages stemming from its aging population. A longstanding correlation exists between Canada’s economic potential (measured by its economic output gap) and the admission of both economic temporary and permanent residents. However, recent data suggest a shift in this correlation, with more newcomers arriving than what the economic output gap justifies. This, combined with a low unemployment rate, raises concerns about an excessive influx hindering economic growth.
Nevertheless, Canada’s unemployment rate has remained stable at around 5%, and job vacancies have consistently surpassed unemployment figures. This indicates that while immigration approaches economic potential, a substantial number of available jobs remain. Notably, temporary foreign workers often fill specific labor gaps, adding to the general workforce. Given these factors, maintaining current immigration levels seems justified for economic growth.
Moreover, long-term economic benefits emerge from welcoming newcomers. Recent immigrants contribute positively to potential GDP growth and GDP per capita due to higher employment rates and a younger demographic. The growth of Canada’s working-age population in 2022 was largely driven by immigrants, signifying immigration’s economic significance in the short and long term.
Demographic Aspects
Canada’s aging population presents a pivotal economic challenge. The economic strain arises from healthcare costs for elderly individuals (aged 64 and above). The national healthcare system absorbs most medical expenses for this demographic, impacting public finances, particularly in provinces with fewer resources. Healthcare spending per capita is predicted to double by 2040, potentially reaching CAD 10,000 annually.
Desjardins explores how immigration can help balance the expenses of an aging population and economic growth. To maintain the working age-to-aging population ratio by 2040, a 2.2% annual increase in the working-age population is necessary. Welcoming newcomers can elevate living standards while ensuring fiscal sustainability.
Addressing Housing Challenges
While increased immigration offers benefits, it also poses challenges, as evident in Canada’s housing market. The rising demand due to population growth has led to decreased housing affordability. Limited new housing projects and higher production costs exacerbate this issue. The influx of temporary residents further strains housing availability, potentially discouraging skilled workers from settling in Canada.
Balancing Act
While the advantages of immigration are clear, there are costs to consider, particularly in housing. Striking a balance between immigration and housing affordability is crucial. Tightening requirements for non-permanent residents may mitigate housing challenges but could affect workforce growth and fiscal stability. The government must carefully craft immigration policies prioritizing housing affordability and Canadians’ overall well-being.
Immigration holds a pivotal role in Canada’s economic and demographic landscape. While challenges exist, a well-balanced approach can ensure economic growth, demographic stability, and improved living conditions for newcomers and Canadians.
