Keller: Canada’s economy is stuck in a rut. High immigration isn’t the cause – or the answer

Of note. More on the perverse effects of current immigration policy, permanent and temporary, on productivity and per capita GDP:

Between 1990 and 2022, Canada’s population grew by 40.6 per cent. That’s more than most of the world’s highly-developed countries.

Switzerland’s population increased by 30.6 per cent over the same period, or about three-quarters of Canada’s pace, according to data from the World Bank. Norway was up 28.7 per cent. Sweden’s population grew at about half of Canada’s rate, as did the Netherlands and Austria. Taiwan and Denmark’s population growth was a little more than a third of Canada’s. Finland grew at roughly a quarter of Canada’s pace. Germany’s population rose by just 5.9 per cent, or one-seventh the Canadian rate.

These countries have something else in common: According to the International Monetary Fund, they are on the very short list of nations whose per-capita gross domestic product is higher than Canada’s.

In plain English, they’re wealthier than us. If you took the annual economic output of each country and cut it into the same number of slices as it has people, their residents would each get a slightly larger slice of the pie than the average Canadian.

Canada’s higher-than-our-peers population growth – powered by a higher immigration rate – is not why our economic performance in recent decades has left something to be desired. But neither is the country’s higher population growth, and the Liberal government’s plan for ever-rising immigration, some kind of magic solution for goosing Canadian living standards.

If Canada were a country where a calm and rational discussion of immigration was possible, we’d be talking about this. We’d be thinking hard about how the immigration system can best be designed to raise living standards for the average Canadian – not just growing the population and the economy, but growing the economy at a pace considerably faster than the population.

As a recent study from TD Economics points out, Canada has spent the last couple of decades “falling behind the standard-of-living curve.”

Since 2011, Canada’s GDP has grown at the same pace as the United States, and ahead of the rest of the G7. But Canada’s population has been growing faster than the rest of the G7, masking our economic underperformance.

When you look at GDP per capita rather than GDP – and ask not “is the country bigger?” but “is the average Canadian better off?” – Canada is losing ground.

In 1980, Canada’s GDP per capita was US$4,000 ahead of the average advanced economy, according to TD. By the year 2000, Canada and the others were neck and neck. And today, Canada is behind. Why? Because since 2014, our real GDP per capita has grown by just 0.4 per cent a year, compared with 1.4 per cent in other advanced economies. Unlike those countries, the growth of Canada’s pie is barely keeping pace with the rising number of forks.

A higher-than-average rate of immigration didn’t cause that. Yes, that short list of countries with higher per-capita GDP than Canada is mostly made up of places with lower population growth. But it also includes one country whose growth was only slightly below Canada’s – the U.S., whose population rose by 33.5 per cent between 1990 and 2022 – and another, Australia, which had higher immigration levels and higher population growth for much of the same period.

Canada’s sclerotic economic performance is owing to decades of low productivity growth, caused in large part by low levels of business investment in plant, equipment and technology.

But immigration can be used to boost productivity growth, or to suppress it.

Canada’s immigration system was designed with a clear understanding of that. The core of our immigration system has long been economic immigration. Immigrants in that stream are chosen based on a points system, with applicants with more education and skills going to the head of the line.

To the extent immigration is tilted toward arrivals who are of working age and have more education, skills and earning power than the average Canadian, that boosts Canada’s GDP per capita. High-skills immigrants add more to the pie than the average Canadian – increasing the size of everyone’s slice.

The goals of the economic immigration stream were never perfectly executed, but since 2015, the Liberal federal government has further diminished it.

They somewhat reduced the share of economic immigrants, while raising the share of family-class and refugees. At the same time, the Liberals ramped up admissions of temporary foreign workers, including through a visa student program whose numbers are not limited, and have exploded.

A lot of those temporary workers are filling low-wage jobs in retail and fast food. Employers find it convenient to have an almost bottomless supply of minimum-wage labour, but making sure there are always more than enough people ready to prepare and deliver your burrito, at $15-an-hour or less, is not the right economic imperative for Canada. It doesn’t boost GDP per capita but lowers it.

It also discourages low-wage businesses from raising pay to attract new workers, or making productivity-raising investments that reduce the need for labour. Those approaches would lower inequality and raise productivity – and Canada needs to do both.

And I haven’t even mentioned the impact of immigration on housing.

We need be thinking hard about all of this, and discussing it honestly. Will our politics even allow it? More on that, later this week.

Source: Canada’s economy is stuck in a rut. High immigration isn’t the cause – or the answer