What’s the right number of immigrants for Canada?

In contrast to Globe editorial, Immigration: Canada needs more newcomers and (much more) housing, this article asks the needed questions, featuring business and academic economists who are increasingly challenging the current general political and economic consensus:

How many immigrants should Canada be admitting?

Economists are asking that question with increasing intensity – and for good reason. Canada’s population jumped by more than a million people last year. The surge was the largest annual increase in the country’s history, and one that was driven nearly entirely by immigration.

The skyrocketing number of new Canadians is putting added pressure on an already drum-tight housing market. People are scrambling “for a place to live in a market with no housing supply,” Bank of Nova Scotia warns. Home prices are climbing, while the rental vacancy rate is at “a generational low,” according to National Bank of Canada.

For now, the Liberal government in Ottawa is sticking to the aggressive pro-immigration policy that it introduced after being elected in 2015. It is targeting nearly half-a-million immigrants a year– roughly double the 261,000 that Canada admitted annually in the 2010 to 2014 period.

However, a growing number of critics are challenging the logic behind Ottawa’s great immigration ambitions.

Prominent business economists say they are baffled by the government’s insistence on sticking to supersized immigration quotas at a time of widespread housing shortages. Stéfane Marion, chief economist at National Bank of Canada, and David Rosenberg, president of Rosenberg Research, have urged Ottawa to consider revising its targets to allow housing supply to catch up to demand.

Meanwhile, a new working paper from a trio of Canadian academic economists digs deeper into the issues around immigration. The paper, currently circulating in draft form under the title, The Economics of Canadian Immigration Levels, offers a scholarly but withering critique of current policy.

The authors – Matthew Doyle and Mikal Skuterud of the University of Waterloo, and Christopher Worswick of Carleton University – argue that policy makers are mistaken to conclude “that if some immigration is good for the economy, then more must be better.”

Granted, how you view this issue depends on how you define “better.” The three economists acknowledge that if Ottawa’s goal is simply to swell Canada’s geopolitical clout then, yes, it does make sense to fling open the doors and welcome a massive influx of newcomers. More workers and more consumers will mean a larger economy.

But size isn’t everything. Imagine a case in which Canada’s economic output doubled while its population did, too. Would this improve life for a typical Canadian? Not really. The average person would wind up seeing no improvement in their standard of living. The increase in the size of the economic pie would be matched by an equivalent increase in the number of people sharing it.

There is also morality to consider. On paper, it’s possible to show that a country can generate an “immigration surplus” by bringing in masses of low-skilled workers to take menial jobs. This underclass of low-paid immigrants can free up the existing population to pursue better-paid occupations.

However, it’s questionable how far this idea can or should be pushed in an egalitarian country such as Canada. The notion of an immigration surplus downplays the stresses faced by low-paid immigrants. It ignores issues of income inequality and focuses only on the benefits reaped by the people already in the country.

The three professors argue for a more equitable, more inclusive approach. They say the fairest and most reasonable test of Canadian immigration policy is whether it helps to grow output per person – or gross domestic product (GDP) per capita, in the jargon.

Research has demonstrated that measures of per capita GDP are closely tied to feelings of well-being and life satisfaction. If immigration offers a surefire way to boost this number, then there is good reason to think it is benefiting the nation as a whole.

Unfortunately, for the pro-immigration camp, there is no evidence that it does much of anything to help accelerate growth in GDP per capita.

The opposite is often true. When immigration is limited and labour is in short supply, businesses can find it profitable to invest in new capital – tools, computers, factories and other gear – to boost the productivity of scarce workers. This capital investment can help to swell per capita GDP.

In contrast, when immigration is surging, the case for capital investment may look less attractive. Businesses can find it cheaper to hire an additional worker to meet new demand instead of investing in new equipment. The result can be a larger work force, but one with lower productivity and lower per capita GDP.

The three professors look back at past decades and see nothing to indicate that immigration has ever been an economic tonic.

“Using evidence for Canada and the U.S., we find either a negative relationship, or no relationship, between periods of high immigration and subsequent growth in GDP per capita,” they wrote in their paper.

Just to be clear here: The lack of any obvious economic payoff from immigration doesn’t mean Canada should slam the door shut on newcomers.

The economists point out that federal legislation lists 12 goals for immigration, ranging from family reunification to supporting minority official languages communities. Many of those goals aren’t economic in nature and can still justify substantial levels of immigration.

But the dubious economic case for immigration raises questions about why Ottawa has been basing so much of its immigration policy on economic rationales. The government’s most recent targets allot roughly 60 per cent of immigrant slots to economic-class applicants – that is, people who are, in theory, being chosen for their ability to contribute to Canada’s prosperity.

This emphasis on economic-class immigrants may reflect misconceptions.

Consider, for instance, the idea that immigration is needed to fill low-skill, essential jobs. This doesn’t make a lot of sense, according to the economists. Admitting people to fill low-wage jobs pulls down, rather than pushes up, GDP per capita.

Just as questionable is the idea that immigration can offset the effects of Canada’s aging population.

Immigrants age and eventually retire just like anyone else. While there may be a short-term demographic dividend from immigration, “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,” the economists wrote.

So what can Canada do to improve its economic-class immigration system?

The three co-authors suggest that Ottawa should focus on admitting immigrants with higher levels of skills and education than it is currently targeting. They argue that the goal should be to select immigrants who can earn at least as much as, if not more, than the average Canadian within 10 years of arrival. Over time, this policy should boost GDP per capita.

The economists don’t offer any estimate of how such a policy would affect the number of immigrants being admitted, although Prof. Skuterud and Prof. Worswick both acknowledged in interviews that the impact, at least at first, would likely be a significant decline in the number of newcomers.

They suggest this might be wise, given the stresses being put on social systems by today’s massive influx of immigrants. Their paper cautions that “the strains currently being placed on the public health care system, the public education system and the highly regulated housing sector suggest even more reason to be cautious about setting high levels of economic immigration.”

Pro-immigration voices can, of course, find plenty here with which to take issue. That is absolutely fine. A vigorous debate over immigration is exactly what Canada now needs.

Source: What’s the right number of immigrants for Canada?