Ottawa’s immigration cuts will chop 1.7% off GDP in 3 years: PBO [but improve GDP per capita]

2025/01/25 Leave a comment

As expected. But part of addressing decline in GDP per capita:

…Canada’s plan to reduce the number of immigrants over the next three years will result in a 1.7 per cent drop in the country’s gross domestic product  (GDP) by 2027, according to the federal fiscal watchdog.

The report from the parliamentary budget officer (PBO), Yves Giroux, on Thursday also said that new immigration targets released by the federal government last fall will slash the country’s population by 3.2 per cent or 1.4 million people over the next three years.

The PBO report comes days after Statistics Canada reported this week that Canada’s population could reach up to 80 million in 50 years, with migratory increase a “key driver of population growth.”

The PBO report said that the federal government’s new target to reduce immigration levels would lead to 1.3 billion fewer hours worked in 2027, resulting in the drop in the real GDP.

“However, given the sizeable population shock, real GDP per capita would be 1.4 per cent higher in 2027 under the 2025-2027 [Immigration Levels Plan],” the report said….

Source: Ottawa’s immigration cuts will chop 1.7% off GDP in 3 years: PBO

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Sean Speer: Trudeau’s empty-calories economic agenda is failing Canada

2024/01/19 Leave a comment

Of note:

The key point here is that even if one is motivated by normative commitments to reducing inequality in our society, the answer isn’t to neglect the imperative of intensive growth. A policy agenda that sought to boost business investment and innovation in the name of increasing overall wealth wouldn’t necessarily involve a major equity trade-off. Higher GDP per capita growth is ultimately key to boosting living standards for all Canadian households.

The bigger point though is that the Trudeau government’s experiment with an extensive growth agenda rooted in high immigration and high public spending has manifestly failed to produce positive results. It may have staved off a technical recession, but it has contributed to deep recessionary conditions for Canadian living standards that are having far-reaching socio-political consequences including heightened pessimism about the future among ordinary citizens.

This growing realization has led to renewed debate about Canadian immigration policy. That’s a healthy development. We need to restore a more responsible policy that sets reasonable targets and reprioritizes high-skilled immigrants. Pierre Poilievre deserves political credit for taking a big step in this direction.

But that’s a necessary yet insufficient response to what ails Canada’s economic life. What we ultimately need is to replace the Trudeau government’s empty-calories economic agenda with a healthier mix of pro-growth policies to boost investment, productivity, and living standards.

source: Sean Speer: Trudeau’s empty-calories economic agenda is failing Canada

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Canada’s post-pandemic economic recovery was the 5th weakest in the OECD

2023/11/07 Leave a comment

Sobering reminder of the failure of current economic and immigration policy. The Business Council of British Columbia consistently has the most realistic perspective of the impact of high immigration levels among all the business organizations:

Canada’s economy has generated little prosperity for the average Canadian over the past 8 years. Government forecasts indicate the economy is also expected to generate little or no prosperity over the next 8 years (see Williams 2023a).

The first step to managing any problem is to acknowledge that you have one. In contrast, the 2023 Federal Budget (page 5) claimed:

Canada’s economy is now 103 per cent the size it was before the pandemic, marking the fastest recovery of the last four recessions, and the second strongest recovery in the G7. Throughout 2022, our economy demonstrated sustained strength, with Canada posting the fastest growth in the G7 over the past year. [emphasis added]

Similarly, in the 2022 Fall Fiscal Update, the government claimed (page 27):

“There is no country better placed than Canada to weather the coming global economic slowdown and thrive in the years ahead.” [emphasis added]

The federal government’s decision to focus on GDP in its statements (i.e., “the size of the economic pie”), rather than GDP per capita (“everyone’s share of the economic pie”), is unfortunate. Over the past year, Canada’s real GDP grew by around 1%, but the population grew by 3% (1.2 million persons), so in per capita terms the economy became about 2% smaller. GDP growth is being juiced by the government’s pursuit of the fastest population growth since 1957-58. The 1957-58 episode followed two major global events, the Hungarian Revolution and Suez Crisis, whereas the current period entirely reflects domestic policy choices.

It’s true that when the population increases, GDP increases. But does the economy get any better in terms of people’s living standards? What happens to everyone’s share of the economic pie? To answer those questions, we need to focus on GDP per capita.

How did Canada’s economy perform prior to the pandemic?

In the five years to 2019, Canada’s real GDP per capita grew by 3% (0.5% per annum). It was the 4th weakest performance out of 38 advanced countries (Figure 1). Canada lagged well behind the United States (9%), Euro area average (9%), OECD average (8%), and G7 average (7%).

Figure 1

How has Canada’s economy performed since the pandemic?

Canada is one of only eight advanced countries where real GDP per capita is lower than before the pandemic. For the change in real GDP per capita over 2019-22, Figure 2 shows percentage growth rates and Figure 3 shows growth in US dollars (adjusted for purchasing power parity, PPP, across countries).

Canada’s real GDP per capita was USD 200 (0.4%) lower in 2022 than in 2019. In contrast, it was USD 3,300 (7%) higher in Australia, USD 2,500 (4%) higher in the United States, USD 1,300 (3%) higher for the OECD average and USD 1,100 (2%) higher for the G7 average.

Canada’s post-pandemic recovery in real GDP per capita over 2019-22 was the fifth weakest out of 38 OECD countries. Only the economies of the United Kingdom, Iceland, Spain and Mexico have had weaker recoveries.

Figure 2

Figure 3

Immigration is not an economic panacea

Immigration, not productivity, is the centrepiece of the federal government’s economic growth plan. However, the academic literature overwhelmingly finds that immigration levels have a neutral or negligible overall impact on a country’s living standards as measured by labour productivity, real wages, the employment rate, the age structure of the population or, crucially, GDP per capita.

There is a strong consensus on these points among Canada’s top labour market economists:

The fact that immigration has an overall neutral effect on GDP per capita (i.e., on “everyone’s share of the economic pie”) in the long run means we need to look through the veneer of population growth to see what is happening to living standards. GDP per capita is a good metric for this.

Reality check

Unfortunately, the federal government’s economic statements tend to focus on GDP growth. In the current context, with turbocharged population growth and labour productivity falling, this is an unhelpful metric.

It is out of touch with the weak economy most families are facing:

  • Canada’s growth in GDP per person was the fourth-weakest in the OECD in the five years before the pandemic to 2019.
  • Canada is one of only eight advanced countries where average real incomes are lower than before the pandemic, as inflation outpaces growth in nominal incomes. 
  • Canada’s recovery in real GDP per capita was the fifth-weakest in the OECD over 2019-22.
  • The OECD projects Canada will be the worst performing economy among the 38 advanced economies over both 2020-30 and 2030-60, with the lowest growth in real GDP per capita (see Williams, 2021).

Young and aspirational Canadians face 40 years of stagnation in average real incomes (Williams 2021). The principal reason is that Canada is expected to rank dead last among OECD countries for growth in labour productivity over most of 2020-60. Our workforce is less productive than workforces in peer countries (in terms of output per hour worked) because of relatively lower levels of non-residential capital investment per worker, lower levels of innovation and R&D, and because the average firm is less likely to export and produce output at scale.

Ignoring a problem does not make it go away

The federal government was so alarmed by Chart 28 of the 2022 Federal Budget (pages 25-26) – showing Canada dead last among 38 advanced countries for projected growth in real GDP per capita over 2020-60 – that it took bold and decisive action: by erasing any mention of this issue from its 2023 Federal Budget. The omission was not lost on columnist Andrew Coyne at the Globe and Mail.

Ignoring a problem does not make it go away. Canada’s structural problems need to be acknowledged (Williams (2023b)) and our economic policy mix needs rethinking (Williams and Finlayson (2023)).

Canada needs a prosperity-focused policy agenda focused on improving conditions for non-residential business investment, innovation, technology adoption and exports. With the Fall Economic Statement due in November, we encourage the federal government to take this opportunity to address these issues.

Source: Canada’s post-pandemic economic recovery was the 5th weakest in the OECD

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Why GDP per capita is becoming the indicator to watch

2023/04/21 Leave a comment

Indeed:

Canada has been the worst performing advanced economy in the Organization for Economic Co-operation and Development since 1976. Governments of all partisan stripes have tried and failed to reverse the trend. If nothing changes, the OECD projects, our economic growth per capita will continue to stagnate for decades to come. This article is part of an occasional series called Per Capita, which examines how and why policy interventions have come up short – and how fresh approaches to economic growth are urgently needed.

A growing cohort of analysts are tempering their enthusiasm for Canada’s recent economic performance for a simple reason: Strong population growth is bulking up the numbers.

Last week, the Bank of Canada projected that real gross domestic product would increase by 1.4 per cent this year, up from a previous forecast of 1 per cent, and by 1.3 per cent in 2024. The central bank said a key factor in its 2023 upgrade was the surge in population, which is expanding the pool of labour and consumers.

Canada’s population rose by just more than one million people in 2022, an annual increase of 2.7 per cent that was the largest since the late 1950s. This is part of a deliberate plan from the federal government to boost population through higher immigration.

For that reason, some economists say they’re paying more attention to growth in real GDP per capita – or economic output per person, adjusted for inflation – than they used to. And on that front, Canada’s economic performance is decidedly weaker: Per capita output in 2022 was roughly the same as in 2017.

The near-term outlook doesn’t show much upside. Even if population growth cooled to 2019 levels, per-capita GDP would still decline for the next two years, based on the Bank of Canada’s projections for output.

“I don’t see that the federal government is focused on per capita GDP, they’re just focused on GDP,” said David Williams, vice-president of policy at the Business Council of British Columbia.

“If you crank up population growth, sure, the economy gets bigger. But that doesn’t mean that we’re not facing stagnating living standards for the majority of Canadians.”

GDP per capita is often used as a proxy for living standards. The metric is positively correlated with life expectancy and well-being – residents of more productive countries tend to live longer and report being happier.

It is not a perfect measure of prosperity. Per capita output in Canada is around three-quarters of that in the U.S., according to data from the Organization for Economic Co-operation and Development, although Canada enjoys an average life expectancy at birth that is roughly five years longer. However, the U.S. is an outlier in life expectancy among wealthier countries.

Canada’s productivity struggles are hardly new and have been debated for decades. Benjamin Reitzes, a macro strategist at Bank of Montreal, recently noted that the average annual growth in real GDP over the past 10 years was 1.8 per cent, but only 0.6 per cent after adjustments were made for population gains.

Ottawa is aware of this issue – and the potential for decades of mediocrity. In the 2022 budget, the federal government mentioned an OECD forecast that predicts Canada will have the weakest per capita growth among its member countries from 2020 to 2060. “The stakes are high. Most Canadian businesses have not invested at the same rate as their U.S. counterparts,” read the budget.

While Ottawa has acknowledged this productivity issue, some economists are calling on governments to focus more on per capita growth and how to bolster it. (The 2023 federal budget did not repeat its mention of the OECD projection.)

“No per capita growth means Canadian living standards are stagnant,” Mr. Reitzes wrote in a recent note to clients. “Historically, policy makers haven’t paid much attention to the per capita metric. Hopefully, that changes soon.”

The federal government is ramping up immigration levels in the coming years, targeting the intake of 500,000 permanent residents annually by 2025. Most of Canada’s population growth last year was driven by temporary residents, including workers and international students.

Ottawa has frequently said that raising immigration levels is necessary to fill jobs and boost economic growth. However, some of its recent policy decisions have made it easier to fill low-wage roles in lower-productivity sectors with temporary foreign workers.

“We’ve normally tried to target the best and brightest,” said Mr. Williams. “But it seems that there’s been a shift in Ottawa toward saying, ‘Hey, let’s fill these very-low-wage, entry-level jobs.’ And that’s a concern.”

Source:Why GDP per capita is becoming the indicator to watch

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Le malentendu sur l’impact économique de l’immigration

2022/06/04 Leave a comment

A relatively rare article on Quebec immigration that focuses more on the economics than the existential jurisdictional issues, and one that counters many of the false arguments in favour of ongoing increases in immigration levels:

Du point de vue économique, l’immigration n’est pas la catastrophe que certains prétendent ni la panacée que d’autres espèrent, préviennent des experts. En fait, disent-ils, elle aurait finalement assez peu d’impacts sur l’économie en général et sur la pénurie de main-d’œuvre en particulier.

François Legault a soulevé un tollé cette semaine en déclarant que si le Québec n’obtenait pas plus de pouvoirs d’Ottawa en immigration, il risquait le même sort que la Louisiane en matière de défense du français. Il a également fermé la porte à l’idée d’augmenter le seuil annuel d’immigration de 50 000 à 58 000. « On pense qu’on a atteint la capacité d’intégration », a déclaré le premier ministre.

En fait, le Québec accueille déjà bien plus d’immigrants que cela chaque année, a rappelé l’Institut du Québec dans une étude mercredi. Si on tient compte de l’immigration temporaire, on parlait même d’un gain record de presque 93 500 nouveaux arrivants en 2019. Or, les besoins de main-d’œuvre sont tellement grands au Québec que cela n’a pas empêché, au fil des ans, une amélioration spectaculaire de l’intégration économique des immigrants reçus. Elle se voit notamment par le recul marqué de leur retard en matière de taux d’emploi et de rémunération par rapport aux autres travailleurs.

Ces faits montrent bien l’ampleur des besoins de l’économie québécoise, qui est aux prises avec un vieillissement marqué de la population, avait fait valoir le mois dernier le Conseil du patronat dans un livre blanc sur l’immigration. « Nous faisons face à une pénurie de main-d’œuvre sans précédent, mais nous ne nous donnons pas toutes les chances de la surmonter », avait déclaré son président et chef de la direction, Karl Blackburn, avant d’en appeler notamment au rehaussement des seuils d’immigration permanente « à au moins 80 000 personnes par année pour les quatre prochaines années ».

Impact modeste

Tous ces débats tendent à exagérer l’impact de l’immigration sur l’économie en général et sur la pénurie de main-d’œuvre en particulier, observe l’économiste émérite de l’Université du Québec à Montréal Pierre Fortin dans un mémoire d’une quarantaine de pages réalisé à la demande du ministère de l’Immigration du Québec.

Se basant sur des synthèses de la recherche ainsi que sur de nouvelles analyses de son cru, il constate d’abord qu’il « n’existe aucune preuve scientifique que la croissance du niveau de vie des Canadiens réagirait positivement (ou négativement) à une expansion accélérée de l’immigration ». C’est que ce niveau de vie ne dépend pas seulement de l’augmentation du produit intérieur brut (PIB) que génère mécaniquement une hausse du nombre de travailleurs, mais aussi de l’augmentation du PIB par habitant. Or, la taille de la population et le poids qu’y occupe l’immigration ont, à terme, une influence nulle sur la croissance de cette richesse par habitant.

L’immigration n’a pas non plus la capacité d’altérer substantiellement l’actuel vieillissement de la population canadienne, dit Pierre Fortin, citant une étude de l’Institut C.D. Howe. D’abord parce que les immigrants finissent eux aussi par vieillir, comme tout le monde, et aussi parce qu’ils font souvent venir leurs parents auprès d’eux. En fait, pour stopper la hausse constante de la proportion des 65 ans et plus dans la population, avait estimé C.D. Howe, il faudrait tripler les cibles annuelles d’immigration au Canada pour 2024, en les faisant passer de 451 000 à 1,4 million de personnes.

Enfin, si l’accueil de travailleurs étrangers peut répondre aux besoins urgents et particuliers de certaines entreprises, l’immigration, en général, ne peut avoir qu’un effet globalement modeste sur le problème de pénurie de main-d’œuvre, ont constaté des experts. C’est que les immigrants qui viennent occuper des postes vacants deviennent aussi des consommateurs et finissent, « à l’autre bout du circuit économique », par stimuler la demande de travailleurs en retour.

Au-delà de l’économie

Et il n’y a pas que des considérations économiques, bien sûr, souligne Pierre Fortin. Il faut aussi tenir compte du poids démographique du Québec dans le Canada, de la défense du fait français et du risque de dérapage xénophobe.

« Cela dit, l’immigration doit progresser. Elle est une formidable source de renouvellement et de progrès culturel et humain. Elle rend possible une société plus diversifiée, dynamique et ouverte au monde. Elle est notre contribution au combat mondial contre les inégalités de revenu et de richesse », conclut néanmoins l’économiste dans son mémoire. « Mais il faut comprendre que l’immigration optimale n’est pas l’immigration maximale. »

Source: Le malentendu sur l’impact économique de l’immigration

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Mahboubi, Skuterud – An Economic Reality Check on Canadian Immigration (Part I), Part II link

2021/03/11 Leave a comment

Good and needed critical thinking regarding the limitations and weaknesses of the government’s immigration plan and approach:

COVID-19 travel restrictions hobbled Canada’s immigrant admissions in 2020. In response last fall, the federal government revised its 2021 targets upwards, saying it was necessary for our economic recovery.

Showing its commitment to the ambitious target, on February 13 the government issued invitations to a record-breaking 27,332 applicants in its Canadian Experience Class (CEC) program, which targets applicants with Canadian work experience, and are therefore more likely to be living in Canada.

But to issue so many invitations, it was forced to drop its Comprehensive Ranking System cut-off score in its Express Entry system to an all-time low of 75, far below the previous record of 413. This strategy is analogous to a university doing away with entry standards to significantly boost enrolment. If history is an indicator, there is good reason for concern.

The primary objective of Canada’s economic-class immigration programs is to leverage immigration policy to boost the economic well-being of Canadians. To do that, we need immigration inflows to raise GDP per capita, not simply increase the population.

To assess if we are achieving this objective, Canadian researchers examine earnings of new immigrants. Since workers’ earnings comprise roughly two-thirds of GDP, we need new immigrants to earn more than the national average if we are to raise GDP per capita.

Unfortunately, the evidence is that Canada has historically struggled to achieve this objective, and continues to struggle. The hard reality is that we saw a substantial deterioration in the earnings of subsequent cohorts of new immigrants and an increase in their relative poverty rates from the early 80s to the early 2000s.  

This prompted numerous reforms of skilled immigration policies since 2005, primarily directed at improving immigrant selection, including introducing pre-migration mandatory English/French language testing and education credential assessments. A key piece of the policy reform was the 2015 introduction of the Express Entry system.

Rather than admit applicants who have met the minimum requirements of one of Canada’s economic-class programs on a first-come, first-served basis, the Express Entry system skims the cream of the applicant pool on a regular basis using a tool known as the Comprehensive Ranking System (CRS). The CRS assigns each applicant a score between zero and 1,200 using a set of criteria, including age, education, and work experience. The factors and their relative weightings were determined by a statistical analysis predicting immigrants’ earnings during their first 10 years in Canada.

While there is evidence that these reforms have helped curtail the deterioration in immigrants’ earnings, they continue to experience significant economic integration challenges. For example, a recent Statistics Canada study shows that international students who graduated in 2010-2012 earned considerably less than domestic graduates in their first five years after graduation.

Shortfalls of former international students are also evident when their earnings are compared to domestic graduates with similar degrees in similar fields of study.

The economic challenges of Canadian university-educated immigrants are, in fact, exceptional. Whereas university-educated immigrants from India who settle in the United States outperform their US-born counterparts with similar education, the average earnings of Indian-born university-educated immigrants in Canada fall significantly below their Canadian-born counterparts. This reflects the continuing truth that US universities and salary premiums attract the world’s best and brightest while Canada’s relatively generous welfare state attracts migrants less sure of their talents.

Examining the 2016 earnings of recent immigrants admitted under an economic-class program, we find that CEC principal applicants had higher average earnings than the non-immigrant population. When we also include their spouses and dependants, their combined average earnings were only slightly lower than prime-age non-immigrants (Figure 1). This small difference reveals both the success of Canada’s CEC program, but also the risk of forgoing CRS standards to reach immigration targets.

Immigration, Refugees and Citizenship Canada (IRCC) has held 170 Express Entry draws since January 2015. The median CRS cut-off score in past draws was 461 and has never dropped below 413. Lowering the standard to 75 means admitting immigrants who will experience more significant economic-integration challenges. Doing so during an economic crisis with high levels of joblessness seems ill advised.

In the government’s defence, all 27,332 CEC applicants who received invitations in February’s draw have at least one year of Canadian experience, and it is likely that a high percentage are currently employed, and in all likelihood many close to the front line during the pandemic. There are unquestionably compelling ethical reasons for providing these workers and their families with pathways to permanent residency.

But there is a risk in using economic-class programs to achieve humanitarian objectives; it compromises the ability of the Express Entry system to achieve its economic objectives.

The Tinbergen Rule says that for every policy target there should be at least one policy instrument. When there are fewer instruments than targets, the ability of policy to achieve its targets is compromised. Let us make sure that all our immigration programs do at least one thing well, instead of everything badly.

Tomorrow, we examine the potential consequences of increasing immigration during the crisis.

Source: https://www.cdhowe.org/intelligence-memos/mahboubi-skuterud-–-economic-reality-check-canadian-immigration-part-i

Part II: https://www.cdhowe.org/intelligence-memos/mahboubi-skuterud-–-economic-reality-check-canadian-immigration-part-ii

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