In 1993, Canada’s real GDP per capita was 106 per cent of the OECD average. The C.D. Howe Institute forecasts that in 2024 Canada will be just 89 per cent of the average of advanced economies. Canada has also fallen compared with the United States: In 2023, this country’s GDP per capita is forecast to be less than three-quarters that of the U.S. (Those statistics are relatively generous to Canada, since the institute has adjusted them for domestic purchasing power.)
Odd report, at odds with most labour economists in terms of impact on per capita GDP:
At a time when skeptics are questioning Canada’s plan to ramp up immigration, a new report argues the country needs to welcome a lot more newcomers to counter-balance its aging demographic.
A Desjardins report released Monday analyzes how much population growth among working-age Canadians is necessary to maintain the old-age dependency ratio, which refers to the ratio between 15 to 64-year-olds and those aged 65 and older.
It finds that the working-age population would have to grow by 2.2 per cent per year through 2040 to maintain the same ratio that existed in 2022.
And if the country wanted to go back to the average old-age dependency ratio it had between 1990 and 2015, that group of Canadians would have to grow by 4.5 per cent annually.
“I feel like the discussion around immigration levels in Canada, by and large, focuses on the immediate impact on the Canadian housing market,” said Randall Bartlett, Desjardins’ senior director of Canadian economics.
“And so what I wanted to do was sort of zoom out and provide some broader economic context around immigration and why immigration to Canada is important.”
The prospective ramp-up of immigration levels has sparked debate on whether the country can handle higher flows of newcomers amid a housing crisis, and what the total economic impact of having more people in the country would be.
Canada’s population grew by more than one million people last year, a record for the country. Its total population grew by 2.7 per cent, the fastest rate since 1957.
The strong population growth comes as the Liberal government eyes higher annual immigration targets, which would see the country welcome 500,000 immigrants per year by 2025.
Proponents of higher immigration argue that the labour market is able to absorb more workers, and the country needs more working-age Canadians to support the tax base as more people retire.
“We need immigration at a relatively high rate, actually, in order to offset the economic impacts of aging — to be able to pay for the health care that Canadian seniors are going to need,” Bartlett said.
A recent Desjardins analysis finds Canada’s plan to increase immigration could boost gross domestic product per capita if newcomers continue to have the same success getting work that they’ve enjoyed recently.
GDP per capita is the size of a country’s economy divided by its population. Many consider it to be a better measure of a country’s living standards than the overall GDP figure.
The employment outcomes of recent immigrants, particularly those brought in through the economic stream, have improved compared to those of previous cohorts. That’s in part because of changes to federal immigration policy.
In 2018, the median wage of economic immigrant principal applicants surpassed that of the Canadian population by the time they had been in the country for one year, according to Statistics Canada.
“We’re bringing in very, very talented people,” Bartlett said. They are able to find jobs and “generate earnings very quickly that are outpacing the Canadian average,” he added.
But critics argue that relying on immigration to supply workers for the economy can also serve as a disincentive for businesses to invest in technology that would boost labour productivity and reduce dependency on workers.
Bartlett said the federal government could modulate the flow of temporary foreign workers so as to encourage such investments.
But he conceded that housing serves as a major hurdle.
Desjardins estimates the country would need to build 100,000 more units every year to offset upward price pressures caused by having a higher number of permanent residents in the country.
A recent analysis by BMO found that for every one per cent of population growth, housing prices typically increase by three per cent.
The influx of newcomers into the country is already having an effect on the housing market, which rebounded this year despite interest rates being at their highest level in decades.
At its last interest rate decision, the Bank of Canada flagged population growth’s effect on housing prices as one of the factors feeding into inflation.
“Strong population growth from immigration is adding both demand and supply to the economy: newcomers are helping to ease the shortage of workers while also boosting consumer spending and adding to demand for housing,” the central bank said in a press release on its latest rate hike.
Bartlett warned the erosion of housing affordability amid record population growth could damage public support for immigration and warrants swift action from government.
“There’s a risk Canadians could become less open and less positive… toward immigration,” Bartlett said.
“If that leads to scaling back immigration in a meaningful way, then that means Canadians are gonna be facing a significant bill going forward to meet the the aging costs of older Canadians.”
Good summary of concerns regarding low GDP per capita growth:
There is a startling admission buried in Chart #28 of the budget released this month by Canada’s Liberal government.
The chart in Finance Minister Chrystia Freeland’s budget quietly acknowledges a forecast by the OECD, a club of mostly wealthy nations, that Canada will likely come in dead last in the next four decades in regard to GDP growth per capita.The downplayed chart, one tiny aspect of the 304-page document, serves as a warning that individual Canadians, compared to the citizens of 39 other economically advanced countries, will in the next decades likely suffer the lowest real growth in their wages.
Freeland puts the blame for tepid wages almost entirely on Canadian businesses, which she claims “have not invested at the same rate as their U.S. counterparts.” The finance minister then boasts that Ottawa’s policies on housing and immigration will “strengthen the middle class and leave no one behind.”
But more than a few people suggest they are doing the opposite. Why, when the country’s GDP is expanding, have individual Canadians not been getting ahead? Why is their wage growth projected to lag so far behind citizens of other nations? And why are millennials taking the brunt of it?
The OECD predicts Canadians will experience the lowest growth in real wages out of 40 advanced economies. A downplayed version of this chart appeared in the Liberal budget. (Source: OECD / B.C. Business Council)
“Past generations of young Canadians entering the workforce could look forward to favourable tailwinds lifting real incomes during their working lives. That’s no longer the case,” he said.
“If the OECD’s long-range projections prove correct, young people entering the workforce today will not feel much of a tailwind at all. Rather, they face a long period of stagnating average real incomes that will last most of their working lives.”
Ottawa’s economic strategy is based on several “shaky pillars,” which include using “record immigration levels to turbo-charge population growth and housing demand in major cities,” Williams said.
“The political class appears to have lost interest in efforts to raise workers’ productivity and real wage growth through higher business investment per worker.”
Toronto-based analyst Stephen Punwasi says Canada is on its way to becoming the “next Greece,” referring to the way Greeks’ personal incomes tanked more than almost anywhere else after 2009 because of the housing-mortgage-ignited recession.
“Canada has embraced cheap growth by way of residential investment and debt,” Punwasi says. Canada has been putting too much emphasis on home construction, he said, as well as on printing money at a faster rate than almost any other country.
Nowhere in Canada, or even in much of the world, does the economy rely on housing as much as it does in B.C., which has a lower GDP per capita than Alberta and Saskatchewan. Almost 30 per cent of B.C.’s overall economy is tied up in real estate and construction. But the housing sector struggles to grow the economy, or wages, like other industries, which are more able to innovate and export.
The Liberals’ commitment to record immigration targets focuses mostly “on the benefits immigrants provide to older Canadians,” Punwasi said, including in the form of “strong housing demand and tax revenues.”But he cautions that Ottawa’s policies often exploit newcomers, who end up coming to the country unaware of flat wages, especially for the young adults who make up the bulk of immigrants, foreign students and temporary workers.
Donald Wright, the freshly retired head of B.C.’s provincial civil service, notes discouragingly that six out of 10 Canadians recently toll Nanos pollsters they expect their standard of living to worsen.
“Isn’t it time we took Canadians standard of living seriously?” Wright asks in presentations to groups of Canadian Senators and to the Canadian Association of Business Economists.
In addition to Wright’s concern about Ottawa’s inability to promote technological advancement and productivity, he joins Punwasi in worrying that policymakers are over-relying on population growth and cheap labour. It’s not helping the middle classes, he says.
“It’s time for some nuance on immigration policy,” says Wright, who was B.C. Premier John Horgan’s deputy minister. While remaining pro-immigration, Wright hopes for a more thoughtful debate about immigration in Canada, otherwise anti-immigration populists could come to dominate, as they have in other countries.
As it is, Prime Minister Justin Trudeau’s economic plan relies on increasingly record-high immigration counts — of 432,000 in 2022, 447,000 in 2023, and 451,000 in 2024. That compares to 250,000 when the Liberals were first elected.These targets, far higher than those in the U.S. or almost anywhere else, will impact economic equity in Canada, Wright says. “The evidence is very strong that the demographic group most adversely affected by higher immigration is the previous cohort of immigrants.”
That’s in part because the largest group of immigrants is disproportionately those between 25 and 40 years old, which is the same cohort as the already large baby-boom echo, also known as millennials.
An increase in immigration at this time amplifies the challenges millennials are having, particularly in the housing market, Wright says. “So, even if there is a valid argument for raising immigration levels, this is being done approximately 10 years prematurely.”
What makes it all the more unsettling is that the corporate-backed organizations pushing Ottawa to hike immigration targets, such as The Century Initiative and the Conference Board of Canada, have acknowledged that higher immigration leads to lower GDP per capita.
“So why,” Wright asks, “has it become the core of the federal government’s economic ‘strategy’?”
Irrespective of one’s political leanings or whether one agrees with the specific recommendations, it would be nice if elections and politics provided space for more serious policy discussions with respect to longer-term issues, not just the productivity and investment issues highlighted here.
Ironically, their focus on productivity and GDP per capita raises questions regarding the increased immigration levels of the government.
The challenge, however, is how to do so given political party positioning, social media soundbites and the difficulty of doing so:
When presenting their policy platforms in the federal election we’re all expecting soon, political parties may be tempted to focus on capturing headlines. Resisting short-termism is not easy in the current era of growing populism and focus-group-driven politics, but the stakes for our country’s economic future are high.
We’re coming out of an unprecedented (and unsustainable) period of fiscal expansion to alleviate the economic ravages of a global pandemic. In addition, we face long-standing challenges including rapid technological transformation, climate change, aging demographics, changing geopolitical dynamics and more than a decade of secular stagnation. Now more than ever, political platforms should be built on the foundation of a long-term policy framework.
Progress is a choice. It doesn’t happen on its own. From 1945 to 1975, Canadians saw their average real weekly earnings grow at a rate that more than doubled every 28 years. This amazing level of economic growth came in large part as a result of policy choices we made as a country. There was intentionality on what we were trying to achieve together. We need a renewed commitment to our long-term economic future.
Political platforms should be formed based on long-term economic objectives with platform commitments reflecting their potential impact on those objectives. Critically, a strong accountability mechanism, such as a review of outcomes relative to commitments by the Parliamentary Budget Officer, would hold the ruling party accountable to its promises.
Which economic objectives should take priority? Here are two that could have a significant impact:
Real median per-capita income should rise by at least 5 per cent over every five-year period. This may not seem particularly ambitious, but in the five years leading up to 2019 (the most recent data available) median per-capita income only rose 3.4 per cent. Since 2009, there have only been three years in which the rolling five-year window has seen growth of 5 per cent or more. Focusing on median per-capita income ensures that the gains from growth are shared broadly across the population rather than benefiting only a few. To achieve this, policies would need to demonstrate how they plan to sustainably raise growth and improve labour-market outcomes for all segments of the population. We need a shift from consumption spending to greater focus on productive investments: applied public R&D in fast-growing sectors, child care, reskilling workers for the digital economy and helping our resource sector transition to a low-carbon future. Evaluating performance over a five-year window would allow for inevitable cyclical variations that can lead to large annual swings.
Commit to halving the investment gap with OECD countries. There is a well-known and well-documented lack of business investment in machinery, equipment and intellectual property in Canada. There are of course many firms that invest a lot, but by and large economy-wide data consistently show that Canada ranks near the bottom of the pack among members of the Organization for Economic Co-operation and Development. In relation to GDP, business investment of this type is barely more than half what it is in the United States, and just under two-thirds of what it is in the average OECD country. Moreover, as the C.D. Howe Institute notes, Canadian business investment per available worker also badly lags that in the U.S. and other OECD countries. This underperformance in business investment directly contributes to our poor productivity performance, and loss of competitiveness. It is no coincidence that Canada’s export competitiveness weakened in recent years as its share of the U.S. market declined. Over the past two decades, Canadian exports have risen at just half the pace of the overall economy.
In addition, while the United States and the United Kingdom are making ambitious moves on advanced industries and increasing their R&D investments, Canada’s approach is still tentative. In an economy increasingly dependent on intangible assets such as data and digital services, innovation will be a key driver of growth. Building Canada’s sectoral capabilities in advanced (or innovation) industries is becoming paramount. These industries encompass technology at its broadest and most consequential. High productivity ensures that the average worker employed in an advanced industry earns a yearly wage nearly 50 per cent higher than the average Canadian worker.
If pursued, these objectives would represent bold and firm commitments to sustainably raising our standard of living. Parties may of course disagree on the means to achieve them, but they can hardly ignore them. The policy choices that we make in the next few years will shape the Canada of 2050, and our country’s standing in the global economy.
Jean-François Perrault is Scotiabank’s chief economist and a former assistant deputy minister at the Department of Finance. Robert Asselin is senior vice-president of policy at the Business Council of Canada and former policy adviser to two prime ministers.
Of interest. Some similar policy fallacies such as favouring GDP growth over per capita GDP growth as in Canada:
Nades and Priya Murugappan made a fundamental mistake when they separately fled to Australia from Sri Lanka almost a decade ago.
The pair, who met at the meatworks in Biloela on Queensland’s Capricorn Coast and now have two children, lived in the town for four years.
They were on temporary protection visas before they were detained and sent to Christmas Island awaiting deportation.
Since 2019, they’ve existed in a guarded compound under 24-hour surveillance with daughters Kopika and Tharnicaa in an operation that has cost taxpayers more than $6 million.
Rather than flee their home country by boat, they instead should have applied for a skilled worker or student visa. It’s a pretty certain bet they would have received one.
A quick flick through the Skilled Occupation List for workers from abroad shows everything from carpenters to chief executives, chefs and composers, clothing trade workers. And that’s just the Cs.
And even if your chosen occupation is removed, never fear.
“Pending nomination and/or visa applications will not be adversely impacted by the subsequent removal of any occupation from the skilled occupation list,” the Home Affairs department website says.
For decades, our politicians have batted up their tough border control credentials with threats to turn back boats and a promise of imprisonment.
In reality, the tough measures have been meted out to those with the least ability to defend themselves: a handful of the poorest and weakest, who now have become pawns in a macabre game of political brinkmanship.
At the same time as we’ve been tough on refugees, Australia has thrown open the doors, with one of the largest per capita immigration programs in the developed world.
It has enticed around 4,000 new arrivals a week, mostly into the two biggest cities, Sydney and Melbourne.
But even now, after decades of mass immigration, it appears we still are suffering critical “skills shortages”.
Fruit pickers, waiters and baristas are in short supply. Almost daily, there are calls to throw caution to the wind when it comes to COVID-19 and start importing workers again.
Low wages growth is hurting our economy
It has taken quite a while. But Reserve Bank governor Phil Lowe set himself on a collision course last week with big business and sections of the federal government by stating the bleeding obvious.
And that is, Australia has used immigration as a means for keeping the cost of labour subdued. Not that Dr Lowe put it so bluntly. But he made the point repeatedly that adding to the supply of workers keeps wages low.
It’s pretty basic economics, really.
For years now, one of the key factors undermining our economic performance has been low wages growth.
Economists love to call it anything but what it is. They’ll talk about underutilisation or excess capacity. But the graph below says it all.
In the past 12 months, there’s been almost universal agreement that stagnating wages pose one of the greatest dangers to derailing our recovery, particularly given our eye-watering levels of household debt.
But whenever wages start to rise, the calls to bring in more workers start immediately.
Interestingly, those making the most noise now are the ones who have benefitted the most from a constant influx of tourists, students and temporary workers.
The flood of overseas workers, particularly in hospitality, has left many with barely enough work upon which to survive. And it has opened the door to exploitation and wages theft on a grand scale.
Here is another graph, presented by Dr Lowe last week, showing data from the Reserve Bank of Australia and the Australian Bureau of Statistics.
GDP growth doesn’t mean our lives are better
Australia has prospered greatly from immigration, particularly in the post-war period. It has enriched the nation in ways far more than can be measured by money.
Somewhere along the way, however, canny politicians figured out the great immigration con job: that by adding ever greater numbers of people, you automatically get GDP growth.
That’s because GDP is a crude yardstick. It simply measures the amount of stuff you produce. The more people you’ve got, the more you consume, and the more you produce.
Big business loves it too.
Not only does the influx of workers keep wages low, but all those extra people also end up consumers of your products. You sell more, your profits rise and so do your bonuses.
What GDP doesn’t measure is whether or not we all are better off as individuals.
As it turns out, we haven’t performed anywhere near as well as we’ve been told. Once you divide GDP by the number of people — to get a like for like comparison — the picture looks very different.
Remember how we were the “miracle economy” with 30 years or so without a recession?
The green bars below point out at least three recessions and quite a number of near misses.
You’ve no doubt heard the grand visions: “This government will create a million new jobs over the next five years.”
And, bingo, just like that, it happens.
The thing is, when you are adding a million people over five years, you need to have a million extra jobs just to keep your head above water.
And the problem is that many of the new arrivals end up working part-time, in lower-paid jobs and in occupations that require far fewer skills than they possess. Doctors and engineers end up as Uber drivers.
Foreign workers are greatest victims of wage theft
The list is too long to compile. For years, revelations of wage theft within major Australian corporations became a blight on the nation.
But big, public organisations that are open to scrutiny are only a small part of the problem.
With such a huge influx, foreign workers, many of them desperate for employment and unaware of their rights, have been routinely exploited.
Students and temporary visa holders are the most vulnerable. But permanent arrivals share similar experiences.
Story after story of exploitation and sexual assault have littered newspapers, websites and current affairs programs.
Among other things, it concluded that temporary visa holders comprised around 10 per cent of the workforce and that the 457 visa program was impacting university graduates and depressing wages. But it was the title that said it all.
The Fair Work Ombudsman has conducted raids, issued fines and published reports on deliberate underpayment and exploitation, particularly within the hospitality industry.
But for months now, almost every day brings forth a new claim of “skills shortages” and the need to start importing workers because firms have to pay more.
Multicultural Meanderings 