Higher immigration a key part of Canada’s economic growth, report says

The federal government is set to announce Canada’s 2018 immigration levels on Nov. 1, a move that has some experts assessing whether or not increasing immigration levels beyond the current annual target of 300,000 would positively impact Canada’s economy.

The Conference Board of Canada released a report Oct. 2 outlining the impact of three different immigration scenarios on Canada’s economy between 2017 and 2040.

The first scenario, dubbed the “status quo,” assumes Canada will accept immigrants each year at a rate of 0.82 per cent of the country’s population, which is closest to the current annual target of 300,000 immigrants. The “medium immigration scenario” assesses the impact of increasing immigration to 1 per cent of Canada’s population by 2040, and the “high immigration scenario” looks at the impact of increasing levels to 450,000 immigrants per year by 2025.

Increasing immigration levels to 450,000 per year is the recommendation made last year by the Federal Advisory Council on Economic Growth.

“We know that’s on the federal government’s radar and it’s in line with our own research … we are going to need to increase levels,” said Kareem El-Assal, a senior research associate with the Conference Board of Canada, who co-authored the report.

“Due to our aging demographic and our low birth rate, immigration is going to account for all of our population growth in the decade or so to come. And that means immigration is going to play an even greater role in Canada’s economic growth,” he added.

The report concludes that the high immigration scenario would lead to roughly 2.05 per cent growth in gross domestic product (GDP) — the total value of goods and services produced in Canada in a year — compared to 1.94 per cent for the medium immigration scenario and 1.85 per cent for the status quo.

But El-Assal said increasing immigration to the levels suggested by the advisory council — 450,000 per year — could actually hurt Canada’s economy if new immigrants continue to face challenges in the workforce.

The Immigration Exam for Canadian citizenship is so difficult, many smart Canadians likely couldn’t pass it. [Photo © Amber-Dawn Davison]

“We did a study last year and we quantified that immigrants lose up to $12.7 billion in wages [per year] due to labour market barriers that they face,” he said. “We have to remember that Canada has a very selective point system — it’s so selective that I think the average Canadian, if they applied externally, would have challenges getting in.”

Immigrants applying for permanent residence under the Express Entry system must score a total of 67 points out of 100 in six different areas — education, language, work experience, age, arranged employment and adaptability. For example, an applicant who is 25 years old would score 12 points out of 12 in the age category, while an applicant who is 40 would score 7 out of 12. An applicant who has a PhD or equivalent would score the maximum of 25 points under the education category, while an applicant with a high school diploma or equivalent would score 5 points.

A Carleton University ESL class sits down to write a test. The class is one of 7 offered this semester at the university, and is aimed at international students on exchange, and immigrants to Canada. [Photo © Amber-Dawn Davison]

El-Assal suggested in some cases where immigrants who are qualified to work as, say, an engineer, are often employed below their skillset. Rather than earning $100,000 for a job fitting their skillset, they are instead earning half of that in a job below their skillset. This affects consumption habits in Canada, “the main driver” of Canada’s economy, according to El-Assal.

Howard Duncan, executive head of the Metropolis Project at Carleton University, an initiative studying migration and diversity, said underemployment is a key challenge for immigrants.

“Underemployment results normally from a lack of recognition of the formal educational and other qualifications and experience that immigrants bring with them,” he said.

A young man rides past the Community Immigrant Support office several times before hesitantly stopping to take a picture of the sign. OCISO is a vital community organization that helps new immigrants settle in Ottawa.[Photos © Amber-Dawn Davison]

If Canada plans to increase immigration levels, the government will need to address underemployment issues first, he explained.

“The task then is better selection, enhanced systems for assessing credentials and experience, and enhanced systems to upgrade where necessary. Canada does all of these, but with higher levels of immigration, these systems will need to be expanded,” he said.

Duncan added he thinks Canada should welcome more immigrants to boost the economy. But he also argues that when talking about the economic impacts of immigration, we should think beyond the overall GDP picture.

“Population growth will, all other things being equal, increase the size of an economy. Ensuring that the immigrants a country brings in will be able to contribute to the economy because of their human capital or ability to create businesses and jobs is essential to increasing not only GDP, which will come from population growth alone, but GDP per capita,” he said.

GDP per capita is the total GDP divided by the number of people in a country. In other words, it’s a measure of average output per person. This measure is commonly used to compare one country’s GDP performance relative to others, although the comparison ordinarily involves something called purchasing power parity, which takes into consideration the fact that the price of goods and services vary considerably between different countries.

“Shrinking populations tend to be accompanied by shrinking economies… [Canada] needs to maintain manageable population growth,” Duncan said.

The Conference Board report says the best scenario for increasing GDP per capita is the status quo, which would see GDP per capita increase from $50,087 in 2017 to $62,901 in 2040. In the medium immigration scenario, GDP per capita increases to $62,348, while high immigration increases to $61,628.

That means increasing immigration rates beyond the current annual target would not have a positive impact on the economy as the Conference Board suggests, said David Green, an economics professor at the Vancouver School of Economics at the University of British Colombia.  

The Conference Board report acknowledged that GDP per capita increases the most in the status quo scenario, but noted the “medium and high scenarios would better alleviate the economic and fiscal pressures of an aging population and low birth rate.”

Green said he is skeptical of the findings in the Conference Board report.

Last November, he co-authored an article in Policy Options, which concluded increasing immigration doesn’t guarantee positive or negative outcomes on wages and jobs. Green said no new research has cropped up in the past year suggesting otherwise, including the Conference Board report.

“If you ramped up immigration quickly, you would almost certainly have a substantially negative impact on the fiscal situation in the country,” he said. “Immigrants, when they first arrive, are below average earners – that just is the case. And because they’re below average earners, they contribute less to government coffers than other people.”

Eventually, he said, immigrants start earning more the longer they are in the country which ends up as a “neutral” impact on the economy, but the first few years are considered a “net drag.”

Green said the Conference Board presented the impacts of immigration on GDP and growth up front, which gets people to look at the wrong statistics – what matters to the economy is the GDP per capita and how it affects the standard of living. The standard of living, according to the New York Times, can change and impact citizens in a country when wages increase and prices decrease. And Green said most evidence suggest the impacts of immigration on GDP per capita aren’t large.

Green’s article also noted immigration could be used to meet other goals – such as addressing lower birth rates – without worrying about negative repercussions to the economy.

El-Assal also stressed the importance of increasing immigration to the country.

“You want people with different skillsets who are going to complement each other to a common objective,” El-Assal said. “Most countries are becoming more closed to immigrants and Canada is becoming more open and we have the opportunity to really benefit from immigration in a way that other countries aren’t.”