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Uzelman: What immigration can, and can not do, for the Canadian economy

A column by Bruce Uzelman

~BW Uzelman

Sean Fraser, Minister of Immigration, revealed new targets for immigration on November 1. The number of immigrants will increase from 405,000 in 2021 to 465,000 in 2023 to 500,000 in 2025. The government’s aim is to resolve the shortfall of workers in Canada. “There were a million jobs available in the Canadian economy at a time when immigration already accounts for nearly all of our labor force growth,” Fraser said. “We cannot maximize our economic potential if we don’t embrace immigration.”

The Department’s press release was entitled, “An Immigration Plan to Grow the Economy”. Immigration does grow GDP (Gross Domestic Product) – the total value of the goods produced and services provided. Governments contend immigration also increases tax revenue for government and creates additional dollars for provision of social services.

Some question these claims. David Green of UBC asserts that immigration lowers wages for those in low-skilled positions and increases inequality. Though this seems intuitive, it is not accepted by all experts. In any case, the Temporary Foreign Worker Program, through which many low-wage workers are sourced, already regulates their wage rates; that control could and should be broadened if required.

Green denies that the worker shortage is damaging the economy. Employers should increase wages, he says, and workers will come. But 1 million jobs remain unfilled in the Canadian economy. As businesses cut hours of operation and refuse work, it clearly will impact the economy. And it is unrealistic to suggest that we can fill 1 million job vacancies, across multiple sectors of the economy, by hiking wages.

Green suggests, further, that the high employment rate and strong GDP per capita growth demonstrate the economy is not broken. In fact, Statistics Canada states that, “While GDP had largely recovered to pre-pandemic levels by the end of 2021, GDP per capita has not.” David Williams of BCBC similarly notes that, “Canada’s real GDP per person in 2022 Q2 was $55,848, which was 0.5% ($533 per person) lower than in 2019 Q2.” He adds, “The US, Australia, the G7 country average, and the OECD country average have all recovered and increased real GDP per person relative to before the pandemic. Canada has not.”

In a May 2021 study, “Counting On Immigration”, the Conference Board of Canada forecasts the impact of various immigration levels: Baseline – 1.1% of the population (levels prescribed in government targets); Low – .6% of population; and High – 1.3% of population.

Immigration definitely impacts GDP. The Conference Board forecasts that the growth rate of GDP will be about .5% per year greater under the high-immigration scenario than under the low scenario. “In our high immigration scenario, GDP growth was an average of 44 per cent higher than the low scenario by 2036-40 [1.9% as opposed to 1.3%].” However, it is questionable whether increased GDP alone matters. What matters is income per person; GDP per capita is the important number.

The Board model shows GDP per capita falls slightly as immigration increases. It shows that while GDP grows, population grows more. But a StatsCan study found immigration increases firm productivity and wages, says the Board. It says policy choices, like ensuring immigrants work in positions appropriate to their experience and education, could grow income. On balance though, impact will likely be small.

As the population ages, the ratio of workers to retirees will decrease. Immigration helps mitigate this impact, the Board shows. The worker ratio is about 15% more for the high immigration scenario than for the low scenario. A stronger worker ratio helps support productivity and personal income.

Immigration impacts tax revenue. The Board study shows that tax revenue grows substantially as immigration rises, and argues this helps support social programs. However, the authors, it appears, have not accounted for the increased government expenditures required for the larger population.

The Conference Board concludes, “immigration improves most economic variables we examined, including gross domestic product (GDP), public revenues, and the working age population to retiree ratio.” As noted above, however, GDP growth, in and of itself, has limited benefits. Impact from immigration on GDP per capita may be positive, but will not be large.

Immigration is not a panacea. It does not solve all problems. Most importantly, perhaps, immigrants will significantly fill multiple gaps in our workforce, and thus allow businesses and the economy to function more smoothly and efficiently. Immigration will support the worker ratio and help ameliorate the impacts of the aging population. Each of these effects will help support GDP per capita, but governments must look to other more appropriate policies to appreciably grow personal income.

Bruce

Bruce W Uzelman

I grew up in Paradise Hill, a village in Northwestern Saskatchewan. I come from a large family. My parents instilled good values, but yet afforded us, my seven siblings and I, much freedom to do the things we wished to do. I spent my early years exploring the hills and forests and fields surrounding the village, a great way to come of age. My parents owned a successful general store. My siblings and I were required to help out in the business, no choices allowed there!

I attended the University of Saskatchewan in Saskatoon. I considered studying journalism at one point, but did not ultimately pursue that. However, I obtained a Bachelor of Arts, Advanced with majors in Economics and Political Science in 1982.

My career has consisted exclusively of small business, primarily restaurant and retail. I was originally based in Alberta, and then BC, first in Summerland, then Victoria and finally Kelowna (for over 20 years). I was married in Alberta, and we have two daughters, who have returned to Alberta as adults for career reasons, as did my now ex-wife. My daughters are successful, and now have families of their own.

I have maintained a healthy interest in politics throughout my adult years, and wish to put that and my research skills to work as a political columnist.

Contact: urbangeneral@shaw.ca

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