Immigration Canada
iStockphoto/kellyvandellen

The federal government boosted immigration numbers for nearly a decade as policymakers touted adding more newcomers as a remedy for Canada’s aging population and as a way to accelerate GDP per capita growth by attracting skilled workers.

While individual employers have found it easier to fill job openings, it’s unclear whether immigration has helped alleviate labour shortages in the overall economy. Immigration expands labour supply but also adds labour demand as immigrant workers generate an expansionary multiplier effect on GDP and national income, according to research by C.D. Howe Institute published Tuesday.

The study analyzes the effects of Canada’s expansive immigration policy — implemented between 2016 and 2024 — on labour shortages.

Immigrants spend their income and savings brought from abroad on essentials like food, housing and transportation, which increases demand for production, construction and intellectual property. Governments use the additional tax income to meet increased demand for public services like education, health care and social services.

The report noted that the growing demand for goods and services “will expand aggregate labour demand.”

Thus, the unemployment rate alone cannot determine whether immigration levels have increased labour supply more or less than labour demand as immigration levels impact aggregate economic expansion. The study used the Beveridge curve, which highlights the inverse relationship between vacancies and unemployment, to identify the net effect of immigration on labour supply.

While policymakers hoped for a permanent reduction in labour scarcity without a permanent increase in unemployment, rising immigration may have affected unemployment along the Beveridge curve.

The rising number of newcomers to Canada had nearly no impact on the unemployment rate of Canadian-born workers and immigrants who landed more than five years ago. “Seen in this light, rising immigration does not seem to have had a meaningful direct effect on structural unemployment,” the report noted.

But rising immigration has led to greater cyclical volatility in unemployment. The strong demand for housing has made it more difficult for the Bank of Canada to keep inflation at the 2% target and the rising share of low-skilled immigrants are more exposed to layoffs, C.D. Howe said.

If Immigration Minister Marc Miller’s plan to scale back the number of temporary and permanent immigrants is implemented as intended, Canada’s working-age population will stagnate instead of increasing by 800,000 or more. While the nation’s aggregate GDP may contract, GDP per capita could increase, according to the report.

Without the ability to hire a steady stream of newcomers willing to work for low wages, employers will be encouraged to invest in technology and reorganize work, which increases productivity. The overqualification rate among immigrants will decrease and the shift could make Canada more attractive to global talent, C.D. Howe predicted.