David Rosenberg: Canada’s message to the world: Bring us your workers

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By David Rosenberg and Alena Neiland

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Canada in the second quarter gained nearly 270,000 international migrants, accounting for almost 95 per cent of the population boost through the quarter. While net immigration was strong and posted its highest influx since the end of 2021, the real story is in non-permanent residents, which surged by the largest amount in recorded history.

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Non-permanent residents drove almost 60 per cent of the increase in new migrants, owing to a year-over-year pick-up in permit holders (students: 31.6 per cent; International Mobility Program: 61.2 per cent; and Temporary Foreign Worker Program: 17.1 per cent), as well as asylum claimants. The surge in immigration is expected to contribute an immediate bump in economic growth to the tune of 0.5 percentage points (ppts) by year-end, providing much-needed support for an economy reeling from the Bank of Canada’s aggressive tightening and a housing market going from boom to bust.

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A rapid increase in population immediately points to a slowing in real output per capita initially, but as these individuals assimilate, research shows this will translate to spending gains and act as a catalyst for aggregate demand growth. Not all these folks have a job just yet, but they still need to have a roof over their heads and other necessities.

However, impacts are not symmetric across the country. Provinces experiencing a larger boost in immigration-driven population growth are likely to experience short-run economic growth impacts on a larger scale: Manitoba (0.7-ppt contribution to growth), Saskatchewan (0.6 ppts), Ontario (0.6 ppts) and Quebec (0.5 ppts), while the national level boost is 0.5 ppts.

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In terms of long-term positive implications, on top of the persistent impacts to growth from a human-capital-driven pick-up in overall activity, as immigrants assimilate, it is expected to also help drive productivity growth higher.

Increasing the share of immigrants in firms by 10 percentage points resulted in a 0.8 per cent increase in productivity over a one-year period, 1.1 per cent over a five-year period and a hefty 1.9 per cent over a 10-year period, according to research by Statistics Canada.

Canada has been struggling with productivity growth (which, despite the small pick-up in the second quarter, is still sitting at 2018 levels) as a result of lower relative investment in factors that drive productivity gains (for example, research and development), and it is relying on immigration to bolster future gains.

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Gross domestic product growth potential is a function of the growth rate in the labour force and long-term growth in labour productivity. With almost 60 per cent of permanent residents entering between the ages of 15 and 59, and more than half of landed immigrants in the labour force over the past five years between the ages of 25 and 54 holding a university degree or higher (versus a domestic-born population share of just under a third), long-term growth does indeed have potential.

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Across provinces, the net share of permanent immigrants driving total population growth varies. It is higher in Saskatchewan, Manitoba and Ontario, and these provinces are likely to enjoy longer-term support in economic performance relative to their peers in this capacity.

All in, this boom in migration serves as a net positive pillar of support for both near-term and long-term Canadian economic growth. It is expected to contribute 0.5 ppts to aggregate GDP growth by year-end, which would be a much-needed antidote as the Bank of Canada’s super-sized hikes restrain consumer spending and housing-related growth.

It is true that this immigration bulge reflects a “level shift,” but the expected productivity increases should help lift Canada’s potential growth (music to the ears of the hawks at the Bank of Canada) by 0.25 ppts at an average annual rate in coming years.

David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. Alena Neiland is an economist there. You can sign up for a free, one-month trial on Rosenberg’s website.