The Great Debate In Canada On How Much Immigration Is Needed

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Immigration issues are becoming front and center in the Canadian political environment, as Canada is expected to welcome as many as 500,000 immigrants in 2024. Canada’s population swelled by 3.2% last year, five times as fast as the OECD average. In absolute numbers, the population grew by 1.2 million in 2023, placing considerable strain on housing, education, and health services in just about every one of the ten provinces. Simply put, the real question arises as to the nation’s ability to absorb this population, fuelled by an influx of immigrants.

Politicians are now arguing about the merits of a very liberal immigration policy from a variety of different perspectives. For example, housing shortages are exacerbated by this surge in newcomers, since the additions to the housing stock annually fall short of new household formations. Another example, the Minister of Immigration has just introduced caps on the number of international students granted study visas in response to pressures placed upon secondary and technical education facilities. The health services nationwide continue to experience shortages of trained personnel and beds. In general, the infrastructure capacities in many of the major urban centers are stretched and appear to be inadequate to meet the needs of this huge demographic challenge. 

A recent National Bank report looked into the issue connecting demographic changes and productivity. The researchers found that population growth is too high in relation to the stock of capital available, i.e. the capital/labour is low and falling. Put in layman terms, the amount business and public investment per capita has badly slumped over the decades. In the heyday of the 1960s, investment per capita was growing at around a healthy 3-4% per year; in the first decade of this century that growth slowed to less 2.5%; in 2023 the growth is less than 1.5%; early forecasts for 2024 anticipate further weakness in business capital investment. (Figure 1)


Figure 1 Capital Stock per Person, Canada

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In stark contrast, the US has enjoyed a steady increase in the amount of physical capital available per capita. Canada enjoyed a substantial surge in capital per person up to 2016 and then entered a significant decline which continues to plague the economy. (Figure 2) 


Figure 2 Canada vs US Business Investment


The National Bank report concludes that “We currently lack the infrastructure and capital stock in this country to adequately absorb current population growth and improve our standard of living.” The report advocates that population growth (read immigration) should be trimmed considerably so that we are able to provide the resources to absorb these higher population numbers. Ottawa’s decision to cut back on student visas is an early indication that the preferred route is to curtail immigration. Alternatively, expanding business and public investment is a much more complex and least understood aspect of economic growth, but one that needs more attention. Blaming population growth for poor performance is not the answer.


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