Why Canada needs immigrants despite soaring unemployment
Immigrants drive economic growth in Canada, and a slowdown could have repercussions for decades
As the coronavirus pandemic raged across the country in March, Marco Mendicino, the federal minister of Immigration, Refugees and Citizenship, announced his plan to battle Canada’s looming demographic problem.
More than nine million baby boomers are set to retire over the next decade, creating a potential labour shortage that, if unchecked, could raise health-care costs, upend pension payments and halt the country’s economic growth.
Mendicino proposed adding a total of one million new permanent residents to Canada by the end of 2022, a slight increase that raises the annual immigration level to around one per cent from 0.9 per cent currently.
“Immigration drives economic growth, spurs innovation and helps employers access the talent they need to thrive,” his news release said. “Welcoming more newcomers will help to address the demographic challenges of an aging population and to compete and win in a competitive global marketplace.”
But within days, foreign embassies and consulates across the country closed, and Canada shut its borders to all non-essential traffic, putting a large question mark over Mendicino’s plan.
With the pandemic continuing and no telling when a vaccine will emerge, it’s unclear when Canada can reopen to economic migrants, if they will still want to migrate here or how the lost time will affect the country’s demographic problem.
In a further complication, if fewer Canadians leave as part of the annual brain drain because working remotely emerges as the new normal, it could partially offset any potential decline in immigration.
The coronavirus pandemic has placed the country on an unexpected detour that will have repercussions for decades, according to analysts.
“If we have a prolonged stop, that could really hurt us 10 years from now,” Andrew Agopsowicz, a senior economist at RBC Capital Markets, said. “Immigrants tend to be much younger, so anything that stops that process now is going to reverberate.”
The real estate market, health-care costs and university budgets all depend to a degree on immigration. How severely these and other areas of the economy are affected depends on how long the pandemic disrupts the normal flow of migration.
“Without an influx, we’ll become a very old country, and that’s a very expensive proposition,” Agopsowicz said.
Pedro Antunes, chief economist of the Conference Board of Canada, expects immigration levels to remain low at least through the end of next year.
He said it’s probably not advisable to compensate for the lost time, once the current restrictions lift, by, say, allowing in a surge of people.
“You don’t want to end up in a situation where there’s a lot of immigrants coming in,” Antunes said. “It may cause resentment, and I don’t think we can consider ourselves immune from that.”
But he said no one knows how the pandemic is affecting overall immigration and emigration rates, and we won’t know until there is more data.
In a report released in May, Agopsowicz noted that immigration has powered Canada’s economic engine, driving up gross domestic product in the largest cities at a faster rate than the national average. Without immigration, the populations in Toronto, Montreal and Vancouver all would have declined in 2019.
Canada in 2019 grew by about 580,000 people, roughly 1.6 per cent, and 80 per cent of that growth occurred through immigration, helping to offset the country’s naturally aging demographic.
“Without immigration over the past 15 years, Canada would have aged on a similar trajectory as 1990s Japan,” Agopsowicz said in the report. “Instead, Canada is one of the younger countries in the G7.”
He calculates that projected immigration to Canada in 2020 will fall by approximately 170,000 if the flow of immigration remains at current levels through August.
What happens after August is unclear. According to official policy, people who obtained permanent residency as of March 8 are allowed into the country. But no one knows when immigration will return to pre-pandemic levels.
Stephen Poloz noted in one of his final speeches as Bank of Canada governor that a lack of immigration could have broad reverberations.
“There’s no doubt, for practical reasons, immigration is less than it was a few months ago,” he said during a May interview with Financial Post, calling the influx of people into Canada “an engine” of economic growth.
“But I have no reason to think that we can’t continue to be an important immigration destination with the right protocols in place … So there is a really strong incentive for us to figure that out and have that remain as an engine of our economic growth.”
Immigration levels appear to already be affecting certain industries.
For example, agriculture is largely powered by a temporary foreign workforce, but the number of agricultural workers from foreign countries was down 45 per cent year over year in March, according to an RBC report.
And that decline is despite the federal government exempting this group from entry restrictions. It is even offering $1,500 to help offset the cost of a required twoweek quarantine for these workers.
Universities also face a potential funding cliff with the borders closed. Foreign students on average pay triple the fees compared to domestic students, says World Education Services, a non-profit that helps evaluate international education diplomas. “It’s basically a revenue generator for post-secondary institutions,” managing director of Shamira Madhary said. “The students are able to get a work permit while they’re studying, and after they’ve completed their education, they’re able to apply” to stay in Canada and seek permanent residency.
Any drop in international students would also have knock-on effects, including on the rental housing market.
The situation demonstrates why Mendicino believes immigration spurs innovation. By helping to fund universities, Canada develops research that launches businesses, and attracts both investment and people.
A Statistics Canada report published June 9 noted companies owned by immigrants were 8.6 per cent more likely to implement a product innovation than a company managed by Canadian-born individuals, and 20.1 per cent more likely to implement innovative processes.
Immigrant ownership also had a positive effect on marketing innovations, the report noted.
“Immigrants in Canada are more likely than Canadian-born individuals to be university-educated, and university-educated immigrants are twice as likely as Canadian-born university graduates to be educated in science, technology, engineering and mathematics (STEM) fields,” the report said.
One highly discussed consequence of social-distancing policies is that more companies can consider allowing their employees to work from home. Several giant tech companies, including Shopify Inc., the US$89.5-billion Ottawa based e-commerce platform, announced in May that working remotely would be encouraged.
The company’s chief executive, Tobi Lutke, called it “digital by default” and said “office centricity is over.”
Around 100,000 Canadians typically leave the country every year, with many taking higher-paying jobs in the United States, as part of a well-documented ‘brain drain.’ But many U.S. companies may prefer to have Canadian employees work remotely from this country, where national health care and the currency exchange rate naturally lower the cost of a worker, he said.
“If we start to accept the notion of people working from home, it will be easier for a Canadian to be working for a New York company from their basement,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets. “This is very tempting for American companies.”
Reversing the brain drain may be more enduring than any change to immigration levels caused by the pandemic, he said.