In Canada and around the world, heated debates over immigration are redrawing political maps. If there is one thing that the turmoil demonstrates, it is that the issue is not quite as simple as conventional wisdom makes out.
This conventional wisdom, dispensed in mega-doses by many politicians and business groups, insists that immigration is an economic elixir. It builds industrial muscle! It restores youthfulness to aging workforces! It cures labour shortages!
Unfortunately, much of this sales pitch is overblown and sometimes downright misleading. If you read the fine print, the economic case for admitting large numbers of newcomers turns out to be rather modest. Much of the time, it’s a “meh” proposition for the living standards of a country’s existing population. In fact, if population surges overwhelm housing markets, the net effect may even be negative.
Governments are slowly discovering this reality. One sign of changing attitudes is the shift in Denmark, where the country’s centre-left governing party has swerved hard on immigration, adopting some of the most restrictive policies in Europe. Another sign of growing backlash is in Canada, where public outcry has forced the Liberals to pull back on some of their open-door policies.
Such shifts are often deplored as signs of growing callousness. In fact, they represent growing realism. They signal that we are finally beginning to probe beneath the happy slogans and think more critically about what immigration can and cannot do.
What can it do? As proponents like to point out, immigration can increase the size of a country’s economy. This is just math. If you add more labour and more consumers to an economy then gross domestic product (GDP) naturally tends to grow. The economic pie gets bigger.
However, what immigration advocates don’t like to mention is that expanding GDP offers no great benefit if a country’s population is expanding just as fast or faster. When that happens, the larger economic pie simply gets divided among more people. Nobody sees any significant increase in the size of their portion.
What really improves people’s lives are increases in GDP per capita—the amount of economic pie per person. But it’s not at all clear that large-scale immigration boosts this key number.
Consider Canada. In recent years, GDP has grown at a decent clip, but GDP per capita has stagnated under the weight of surging population growth.
Canada’s experience is not unusual in this regard. The impact of immigration on economic growth is complex. Much depends on exactly how many newcomers are admitted and based upon what criteria.
The only way to use immigration to keep a workforce perpetually young is for a country to commit itself to admitting ever increasing numbers of newcomers.
Look at the past 80 years of global economic history. Over that stretch, the world’s three main immigrant-receiving countries—Canada, the United States and Australia—have done well. But so have places such as Switzerland, Japan, South Korea and Taiwan that have discouraged widespread immigration. There is no evidence that high levels of immigration are necessary for strong economic growth. And there is no simple, obvious relationship between immigration and prosperity.
But how about our aging workforce? Don’t we need to bring in young immigrants to offset our greying population?
Here, too, the reality is more complicated than immigration advocates want to make out. Sure, admitting a surge of young immigrants can temporarily drag down the median age of workers.
The problem, though, is that immigrants age just like everyone else. Ten to 20 years after a one-time surge in immigration, a country’s age profile will be right back to where it was before—but with even larger numbers of aging people.
The only way to use immigration to keep a workforce perpetually young is for a country to commit itself to admitting ever increasing numbers of newcomers, year after year. Perhaps that is worth considering. However, at least for now, the practical difficulty with this big immigration strategy is that it runs head-first into tight housing markets.
As both Denmark and Canada discovered, it is the younger and the poorer members of a country’s native-born population that suffer most of the pain from surges in immigration. In large part, this is because they have to compete against the newcomers for scarce housing. Rents and home prices soar in response. It’s no wonder that a political backlash grows.
So why are so many business groups still in favor of big immigration? Many argue that it’s all about addressing widespread labour shortages.
But that’s a bogus argument. As economist Pierre Fortin pointed out in a scathing report earlier this year for the C.D. Howe Institute, it’s based on a fallacy—the notion that you should consider only the added labour that immigrants supply to the economy, but ignore the added consumption that immigrants also generate.
Think of the situation this way: Every new immigrant adds a bit to the country’s productive capacity. However, he or she also adds to the demand for housing, food, appliances and other consumption items.
To meet the increased demand for consumption from new immigrants, the economy requires more workers—which pretty much brings us right back to where we started. Yes, hiring an immigrant can reduce any one company’s labour shortage. However, the increase in consumption from that immigrant will incrementally boost the demand for labour at other businesses. That often leaves the overall labour shortage just as bad as ever.
Surveying the period from 2015 to 2023, when the LIberals boosted Canada’s immigration levels five-fold, Prof. Fortin concludes: “There is no evidence that more immigration has reduced economy-wide labour shortages; in fact, it likely has made them more severe.”
Voters and politicians should carefully consider such findings. Immigration has been massively oversold in recent years as an economic cure-all. It isn’t. A better way to think about it would be as a surgical tool that has to be wielded carefully to get good results.
A sensible immigration policy for Canada would move away from welcoming large-scale inflows of low-skilled temporary and permanent workers. It would focus instead on attracting moderate numbers of skilled newcomers in key sectors. And it would tie the overall number of immigrants to housing starts, so that pressure on rents and home prices is kept to a minimum. That would be a policy founded on realism, not happy slogans.
Ian McGugan writes about markets and economics. His work has appeared in the Globe and Mail, the New York Times and Bloomberg/BusinessWeek. He was founding editor of MoneySense magazine.
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