Canada’s population surge contributes to recent productivity declines

As Ottawa overhauls its temporary immigration programs, a new analysis by Bank of Nova Scotia warns that the unchecked population surge of the past two years is behind two-thirds of the “massive” decline in productivity over the same time period.

 

The drop stems from a combination of two factors: chronically-low business investment in Canada and the sudden explosion in population, which grew by 1.25 million last year alone.

Given weak investment levels, that’s far more than the 350,000 permanent and temporary immigrants Canada’s economy can absorb without having a negative impact on productivity, according to Scotiabank economists Rebekah Young and René Lalonde.

 

“There is a sweet spot when it comes to economic immigration – where everyone is better off over time – but it is narrow and Canada has strayed far off course,” they wrote.

 

 

The surge of temporary workers has helped keep a lid on what would have been even higher wage increases, she added, giving businesses even less of a reason to invest in productivity-boosting measures.

 

On Thursday the federal government announced immigration changes including a target to reduce the number of temporary residents living in Canada to 5 per cent of the population, down from 6.2 per cent, and reductions to admissions under the low-wage stream of the temporary foreign worker program.

 

“Canada’s immigration policy needs a reset, not quick-fixes,” the economists wrote in their report, which was published ahead of the government’s announcement. “A start would be firmly placing economic immigration in the context of a broader productivity agenda” that focuses on boosting investment.

 

 

This article was first reported by The Globe and Mail