Policy changes on immigration could shrink the labour force in Canada

A series of rapid policy changes aimed at reducing the temporary resident population in Canada could lead to an overall shrinking of the labour force and a potential economic slowdown, economists predict.

 

A new report from Bank of Nova Scotia says that Ottawa could be “over-correcting” in its attempt to rein in the number of temporary residents in the country, which topped three million people for the first time this July, or 7.3 per cent of the total population.

 

The bank’s economists predict that the cumulative effect of Ottawa’s shift in immigration policy could lead to a 1-per-cent contraction in Canada’s labour force over the next two years and weakening economic growth if businesses do not boost productivity accordingly.

 

The federal government announced new restrictions to the Temporary Foreign Worker Program on Monday, raising the minimum wage requirements for the high-wage stream of the program – a move that Ottawa says is designed to incentivize the hiring of domestic workers.

 

The government forecasts that this change, along with previous moves that capped the percentage of low-wage foreign workers in certain sectors, could result in 20,000 fewer foreign workers being approved to enter Canada through the program.

The TFW announcement was made just days before Ottawa will table an immigration plan for the next three years, detailing the number and type of immigrants it hopes to admit. The government has set a non-permanent resident goal of 5 per cent of Canada’s population by 2027, and its coming immigration plan will be closely watched by economists to see whether that temporary resident target is even achievable.

 

Specifically, the Scotiabank report suggests that if Canada were to meet its temporary resident target by 2027, the size of the labour force could decrease by 200,000 people, given the high number of temporary workers that are part of the work force.

 

“Dealing with a sudden drop in the number of workers could pose a substantial challenge to businesses,” the report says.

 

Still, the Scotiabank economists said Ottawa’s target is “no longer reasonably achievable” on its timeline, given that temporary resident figures have continued to grow since the target was announced in March.

 

Public data from Immigration, Refugees and Citizenship Canada show that approximately 1.4 million temporary residents in Canada hold a work permit, including roughly 470,000 former international students. More than 300,000 international students have dual work-study permits.

 

The concern for economists boils down to population growth. Canada has an aging population and waves of baby boomers entering retirement would have shrunk the labour force rapidly had it not been for immigration. Indeed, population growth in Canada in the second quarter of 2024, according to data from Statistics Canada, was almost entirely due to immigration. In 2023, Canada’s population grew 3.2 per cent, the highest rate of growth since 1957.

“This government has a tendency of whipsaw policy when it comes to immigration. They make sudden changes and then reverse those changes. So I think if we go too quickly from a 3-per-cent population growth rate to zero in a short period, there will be economic consequences,” said Mikal Skuterud, a labour economist with University of Waterloo.

 

Scotiabank economists say that Ottawa must balance the “need to right-size the share of temporary residents in the country against long-term labour market needs,” particularly for jobs and people that have the potential to “punch above their weight.”

 

But Parisa Mahboubi, an economist with the C.D. Howe Institute, says that reducing the number of temporary residents in Canada to meet the 5-per-cent target will not happen as quickly as Ottawa is planning, thus blunting the potential economic impact of a shrinking labour force. “Yes there are immigration policy changes with caps on foreign workers and international students. But when you look at the data, we are still not moving in the right direction. It will take a long time for these changes to actually set in and have a tangible impact on our economy.”

 

Prof. Skuterud points out that a gradual reduction in labour supply might not be a bad thing. “It will encourage businesses to invest in technology that will boost productivity and not just rely on cheap and easily accessible foreign labour. That’s what we should want for Canada.”

 

 

 

 

This article was first reported by The Globe and Mail