Canada should increase productivity—not simply supercharge immigration

When future historians look back on the decade of the 2020s, they’ll likely be struck by two global demographic trends: 1) aging populations across most of the world and 2) populations that are now in outright decline in a large group of countries. The two trends are related. In North America, Europe and parts of Asia, an increasing share of the population is moving into retirement, meaning death rates will climb as more people enter their twilight years.

Coupled with generally low birth rates, rapid aging is setting the stage for dwindling populations in many jurisdictions.

Today, populations are shrinking in Italy, most Eastern and Central European countries, Russia, Japan and South Korea. China recently joined the club, with its population starting to fall owing to the impact of the “one child” policy long enforced by the Communist government. As for the United States, its population is still growing but at a very feeble pace of roughly half of one per cent annually.

Against this backdrop, Canada is a demographic outlier. We have by far the fastest-growing population of any G7 country and among the fastest-growing in the entire developed world. This is mainly because of Canada’s commitment to unusually high levels of immigration—a commitment reinforced by the Trudeau government’s decision last year to boost Canada’s targets for permanent immigrants to 500,000 a year by 2025, almost double the numbers who arrived in the first half of the 2010s.

In 2022, Canada’s population rose by 703,000, representing a hefty increase of 1.8 per cent from the year before. Only 46,000 of this population jump was due to “natural increase”—the difference between births and deaths.

International migration, both permanent immigrants and foreigners in Canada on study or temporary work visas, accounted for the rest. No other major advanced economy has a population growth rate close to Canada’s. And none have adopted immigration targets as aggressive as Canada’s, measured relative to national population size.

What does Canada’s steadily rising population mean for our economy? There are two ways to grow the economy over time. One is to add more workers, which expands the amount of “output” the economy can produce. The second is to build a more productive economy so the value of what’s produced increases for every hour of work. Clearly, the Trudeau government has decided on the first option—it plans to grow the economy by increasing the size of the workforce, largely through immigration.

Federal policymakers exhibit little interest in the other half of the economic growth equation—making Canadian workers and businesses more productive by creating conditions so companies will want to invest here, workers will upgrade their skills, and more Canadian businesses will innovate and export.

Unfortunately, the evidence suggests that simply enlarging the population and workforce is not a reliable way to improve overall prosperity. Despite strong immigration-fuelled population growth, Canada is struggling to increase how much our economy produces on a per-person basis—what economists call “GDP per capita.” In fact, several other peer countries with more slowly-growing populations have outperformed Canada on this key metric of economic well-being since 2015, including the United States, Germany and France.

The only way to fix Canada’s “deficit” in per-person economic growth is to tackle the country’s longstanding productivity problems. This should be the central focus of the upcoming federal budget.