Immigration limits may help housing, but hurt jobs: CIBC

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The federal government's decision to bring in fewer newcomers in the coming years due to the housing crisis could create labor shortages and inflationary pressures in some areas of the economy if the right balance is not maintained, says an analysis by the Imperial Bank of Canada Trade. .

Canada's record population growth in recent years eclipsed the housing stock and number of jobs the economy has created since 2019, but the increase did not have a uniform effect on the economy, the report said.

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“We estimate that while the population has increased by approximately 1.1 million (approximately 35 percent) more than housing availability could accommodate since 2019, the increase has eclipsed workforce needs in “only” among 200,000 and 700,000 (five to 20 percent). ”the report said.

CIBC economist Andrew Grantham said this meant population growth was “well above” what the country could handle from a housing perspective, but was only “slightly ahead” of what that is needed in the workforce, he said.

“Given that we have an aging domestic workforce, excess population growth is actually much smaller,” he added.

Grantham's report says that if authorities focus solely on adjusting the number of new arrivals to match housing availability, it could lead to a labor shortage.

“Everything that's been written about population growth…has really focused solely on housing,” he said. “But that's only part of the problem. We also have labor needs. “Everyone needs to be aware of this balancing act, whether it be policymakers or the Bank of Canada.”

Prime Minister Justin Trudeau's government has taken a series of measures over the past six months to stem the arrival of new arrivals.

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In March, the government said it will limit the number of temporary residents entering Canada to five per cent of the total population over the next three years, compared to the current 6.2 per cent, or 2.5 million students. foreign workers and asylum seekers.

In January, it imposed a two-year limit on new international students and restricted work permit eligibility for postgraduates and their spouses, and in November 2023 decided not to increase the number of permanent residents it wants to bring in from 2026. forward.

The limits on newcomers, on whom Canada has traditionally depended to boost its economy, were announced after the country recorded record population growth of more than two million people in the past two years, mainly due to an increase in residents temporary.

As a result, some economists expect Canada's population growth rate to decline by about two-thirds to about 400,000 people annually within a couple of years, compared with growth of 1.25 million last year.

“With so much attention focused on the link between immigration, population growth and housing affordability, it is easy to lose sight of the positive impact that newcomers are having in the country, particularly on the labor market,” the CIBC report says.

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Grantham said that as Canada's national workforce ages, young newcomers have helped stem the decline in labor participation rates. Non-permanent residents and new immigrants have also played an important role in reducing high levels of job vacancies as the economy emerged from the pandemic.

“Without this boost to labor supply, wage pressures could have proven even more persistent than they already were,” the report says.

However, he added that the population increase ultimately “may have been a case of too much, too soon,” and that as demand for labor declined, new arrivals were the “most negatively impacted.”

Canada's unemployment rate rose above six per cent in March and was largely driven by a lack of jobs for non-landed immigrants and immigrants who moved to the country less than five years ago, according to the report. The unemployment rates for these two groups are well above their situation in 2019, while the unemployment rate for the rest of the population remains slightly below that mark.

Grantham said the “perfect case” would be for some of the government incentives around building the economy to take hold once interest rates began to fall, which would then allow authorities to attract the appropriate number of workers to the labor market. But he's not sure how likely that scenario will play out.

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“It's a very difficult balancing act for the next two or three years,” he said.

Bank of Montreal economist Robert Kavcic said the rule change for newcomers should not be seen as a “pro-immigration versus anti-immigration issue” but as a question of the right level of inflows.

“Clearly, 1.3 million a year is too much for the labor market to absorb,” he said. “From a long-term perspective, I believe permanent resident targets in the 400,000 to 500,000 range are appropriate to offset future retirements, and represent just how much we can provide adequate infrastructure.”

• Email: nkarim@postmedia.com

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