As a part of the Diversity and Inclusion theme for this edition of The Analyst, this article looks at the impact the recent surge in immigration has had on Canada’s economy. A Statistics Canada analysis indicates that population growth for the twelve months ending on July 1, 2023, was 2.9 percent,¹ the highest it’s been since 1957, pushing Canada’s population over 40 million.²

Canada’s population growth is the fastest among G7 industrial nations and likely ranks in the top twenty worldwide. Also noteworthy is that 98 percent of this population growth in this same time period has come from international migration. By contrast, in the “baby boom” years of the 1950s, births in Canada were the main driver.³ 

The Bank of Canada (BoC) recently published a report⁴ outlining the impact of higher immigration on the Canadian economy and inflation. This article summarizes the report’s findings.

Canada’s immigration rate held steady through the 1990s and first two decades of the 2000s but spiked after a pandemic-related dip in 2020. Figure 1 shows that, while the number of permanent residents has grown steadily, a spike in non-permanent residents has accounted for the dramatic rise in population growth. 

Figure 1

Source: Champagne, Julien, et al. Assessing the Effects of Higher Immigration on the Canadian Economy and Inflation. Staff Analytical Note 2023-17. Bank of Canada, December 2023. 

Looking closer, non-permanent residents consist of students, temporary low- and high-skilled workers, and asylum seekers. These disparate groups will have considerably different experiences of life in Canada. For example, a temporary agricultural worker will have very different labour market and consumption patterns than a university student or high-tech worker who is permanently moving to Canada.

The BoC broadly looked at three channels through which immigration has affected Canada’s economy: impacts on consumption, labour supply, and housing.

Modest short-term impact on consumption

Upon initial entry to Canada, immigrants tend to draw down the savings they brought as they settle in Canada. Despite this initial consumption boost, the overall impact on inflation and economic output is estimated to be muted.

Once immigrants are settled, survey evidence suggests that newcomers have lower-than-average consumption for roughly ten years. Key reasons for this include remittances to their countries of origin and saving for a home purchase. 

Boost to labour force

The surge in immigration has significantly boosted Canada’s labour supply, offsetting shrinkage due to an aging population. The BoC assesses that between the beginning of 2022 and the middle of 2023, immigration raised the potential economic growth rate by as much as 2 to 3 percentage points.

The proportion of workers who are immigrants to Canada has risen across all sectors. The largest increases have been in relatively high-skilled professional, technical, and scientific services, followed by information, culture, and recreation fields.

While the growing immigrant labour supply has had a positive impact on Canada’s economic capacity, there are challenges that can be addressed to unlock the potential of Canada’s newcomers.

There could be improved sectoral alignment. Canada could draw more workers into sectors with a considerable labour shortage. For example, construction is one sector where the share of immigrants remains low relative to other industries despite considerable demand for workers, as shown in Figure 2.

Figure 2

Source: Champagne, Julien, et al. Assessing the Effects of Higher Immigration on the Canadian Economy and Inflation. Staff Analytical Note 2023-17. Bank of Canada, December 2023. 

Unfortunately, Canadian immigrants face considerable underemployment relative to their home country skills and experience. A C.D. Howe Institute study found that, in 2021, more than 25 percent of all working-age immigrants with a foreign bachelor’s degree or higher worked in jobs requiring only a high-school diploma or less. The same study found only three in five internationally educated health care professionals worked in health-related occupations.⁵ Taking steps to ensure that immigrants to Canada can work in jobs that fully utilize their skills and experience will boost Canada’s economy.

A recently published report from the Conference Board of Canada and the Institute for Canadian Citizenship6 highlighted a spike in “onward migration” in recent years relative to the historical trends. Particularly noteworthy was the finding that onward migration peaks four to seven years after immigrants come to Canada, which suggests that positive initial experience of life in Canada is crucial to retaining immigrants. The report recommends that the government invest in settlement services and other programs that will make immigration to Canada enjoyable and rewarding and support employers to ensure that they can recruit, hire, and train immigrants who will fit their workforce needs.

Demand–supply imbalance strains housing market

Housing affordability remains a challenge in Canada. As shown in Figure 3, since 2022, the gap between housing demand and supply has surged. Some of these pressures are evident in the inflation data. The decline in house prices in the current monetary policy tightening cycle has been less than would have been expected based on previous episodes, and shelter cost is expected to continue to contribute to inflation in the years to come.

As noted above, the construction industry appears to benefit less than other industries from high immigration, despite strong demand for workers. Drawing more newcomers into Canada’s construction sector could help grow housing supply.

Figure 3

Source: Champagne, Julien, et al. Assessing the Effects of Higher Immigration on the Canadian Economy and Inflation. Staff Analytical Note 2023-17. Bank of Canada, December 2023. 

Overall inflation impact is mixed

As Canada continues to grapple with recent inflation shocks, the impact of immigration is mixed.

Inflationary impacts of immigration are:

• Boosts to initial consumption from home country savings
• Increased demand for housing (relative to increased supply)

Deflationary factors include:

• Increase in the labour supply
• Productivity gains from high-skilled workers
• Likelihood of lower-than-average consumption once newcomers are established

A nation of immigrants

Canada has long welcomed immigrants from all over the world. This has created the vibrant and diverse country we call home.

With a historically high number of newcomers joining the ranks of Canadians after a period of isolation during the COVID-19 pandemic, the BoC study was a timely one. Investment professionals would do well to reflect on the challenges Canada faces with integrating its newcomers and the opportunities that being a nation of immigrants will bring. 

¹ Population growth, or total growth, in Canada is equal to natural increase (births minus deaths) plus international migratory increase (immigrants plus net non-permanent residents minus net emigration).

² Statistics Canada. “Canada’s Demographic Estimates for July 1, 2023: Record-High Population Growth since 1957.” The Daily. Government of Canada, September 27, 2023. 

³ Statistics Canada. “Canada’s Demographic Estimates for July 1, 2023: Record-High Population Growth since 1957.” The Daily. Government of Canada, September 27, 2023. 

⁴ Champagne, Julien, Erik Ens, Xing Guo, Olena Kostyshyna, Alexander Lam, Corinne Luu, Sarah Miller, Patrick Sabourin, Joshua Slive, Temel Taskin, Jaime Trujillo, and Shu Lin Wee. Assessing the Effects of Higher Immigration on the Canadian Economy and Inflation. Staff Analytical Note 2023-17. Bank of Canada, December 2023. 

⁵ Mahboubi, Parisa, and Tingting Zhang. Our Underemployed Economic Immigrants: How to Stop Wasting Talent. C.D. Howe Institute, September 6, 2023. 

⁶ Dennler, Kathryn. The Leaky Bucket: A Study of Immigrant Retention Trends in Canada. Conference Board of Canada & Institute for Canadian Citizenship, October 31, 2023.