The Canadian government has been under growing pressure to align the inflow of newcomers to the country with current labour market needs and infrastructure capacity—which prompted a massive reversal of the post-pandemic immigration plan set by the federal government.
Ambitious immigration targets were originally put forward to tackle labour market imbalances and financial stress on government balance sheets from an aging population.
In the years after the pandemic, policies around work permit eligibility were relaxed to address short-term labour supply shortages. International study permit allocations also expanded as post-secondary institutions turned to international students as a funding source to make up for cuts in government transfers and domestic tuition caps or freezes. This lead to a surge in new non-permanent residents to Canada, which surpassed the one million mark in 2023.
These new immigration targets will help rebalance Canada’s housing market, but a shift to strict population controls will come with consequences as well.
The policy shift is putting Canadian demographics back on an aging trend, and thereby, limiting the number of hours worked available in the economy without necessarily lowering the unemployment rate. That’s because the cooling in demand arising from having fewer consumers in the country will offset any shrinkage in the labour force, leaving the unemployment rate unchanged.
Significantly reduced population growth will also weigh on government balance sheets as an accelerated aging population puts upward pressure on healthcare costs and pension obligations.
Plans to lower population growth, if fully and successfully implemented, could subtract nearly a percentage-point from our growth forecast for Canada over the next three years.
This article was originally published by RBC Thought Leadership. Visit thoughtleadership.rbc.com
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