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Canada’s aggressive increase in immigration may be solving some of the problems that accompany an aging population, but it’s also exacerbating the stress on infrastructure and intensifying productivity challenges, according to TD Economics.

In a new report, the bank’s economists said the rapid, immigration-driven increase in Canada’s population — a jump of 1.2 million in the last 12 months — is boosting economic growth and supporting the labour market. But those gains are coming at the risk of increasing challenges to other parts of the economy and society.

“For years, economists had been warning that aging demographics would throw the economy off-kilter by straining economic growth, tax revenues, and the social system,” the report said.

“A ramp up in skilled-based immigration offered a solution. Government policies have delivered, but now the question is whether the sudden swing in population has gone too far, too fast.”

Most obviously, the current immigration strategy is set to intensify an existing shortage of housing — increasing the shortfall by about 500,000 units in just two years — and further exacerbating the deterioration in affordability.

The growing pressure on housing will also be reflected in increased demand for scarce resources, such as health care, and put increased strain on Canada’s aging infrastructure, the report suggested.

Moreover, the ample labour supply may discourage companies from making productivity-boosting investments and lead to skilled immigrant labour being acutely underemployed.

“This is the first cautionary tale of pressing too hard on the immigration channel as the be-all and end-all solution to aging demographics,” it said.

The underlying boost in demand from immigration also stokes growth and inflation at a time when the Bank of Canada is trying to lean against these forces. As a result, TD estimated that the “neutral” level for interest rates is 50 basis points higher than it otherwise would have been, absent the sharp population jump.

Ultimately, policymakers have to do a better job of balancing population growth with the demands on social and economic infrastructure, the report said.

“While population growth is a good thing and a necessary remedy to aging domestic demographics, the benefits erode if it occurs too fast relative to a country’s ability to plan and absorb new entrants within the economic and social infrastructure,” it said.

“Chronic tensions can quickly become acute for provinces and cities that absorb a higher population share. Dislocations widen, creating an even larger come-from-behind strategy in addressing housing affordability and quality of life issues.”

Among other things, the report recommends improving the availability of childcare and reducing obstacles to professional employment by tackling credential-recognition barriers in sectors such as health care and engineering to ease some of the need for immigrant labour.

“The more Canadian employers, institutions and governments remove workplace barriers, the more pressure it can take off other areas of the social system — like demand for housing and health care services — by limiting the degree to which labour shortfalls lead to higher external recruitment,” it said.

At the same time, policymakers also need to better integrate workers and improve labour productivity, the report said.

“To set the country up for success, policy needs to be balanced in ensuring an appropriate infrastructure is in place to bring the best out of workers and families. This way the economic pie won’t just grow in size, but the quality will increase as well,” it said.