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Why Canada still needs immigrants despite soaring unemployment

By on June 18, 2020 0 299 Views

As the coronavirus pandemic raged across the country in March, Marco Mendicino, the federal minister of Immigration, Refugees and Citizenship, announced his plan to battle Canada’s looming demographic problem.

More than nine million baby boomers are set to retire over the next decade, creating a potential labour shortage that, if unchecked, could raise health-care costs, upend pension payments and halt the country’s economic growth.

Mendicino proposed adding a total of one million new permanent residents to Canada by the end of 2022, a slight increase that raises the annual immigration level to around one per cent from 0.9 per cent currently.

“Immigration drives economic growth, spurs innovation and helps employers access the talent they need to thrive,” his press release said. “Welcoming more newcomers will help to address the demographic challenges of an aging population and to compete and win in a competitive global marketplace.”

But within days, foreign embassies and consulates across the country closed, and Canada soon shut its borders to all non-essential traffic, putting a large question mark over Mendicino’s plan, which is merely the latest to make immigration a central facet of this country’s long-term economic growth plan.

Now, with the pandemic continuing to rage and no telling when a vaccine will emerge, it’s unclear when Canada can reopen to economic migrants, if they will still want to migrate here or exactly how the lost time will affect the country’s demographic problem.Marco Mendicino looking at the camera:  Minister of Immigration, Refugees and Citizenship Marco Mendicino.© Sean Kilpatrick/The Canadian Press Minister of Immigration, Refugees and Citizenship Marco Mendicino.

In a further complication, if fewer Canadians leave as part of the annual brain drain because working remotely emerges as the new normal, it could partially offset any potential decline in immigration.

Indeed, the coronavirus pandemic has placed the country on an unexpected detour that will have repercussions for decades, according to analysts.

“If we have a prolonged stop, that could really hurt us 10 years from now,” Andrew Agopsowicz , a senior economist at RBC Capital Markets, said. “Immigrants tend to be much younger, so anything that stops that process now is going to reverberate.”

The real estate market, health-care costs and university budgets all depend to a one degree or another on immigration. How severely these and other areas of the economy are affected depends on how long the pandemic disrupts the normal flow of migration.

“Without an influx, we’ll become a very old country, and that’s a very expensive proposition,” Agopsowicz said. “We need to be thinking about how we can turn our immigration system back on. We can’t just go into this turtling, not letting people in, because it’s such an important piece of our growth.”

a close up of a map© Provided by Financial Post

Although unemployment is surging, currently at 13.7 per cent, the RBC economist said he was not concerned about “jobs and too many people,” because the country’s aging demographics mean the number of jobs in the long term will exceed supply unless there is immigration.

Pedro Antunes, chief economist of the Conference Board of Canada, expects immigration levels to remain low at least through the end of next year.

He said it’s probably not advisable to compensate for the lost time, once the current restrictions lift, by, say, allowing in a surge of people.

“You don’t want to end up in a situation where there’s a lot of immigrants coming in,” Antunes said. “It may cause resentment, and I don’t think we can consider ourselves immune from that.”

But he said no one knows exactly how the pandemic is affecting overall immigration and emigration rates, and we won’t know until more time passes and there is more data to pore over.

In a report released in May, Agopsowicz noted that immigration has powered Canada’s economic engine, driving up gross domestic product in the largest cities at a faster rate than the national average. Without immigration, the populations in Toronto, Montreal and Vancouver all would have declined in 2019.

Canada in 2019 grew by about 580,000 people, roughly 1.6 per cent, and 80 per cent of that growth occurred through immigration, helping to offset the country’s naturally aging demographic.

“Without immigration over the past 15 years, Canada would have aged on a similar trajectory as 1990s Japan,” Agopsowicz said in the report. “Instead, Canada is one of the younger countries in the G7.”

a screenshot of a cell phone© Provided by Financial Post

He calculates that projected immigration to Canada in 2020 will fall by approximately 170,000 if the flow of immigration remains at current levels through August.

What happens after August remains unclear. According to official policy, people who obtained permanent residency as of March 8 are allowed into the country. But no one knows when immigration will return to pre-pandemic levels, regardless of government policy.

Béatríce Fénelon, a spokesperson for the Ministry of Citizenship and Immigration , said it could not provide any numbers on immigration by the time of publication, but it is widely understood that immigration has drastically declined during the pandemic.

Even Stephen Poloz noted in one of his final speeches as Bank of Canada governor that a lack of immigration could have broad reverberations.

“There’s no doubt, for practical reasons, immigration is less than it was a few months ago,” he said during a May interview with Financial Post, calling the influx of people into Canada “an engine” of economic growth.

“But I have no reason to think that we can’t continue to be an important immigration destination with the right protocols in place and that will be really important for growth, just as it was before,” Poloz said. “So there is a really strong incentive for us to figure that out and have that remain as an engine of our economic growth.”

There is limited data available on immigration levels since March, but the lack of it appears to already be affecting certain industries.

For example, agriculture is largely powered by a temporary foreign workforce, but the number of agricultural workers from foreign countries was down 45 per cent year over year in March, according to the RBC report.

a screenshot of a cell phone© Provided by Financial Post

And that decline is despite the federal government exempting this group from entry restrictions. It is even offering $1,500 to help offset the cost of a required two-week quarantine for these workers.

Universities also face a potential funding cliff with the borders closed. Foreign students on average pay triple the fees compared to domestic students, according to Shamira Madhary, Toronto-based managing director of World Education Services, a non-profit that helps evaluate international education diplomas.

“It’s basically a revenue generator for post-secondary institutions,” Madhany said. “The students are able to get a work permit while they’re studying, and after they’ve completed their education, they’re able to apply” to stay in Canada and seek permanent residency.

International students now compose 25 per cent of the University of Toronto’s student body. If 20 per cent decide not to study in Canada this year, the university could see a $200-million funding shortfall in a $3-billion budget, according to Agopsowicz. Any drop in students would also have knock-on effects, including on the rental housing market.a sign on the side of a building:  The University of Toronto on May 25, 2020.© Peter J. Thompson/National Post files The University of Toronto on May 25, 2020.

The situation demonstrates why Mendicino believes immigration spurs innovation. By helping to fund universities, Canada develops research that launches businesses, and attracts both investment and people.

A Statistics Canada report published on June 9 noted that companies owned by immigrants were 8.6 per cent more likely to implement a product innovation than a company managed by Canadian-born individuals, and 20.1 per cent more likely to implement innovative processes.

Immigrant ownership also had a positive effect on marketing innovations, the report noted.

“Immigrants in Canada are more likely than Canadian-born individuals to be university-educated, and university-educated immigrants are twice as likely as Canadian-born university graduates to be educated in science, technology, engineering and mathematics ( STEM ) fields,” the report said.

Still, while fewer people may be immigrating to Canada during the pandemic, it is also true that fewer people are leaving the country, and more Canadians currently living abroad may return.

“Clearly, there is more negative than positive, but there are offsetting forces that I don’t think people are talking about,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

One highly discussed consequence of social-distancing policies is that more companies can consider allowing their employees to work from home. Several giant tech companies, including Shopify Inc., the US$89.5-billion Ottawa based e-commerce platform, announced in May that working remotely would be encouraged.

The company’s chief executive, Tobi Lutke, called it “digital by default” and said  office centricity is over.”

Other companies, including San Francisco-based Twitter Inc. have also said they would allow employees to work remotely forever, raising broad questions about commercial real estate, as well as about the future of the workforce.

Tal noted that around 100,000 Canadians typically leave the country every year, with many taking higher-paying jobs in the United States, as part of a well-documented ‘brain drain.’ But many U.S. companies may prefer to have Canadian employees work remotely from this country, where national health care and the currency exchange rate naturally lower the cost of a worker, he said.a red stop sign sitting on the side of a road:  A vehicle drives through the Canada border control at the U.S./Canada border in Lansdowne, Ont., in March 2020.© Lars Hagberg/AFP via Getty Images files A vehicle drives through the Canada border control at the U.S./Canada border in Lansdowne, Ont., in March 2020.

“If we start to accept the notion of people working from home, it will be easier for a Canadian to be working for a New York company from their basement in Oakville,” Tal said. “This is very tempting for American companies.”

Reversing the brain drain may be more enduring than any change to immigration levels caused by the pandemic, he said.

There is also the possibility that it could take longer than a year to develop a vaccine for the pandemic. If new waves of the virus occur in the future, some of the roughly 3.5 million Canadians living abroad will return to the country, which would also offset the pause in immigration, Tal said.

Still, he noted the lack of new immigrants and non-permanent residents would create immediate consequences for the rental housing market, since there would be reduced demand in their absence, and also less demand for goods and services in general.

When the situation will resolve remains opaque, but it is already causing concern among economists.

“In the long run, we need to find strategies to have that not occur,” Agopsowicz said, “because this is such a key component of our growth strategy in Canada.”

Financial Post – Gabriel Friedman

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