NO MORE FILLING HOLES! FOCUS MUST BE ON GDP PER CAPITA

Canada’s economic immigration strategy needs to shift away from plugging “holes” in lower-skilled labour markets to prioritizing highly skilled newcomers based on their expected earnings to boost our country’s economic growth, according to a new C.D. Howe Institute report.

In “Optimizing Immigration for Economic Growth”, authors Matthew Doyle, Mikal Skuterud and Christopher Worswick, argue the goal of Canada’s economic immigration should be to leverage immigration to boost GDP per capita in the full population – including newcomers. They write that admitting immigrants to work in low wage jobs pulls down average earnings and GDP per capita; however, improving our system’s selection criteria can boost both.

“A key insight of an economic immigration program that is designed to simply expand the labour force without raising the average human capital level of the population is unlikely to increase GDP per capita in the long run,” says Doyle.

“Given the current high immigration levels, exceptionally high temporary migration levels, and strains on the housing and healthcare sectors, the federal government should apply the insights from our analysis and reassess immigration and temporary migration targets,” adds Skuterud.

Unfortunately, the authors explain, capital investment and productivity growth data does not suggest that Canada is well-positioned to leverage heightened immigration to raise either the level or growth rate of its GDP per capita. Instead, these data caution against large scale increases in economic immigration rates in the near term due to absorptive capacity issues.

The approach moving forward should be to gradually increase immigration rates, according to Doyle, Skuterud and Worswick. This should start from a high minimum level of expected immigrant earnings, and then gradually lower the earnings threshold each year towards the average of Canada’s overall population. As human capital cannot be observed directly, expected annual earnings are the best representation of human capital.

“This strategy would initially prioritize the applicants with the highest human capital levels and expected earnings whose contributions to the Canadian economy are likely to be the largest, and allow the immigration target to converge, over perhaps several years, to the optimal level for economic immigration,” says Worswick.

Unless significant steps are taken to improve the system used to screen applicants for economic-class immigration, the authors’ analysis suggests that actual cuts to the level of economic immigration are likely needed.

Doyle, Skuterud and Worswick conclude that in a country like Canada, where governments work to reduce inequality and immigrants are de facto citizens, economic immigration should aim to maximize GDP per capita in the full population. Further, the gains from improved earnings could allow the government to expand immigration under programs intended to achieve other non-economic objectives, such as humanitarian goals.