The federal government’s decision to limit the number of newcomers in the next few years to ease the housing crunch could have unintended consequences, according to an analysis by the Canadian Imperial Bank of Commerce (CIBC). The move could lead to labor shortages and inflationary pressures in certain sectors of the economy if not balanced properly.
Canada experienced record population growth in recent years, surpassing available housing and job opportunities created since 2019. However, this growth did not have a uniform impact on the economy, with the increase outpacing housing availability by 35% but only slightly exceeding labor force needs by 5-20%.
CIBC economist Andrew Grantham highlighted the importance of balancing population growth with labor force requirements. He emphasized the need for policymakers to consider both housing and labor force needs when setting immigration policies.
The government’s recent measures to limit the intake of newcomers include capping temporary residents to 5% of the population over the next three years and imposing restrictions on international students and work permits. These actions come after Canada experienced a surge in population growth primarily due to temporary residents.
While newcomers have historically played a vital role in boosting the economy, the report warns that excessive population growth could negatively impact labor market dynamics. Unemployment rates for non-landed immigrants and recent arrivals have risen significantly, indicating challenges in job availability for these groups.
As Canada navigates the delicate balance between population growth and labor market demands, economists stress the importance of setting appropriate immigration levels to support economic growth and address future retirements. The changing rules for newcomers should focus on maintaining a sustainable level of inflows that align with the country’s infrastructure capacity.
In conclusion, the report underscores the complexity of managing population growth and labor market dynamics, emphasizing the need for a strategic approach to immigration policies to support long-term economic stability.