Immigration’s Role in Canada’s Economic Growth Amid an Aging Population

The impact of high levels of immigration on Canada’s economy and aging population has been a topic of discussion in a recent report by RBC. According to the report, immigration has been helping to offset the economic challenges posed by Canada’s aging population, although it has also exacerbated issues with housing affordability.

Carrie Freestone, an economist with RBC, highlighted the imbalance between the demand for goods and services by retirees and the economy’s ability to produce them. As more people retire and become recipients of public service programs, such as healthcare and pension benefits, there is a widening gap between government tax revenue and the funds needed to pay for these services.

The report noted that recent scalebacks in Canada’s immigration policies are expected to result in a 2.5% smaller population size by 2027, compared to original estimates if the policies had remained unchanged. This reduction in population size is projected to lead to a 0.9% decrease in Canada’s working-age population and an increase in the dependency ratio.

The federal government’s decision to cap the intake of international students and make changes to open work permits for spouses of international students was driven by strains on the economy, including in the housing market. However, Freestone emphasized the importance of recognizing the economic impacts of an aging population and low birth rates, such as labor shortages.

Statistics Canada reported that Canada’s fertility rate hit a record low in 2022, further highlighting the need for immigration to address labor shortages and support economic growth. Freestone suggested that bringing in working-age immigrants, even at a slower pace, could help alleviate these challenges.

In comparison to the U.S., which has kept immigration levels low, Canada’s approach of ramping up immigration has resulted in a lower age-related unfunded liability per capita. Freestone emphasized the importance of targeted immigration and improving skills matching to address the housing crisis and support economic growth.

Overall, the report underscores the significant role that immigration plays in Canada’s economy and the importance of addressing the challenges posed by an aging population through strategic immigration policies.