The Decibel - What’s driving Canada’s ‘population trap’?

Episode Date: January 18, 2024

Canada is one of the fastest growing countries in the world and in 2023, the population officially reached 40 million people. But economists are warning that there’s a price to pay for that growth ��� that Canada’s living standards and investments in infrastructure aren’t keeping up.Matt Lundy is an economics reporter for the Globe, and he joins the podcast to explain why Canada’s policies have led to a ‘population trap’ and why Canada’s immigration rates have soared.Questions? Comments? Ideas? E-mail us at [e-mail]

In 2023, Canada's population hit 40 million. It rose by 1.2 million people in just the last year, and the year before that, it grew by 800,000 people. Canada's population is one of the fastest growing in the world, but our standard of living isn't keeping up. Earlier this week, National Bank released a report warning that Canada is caught in a population trap. Matt Lundy is an economics reporter for The Globe. He's here to explain what that means, how we got here, and what experts say needs to change. I'm Maina Karaman-Wilms and this is The Decibel from The Globe and Mail.

Matt, it's great to have you here. Thanks for having me. So our population has grown rapidly, really, over the past year especially. How uncommon is that kind of rapid population growth for Canada? Quite unusual, I would say. So over the past year, roughly, we've grown by about 1.25 million people. That's 3.2%. And we've not seen that rate of growth since the late 1950s. That was back in the baby boom, essentially.

So this is, you know, what's normal is usually around 1 to 1.5%. We've really swung up, especially in the past year or two. And so, yeah, so this is the last year is in a particular big number, but this is actually a bit of a trend if we into power under Trudeau, but it was fairly gradual, I would say. They wanted to increase the number of permanent residents that were coming in every year. Where we're really seeing the growth, though, is in this temporary resident category. That's temporary foreign workers and students. Just in the past couple of years, the number of temporary residents in the country has basically doubled. So that is really driving overall population growth. Can we talk a little bit about what's happening, though? Because immigration has been important to Canada for a long time,

right? What is the difference now? The difference now is that we've had this very sudden upswing, which in part, I would say, was courted by the federal government. A lot of companies were talking about labor shortages around 2020, as we were reopening from the pandemic, as well as in 2021. They geared a lot of their policies to making it easier to recruit people from abroad. But then we also have this sort of cross jurisdiction issue as well, where we have these colleges and universities that are regulated by provincial governments, as well as study visas that are approved by the federal government. And it's just kind of gotten out of control. No one's really been looking at it. And we've had this huge upswing

in numbers. And really, it's putting a lot of stress on the system. And you touched on this a bit, but let's just make this distinction, I guess, between permanent residents and temporary foreign workers, temporary residents. Can you remind us of the difference there? Yeah. So permanent residents, it's pretty much right there in the name. They can stay indefinitely in the country. And often when people talk about immigration, that's the people who they are referring to. Temporary residents are a different category. They have a visa, there's going to be an expiration, they're going to have to leave at the end of that. Many of those people want to become permanent residents. And we've seen this

really big swing upwards in the number of temporary residents. And frankly, there's probably going to be a bit of a logjam where a lot of them are going to be frustrated. They're not going to become permanent residents. And again, you kind of alluded to this a little bit here, but it sounds like there's a business case for why we've increased immigration so heavily. Is that kind of the reason behind it? The way that it's often framed by the federal government is that we had no choice here. Like from an economic standpoint, it was clear that we were aging rapidly as a country. And at a time when all of the industrialized countries

in the world are facing huge demographic challenges. We are extremely fortunate as a country that we have the social capacity to welcome immigrants. We have labor shortages. If we want to support all these seniors, we're going to need more taxpayers, basically. That has been the argument from the federal government. And it's one that I think a lot of people have really bought into in the public. But I think over the past couple of years, we are seeing shifting opinion on this and quite a lot of critiques over what they're doing. But that is the case they make. All right. So let's get into this. So a report released by National Bank earlier this week said

that Canada is in a situation now known as a population trap. So, Matt, what does that mean? A population trap is a fairly obscure economic term, I would say. But it describes a situation in which the population is growing so fast that it can't improve living standards. Specifically, we are not investing in the economy at the same rate as people are being added to it. And specifically, they're talking about capital investments. So what is capital? Capital is all this stuff that we need to do our jobs, basically. So it could be software that you rely upon. It could be machinery at a factory. It's all sorts of stuff

that we use to produce goods and services. Now, countries with high levels of capital and strong business investment, they tend to be richer countries. The problem is that Canada is not investing a lot. And really, this is an issue that goes back decades. Like literally, you can find articles lamenting how bad business investment is in Canada in like the 1980s in the globe. So this is something we've been grappling with for a long time. Now you throw in a huge population boom, and it's creating really difficult circumstances for the economy where we're just not in a great growth period right now. This is a little bit jargony, but I think this is important to touch on. Economists are looking at

something called real GDP per capita, right? And that number is about the same as it was in 2017. So can you break that down? What does that mean and why is that important? Yeah, real GDP per capita is economic output per person. A lot of people use this as sort of like a proxy or a stand-in for living standards in a country. It's how much we produce. And of course, labor gets a share of income. So if you're producing more, it bodes really well for your living standards, for your income and that sort of thing. The problem right now is that Canada has been in a long period of economic stasis on a per person basis. So the overall numbers, they've typically been growing, but per person, the economy has stagnated.

Another way of looking at this is something our colleague Tony Keller used in a column, which is that the number of forks in the economic pie is growing faster than the pie itself. That means we're all taking a smaller bite out of that pie. And of course, we should make it clear, like critics themselves are saying this is a policy failure, right? It's not the fault of people coming to Canada. Yeah, that's a clear distinction to make. We're not blaming immigrants here. We want to keep the focus on the decisions that got us in this place. Okay, so you also talked about an investment as part of this. So if part of the problem is not enough capital investment

to keep up with what we need, I guess, why is that? Why don't we have enough business investment in Canada? I think part of the issue is that we have really uncompetitive industries. If you look at so many things, whether it's airlines, banking, groceries, or whatever, we usually just have a few or a small handful of companies that dominate in them. So one thing could be opening up the Canadian market more to foreign competition. That would spur more investment as well. That would ultimately be better for productivity.

But another thing, at least as it relates to immigration, is that over the past couple of years, we have been helping companies out a lot. We've been telling them, you're talking about a shortage of labor? We'll help you bring in workers from abroad. We're going to expand the temporary foreign worker program. We're going to allow foreign students to work as many hours as possible off campus. And this is the type of thing where, you know, if you can get a worker at $15 an hour, let's say, depending what the minimum wage is in your province, that's often a lot cheaper than investing millions in new equipment or new software that would make your company

more productive. So a lot of economists have been criticizing the government on this front, that they are making the cost of labor, frankly, a lot cheaper than it should be. The report we're talking about comes from National Bank. But Matt, they're not the only ones talking about this, right? What are economists elsewhere saying about Canada's level of immigration? There was an event last week where all of the chief economists at the major banks in Canada were speaking, and they're all very, very critical about immigration policy in this country. Usually, they're pretty

conservatives talking about this stuff. They don't really want to court controversy or say something that might be misconstrued, let's put it that way. But there was a lot of criticism. So one thing, the chief economist at TD Bank, she said that Canada had really screwed things up because we have this really favorable position where we share a huge border with the US. We don't have the same migration issues that they deal with. We're surrounded by three oceans as well. We really pick and choose who we want to come into the country. And even with those advantages, she said that we've screwed things up. As well, the chief economist at CIBC, he just said the numbers don't add up. If you look at

how many homes we build versus how many people we're bringing in now, it's a total disconnect. And he really said that we need to rein things in. We'll be back after this message. Canada's in this specific situation, this population trap. I wonder, are other countries also facing this? How common is this? As far as population trap, I mean, I would imagine Canada is in a fairly unique situation for countries that resemble it. They mentioned National Bank that population traps are typically something you see in emerging economies, countries that are, frankly, not as wealthy as Canada is. And if you look at the numbers, Canada is growing five times

faster right now than the average OECD country, way faster than other G7 countries. We are really out there in rare territory for how fast countries are growing right now. Why is it that wealthier countries often don't get stuck in this situation? Well, one, they probably have stronger business investment. Like if we look at peer countries like the US, the US invests way more than we do. So that is very helpful for their economy. But Canada is, you know, on one hand, we're a desirable place where a lot of talent wants to go to. That is a huge advantage that we have.

But we've probably not had strong oversight on certain aspects of our immigration policy. Yeah. So it sounds like countries that usually get into a population trap, this is often due to birth rate then, but this is not how Canada got here. Yeah, exactly. Like if you're looking at quickly growing countries that end up in some sort of population trap, again, mostly emerging economies, higher birth rates. Canada does not have a huge birth rate, right? Like we are growing as a country, like 98, 99% of our population growth is from immigration. So Canada is in this population trap because of really high levels of immigration. In particular, we talked about temporary foreign workers, Matt.

I'm wondering, do we know how Canadians are feeling about immigration these days? They don't feel as good about it as they used to. In the fall, there's this polling company called Enveronics, and they ask Canadians about immigration every year. They found that 44% of Canadians felt immigration levels were too high. A year earlier, it was 27%. So, you know, a pretty notable uptick on that front. And there are other surveys that show even a slight majority of Canadians now think immigration is too high.

And the reason for that is that they're tying it to a lot of the affordability issues that we're seeing in the country. So I think that gets into complicated territory. How much can you really blame immigration for a lot of the issues that we're seeing. Like, we've not been building enough homes for decades now, even before we were talking about these issues with immigration. At the same time, having a short-term spike in demand is not helping either. So we've talked about what a population trap is, but let's look more broadly at the implications of this, Matt. What's the impact on housing, healthcare, and access to services? I mean, I realize that's a big question, but what do we tend to see? Well, one clear thing right now is that like rent inflation has gotten completely out of control,

and it correlates pretty strongly with the sort of population growth that we're seeing. We also are seeing lots of issues with access to health care. Again, this is stuff that we were talking about for the pandemic. These are longstanding issues in Canada. But again, you add that much demand to the situation and it's really not helping. So it seems like there are a number of problems that have been caused here, Matt. What are some of the solutions to how Canada breaks free from this population trap? I guess I wonder first about economists, what are they calling for? One thing they would like to see is to rein in some of the temporary resident growth that we've seen, whether through workers, and I think especially international students as well. When you have the immigration minister, Mark Miller, talking about how a lot of these institutions are quote unquote, puppy mills, that they're churning out these bad degrees. It's a bad education.

It's really just part of this immigration system where you pay for a couple of years so you can get a three year postgraduate work permit to hopefully stay in the country permanently. Like something is talking about foreign students coming into universities. Yeah. Things have things have gotten out of control on that front. It looks like we're heading toward about 900,000 international students in Canada as of last year. That's grown a huge amount. In that National Bank report, they actually put a number on what they thought was an appropriate level of annual population growth for this country. And there's only 300,000 to 500,000 people per year, which again, 1.25 million is the

most recent annual number that we saw. That would require wholesale changes to what we do. I mean, the number of permanent residents that were slated to bring in next year is 500,000. That's already at the upper limit. Another thing as well would be on the temporary foreign worker side. slated to bring in next year is 500,000. That's already at the upper limit. Another thing as well would be on the temporary foreign worker side, we've made it very easy for companies to hire international workers at low wages. Do we want to be bailing out that side of the economy? Do we want to be creating a lot of low wage jobs in this economy? That's something

that could possibly be shored up as well. Another aspect of this as well is the federal government sets targets on permanent residents. They don't do that type of thing for temporary residents. So that's another factor in why this growth has become so explosive is that we don't really have those parameters. People still need to get work or study visas to come into the country. They need to prove that they have sufficient financial resources, for example, to come here. We, in fact, refuse quite a lot of people on visas. So it's not just like anyone who wants to come into Canada can do that. But on the other hand, we don't have those sorts of limits or parameters around it. But I don't think we can forget the fact that business investment has been crummy for a long time in this country.

And thinking of ways to incentivize companies to invest, that would help our economic capacity as well. And, of course, a lot of this does come down to government policy, as we've talked about. What is the federal government doing in response to this, Matt? Well, let's say on the investment side, the federal government is trying to get way more home building out there. They've removed some taxes on the construction of purpose-built rental units, which should be pretty helpful. And in fact, there are some developers that have said, we're going ahead with projects because of this move. As far as the demand side of things in population, there's been a little tinkering around the edges. They've doubled the financial resources that international students need to come into the country for their visa approval. But really, it's been so far a lot of talk.

They've said that things have gotten out of control. They're prepared to act and to rein in temporary residents. They've mentioned the possibility of a cap on the number of international students with visas. So it feels like something is coming and that we are going to see more on the demand side happening this year. So just lastly here, Matt, what will you be watching for over the next year? How will we know if we're making moves to get out of this population trap? What I'll be watching this year, first and foremost, I think it's going to be on that demand side of looking at what is happening with population dynamics. If anything, in the past few

months, we're continuing to accelerate. Are we going to see some moderation there? Are they going to rein in the number of temporary residents? That would be interesting. And I'd be looking at where does labor policy intersect with business investment? Are we going to tell companies, hey, we're not going to give you a limitless amount of low-wage workers here. We're not going to give you that access. We're going to need you to invest instead.

So the spring budget would be an area where maybe we see some moves to encourage companies to invest more. I'd be looking at that. I don't know if there's going to be some day where we say, hey, everyone, we're out of the population trap. But we can look at those dynamics of investment and population growth for signs that things are maybe trending in a better direction. Matt, thank you so much for walking us through this today. Thank you. That's it for today. I'm Mainika Raman-Wilms. Michal Stein produced this episode.

Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer. And Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.