Immigration alone can’t keep Canada young
Parisa Mahboubi is a Senior Policy Analyst and William B.P. Robson is President and CEO of the C.D. Howe Institute
Canada is getting older. Not just us Canadians as individuals, but our population as a whole.
Our fertility rate dropped below the replacement rate of 2.1 required for population stability way back in 1971. Life expectancy at birth has increased by more than nine years since then.
One consequence of low fertility and increased longevity is that the number of people past what we traditionally consider working age is rising relative to the people of working age. The ratio of Canadians age 65 and older to Canadians age 18-64 rose by more than 10 percentage points over the past 40 years, and will rise by more than 10 percentage points again over the next 40.
An aging population puts pressure on living standards, dampens growth of government revenue and presents fiscal challenges – notably to public pensions and health care. Since immigration has become a major contributor to population growth, and immigrants are, on average, younger than already-resident Canadians, immigration can look like an antidote to aging – a kind of national elixir of youth.
This hope does not survive an encounter with real numbers, as we show in a recent publication.
Running the federal government’s recent targets, and the recommendation for an increase to 450,000 immigrants annually from the government’s Advisory Council on Economic Growth, through a demographic model reveals that higher immigration, by itself, does little to alleviate the pressure of aging.
Raising immigration, whether to an unchanging level of 450,000 a year, or to a permanently higher rate of 1.2 per cent of the already-resident population, does not stop the ratio of retirees to workers rising further, and has negligible impacts on living standards.
An immigration policy designed to stabilize the ratio of retirees to workers would require massive inflows – 1.5 million annually over the next decade alone – that are outside the realm of economic or political reality.
By contrast, projections involving later retirement – an increase in the age at which we typically consider people too old to work – present a markedly brighter picture. A projection in which the average age of retirement rises from 65 to 70 over 20 years produces a stable ratio of retirees to workers over the next decade and a half, and a decline after that. More workers per retiree means faster growth in living standards.
Encouragingly, combining later retirement with a permanently higher rate of immigration produces a bonus.
Not only does that mix lower the ratio of retirees to workers and boost living standards throughout the projection, but it demonstrates some happy timing.
In the next decade or so, when the pressure of aging on living standards will be most intense, later retirement improves the outlook – and as that boost begins to fade, the slower-acting impact of higher immigration gives us a second wind.
The later-retirement example highlights a more general point. Canada needs policies to complement higher immigration targets.
Slower growth and higher taxes will make us less attractive to potential immigrants than faster growth and lower taxes.
If living standards are growing relatively quickly in countries that are potential sources of immigrants, and in countries that compete with us as destinations for immigrants, we will have a tougher time attracting the quantity and quality of people envisioned by advocates for higher immigration – a vicious circle.
If longer work life and other responses to aging makes us more prosperous, however, we will more easily attract immigrants and retain workers who can contribute to our prosperity – a virtuous circle.
Higher immigration may be good for many reasons, but it cannot keep Canada young. Other policies to ease the demographic transition, notably encouraging people to work longer, hold out at least as much promise for boosting living standards.
And those changes would complement higher immigration targets, by improving Canada’s attractiveness to people willing and able to contribute to the Canadian economy.