Why increased immigration won't fix population aging

A popular solution to the problem of population aging is to simply increase the rate at which we admit immigrants. This sounds reasonable: the age profile of new immigrants is generally younger than that of the existing population. But increased immigration can't do much more than make the problem slightly less bad. (See also this CD Howe Institute study.)

The problem is one of scale. Here is the distribution of the 2010 Canadian population by age:

The number of youths entering the workforce is now less than the number aging out of it, and this gap is going to get bigger as time passes - see this post.

Here is is the age distribution of the population of the 2009-10 immigration wave. The population numbers are as of July 1 of a given year, so these are the immigrants during the year preceding the 2010 numbers.

The age distribution of new immigrants is concentrated in the 25-40 year old range, which corresponds almost exactly with the dip in the profile for the working-age population. Clearly, immigration can and does attenuate the effects of population aging.

The problem is the scale of the vertical axis. 9000 additional 30-year-olds makes barely a dent in the age distribution:

Just to bring the point home more clearly, here's what you'd have to do to fill in that gap to the left of that peak at age 47:

To put those numbers in perspective, the gross flow of immigrants in 2009-10 was 270,000 people.

Reshaping the population profile so that it is non-increasing throughout involves adding an additional 6 million people. And there's not much point in talking about gradually increasing immigration: the hole increases by 200,000 per year as the population peak moves to the right.

Higher immigration rates can't hurt and will likely help. But we shouldn't be under any illusions about just how effective increased immigration will be in dealing with population aging.

Comments

[Robert McClelland]

9000 additional 30-year-olds makes barely a dent in the age distribution

That's only true for one year though. Increase the number of 30 year old immigrants over a decade and it does make a significant dent in the age distribution. For example, adding 9,000 20 year olds this year, 9,000 21 year olds next year, and so on will result in an additional 90,000 30 year olds in a decade.

[Andrew F]

Doesn't our current immigration system add points for being over 45?

We could tweak our immigration system to be biased toward 25-35 year olds, targetting the intake at 150,000 per year of our 300,000 quota. Borrow some of the demographic dividend being experienced in places like India.

[btg]

here is the chart for age

Less than 17 years of age 0
17 years of age 2
18 years of age 4
19 years of age 6
20 years of age 8
21 - 49 years of age 10
50 years of age 8
51 years of age 6
52 years of age 4
53 years of age 2
More than 53 years of age 0

plus, there are points for work experience

1 year 15
2 years 17
3 years 19
4 years 21

and there ar epoints for education

For a Master's Degree or Ph.D. and at least 17 years of full-time or full-time equivalent study. 25
For 2 or more university degrees at the bachelor's level and at least 15 years of full-time or full-time equivalent study. 22
For a 3-year diploma, trade certificate or apprenticeship and at least 15 years of full-time or full-time equivalent study. 22
For a University degree of 2 years or more at the bachelor's level and at least 14 years of full-time or full-time equivalent study. 20
For a 2-year diploma, trade certificate or apprenticeship and at least 14 years of full-time or full-time equivalent study. 20
For a 1-year university degree at the bachelor's level and at least 13 years of full-time or full-time equivalent study. 15
For a 1-year diploma, trade certificate or apprenticeship and at least 13 years of full-time or full-time equivalent study. 15
For a 1-year diploma, trade certificate or apprenticeship and at least 12 years of full-time or full-time equivalent study. 12
You completed high school.

so, if you just graduated from harvard with a phd and have no work experience, you are rated well below a 49 year old with far less education, but who has wored for 4 years

[K]

Stephen: After seeing these numbers, I'm actually reassured about the effectiveness of immigration. Lets look at 47-year olds. There are about 570K today, judging from your graph. In 15 years there will be roughly the current amount of 32-year olds plus immigration. Immigration of those between the ages of 32 and 47 looks like it averages more than 6000/year or 90K over 15 years. So in 15 years there will be about 560K minus deaths plus emigration. I don't know what the rates of those last two factors are, but 560K is at least in the ball park of 570K. There does seem to be a slightly more serious problem in the current under 15-year old cohort, but maybe that can be fixed too with the right immigration/child incentives. I think we just need to up the immigration rate a bit, and work on issues of better integrating immigrants into the workforce. Looks pretty bright to me.

[btg]

i would also say that creating a flat age pyramid - adding in the 6 million people shown (which at the current rate of 250,000 immigrants per years = 24 years of immigrants!) is not efficient.

when someone current 50 turns 65, they will be retired for roughly 20 years
somebody who is 49 will only work for one year longer, then they to will br drawing benefits.

in fact, the correct policy to deal with the baby boom would be to create an echo that is at least 20 years younger - which is to say that immigrants in 2009 should have all been under 30. or at least, under 35 or so, with the demographic being flat under age 30.

there must be some sort of computer simulationsomewhere that would calculate what the policy should be - i know that daniel stoffman, in his book "who gets in" did calculations like this, but that book is about a decade old now.

[Cthonic]

Great post, thanks for your objectivity.

[Cthonic]

> I think we just need to up the immigration rate a bit, and work on issues of better integrating immigrants into the workforce. Looks >pretty bright to me.

I would counter that by suggesting that the government help facilitate/encourage/promote a higher birthrate in this country.

[Jim Rootham]

I still don't understand why people think this is a problem.

The real problem is relying on unemployment to control inflation. That is a truly evil policy in that it damages the powerless to comfort the powerful. The expected result of fewer working age people is higher wages, which will drive higher productivity.

[CBBB]

btg

I don't know if you're familiar with looking for a job in Canada, but years of experience count for EVERYTHING. If we allowed people with PhDs and no work experience in they'd find themselves with little to no career options in Canada. Right now there are huge numbers of Canadian university graduates and young people either unemployed or employed at jobs well below their skill level.

[Stephen Gordon]

How does the points system work, anyway? Are you eligible automatically if you have the points, or is there an annual ceiling as well?

My impression is that the govt sets some goals/targets for immigration, but a policy of higher immigration means lowering the points threshold.

[K]

Cthonic: Sure. But there's a more immediate problem over the next 20 years. Output must go up now, not in 25 years. Only immigration can do the job.

Stephen:

I take back the part about us having a problem for the under 15 cohort. At about 5000/year average we're pretty close to making up the 100K or so shortfall between 12 and 32. Again, I'm feeling more tranquil about the problem, though maybe the emigration and mortality rates significantly change the results. If I had the data, I would do the full calculation, but statscan seems to keep it all behind a pay wall. Is there a (more) public source for the data?

I don't think there is any hard annual immigration limit. I've arranged for several employees to come in under the point system and I've never been made aware of the number of applicants in the current year. So if there is a limit, it must be high/irrelevant. We might not have to lower the point threshold much, though, to increase "desirable" immigration. Like Andrew F says, we could just give relatively more points to those who are younger or have kids. And improve the incentives for all Canadians to have kids (better child care, schools, tax credits, etc). What we need to know from the Department of Immigration, is the derivatives of the number of applicants with respect to the number of points in each category. From there, it would be possible to do some analysis on the most efficient point system.

[Patrick]

Jim: AD will also decline. Retirees consume a whole lot less. I could be wrong, but I have a hunch that stagnation or even deflation is as likely an outcome as higher wages for the remaining workers.

[K]

Patrick: It's really not about AD. People who are learning economics in the middle of a liquidity trap are all going to think equilibrium economics is somehow about aggregate demand. It isn't. The equilibrium constraint is *capacity* not demand. AD shortfall is a disequilibrium problem which is the job of the monetary authority to fix. The problem (if any) that we are running into is a collapse of capacity.

[Ralph Musgrave]

I don’t know why Stephen Gordon bothered with the above charts. It’s blindingly obvious to anyone with half a brain that immigration is a fatuous solution to the ageing problem because, amazing as it may see, IMMIGRANTS ARE HUMAN BEINGS!!! THEY GROW OLD LIKE EVERYONE ELSE!!!

A study by F.T.Denton of McMaster university estimated that if immigration alone were used to deal with the pension problem, the population would have to increase 20 to 30 fold every hundred years. And if a significant proportion of the rest of the world tries the same trick, knicking other countries’ youth, the thing becomes a farce: a zero sum game.

The Denton study URL: http://socserv.mcmaster.ca/qsep/p/qsep398.pdf

[btg]

stephen gordon:

the government policy, since mulroney was PM and Barbara Macdougall was Immigration minister, has been to have 220,000 to 250,000 immigrants per year - the liberals had campaigned in the 90s on increasing it to 1% of the population, or about 300,000 to330,000, but nver implemented it.

when the liberals massively revised the points system, around 2002, they set the points to get in at 75 - but this was quickly dropped to 67 points when it turned out that less than 200,000 immigrants per years would be approved.

yet, there is now a backlog of about 1 million people waiting to get in - you would think that in order to reduce the backlog, the points level would be increased, but perhaps the conservatives have been afraid to touch it for fear of it harming jason kenney's attempt to lure ethnic voters to the conservatives.

[btg]

CBBB:

for many people who come here, their foreign work experience counts for zero with canadian employers. here is an article from today;s Star that pretty much says this - http://www.thestar.com/news/article/998962--colony-of-wives-thrives-in-mississauga

i would think that a phd graduate from a top school like harvard would be snapped up by many canadian employers. a 49 year old doesn't help with our future aging/retirement problem, might have only 2 years of university froma school that nobaody has ever heard of, and their work experience might count for little in canada.

canada has the highest level of people with post-secondary education of any oecd country - one of the reason why people graduating from canadian universites these days have a hard time finding jobs is that there is no shortage of university graduates, except in certain fields. tgh elack of jobs is indicative that the supply of labour, andof educated labour, far exceeds demand - in which case the best thing is to not add to the supply, or at least, reduce the increase in supply by cutting immigration.

the points system does a poor job of determining who is likley to land a good job once they are here. under trudeau, the level of immigration went up and down depending on the unemployment rate, aND the system tried to determine which jobs had a shortage of qualified workers.

the current system only looks at number of years of education, and number of years of work - it does nothing to prioritise those workers who have skills that are needed, and if you are in a skilled trade - something based on apprenticeship of hands-on learning instead of time in school, then the system works against letting you in.

the current system is designed for ease of processing and verification - to make it easy for bureaucrats to process applications with some level of verification. it is relatively easy to verify language skills, age, years of education, work experience, having relatives in canada, work experience in canada etc. - it is harder to verify if somebody is actually a skilled stone mason.

instead of the current system, with its high level of immigrants (double per capita the uS or australia), poorly designed points system, backlog, and its lack of success in filling skills shortages, we need a different approach.

give priority to people who have actual job offers - or how about letting in people only on a visitors visa for a few months when they could look for work - they can take a job while they look, but at the end of their time here they would have to leave if they haven't proven that they have a job that uses their skills/education.

[Kien]

The Australian Treasury agrees that immigration helps but is not a solution (see below). On the age profile of immigrants to Canada, I was struck by the dip in the age profile around twenty. I'm sure Canada has many overseas students, many of whom would be happy to remain permanently in Canada. Canada could simply offer all its overseas students permanent residence status.

From http://demographics.treasury.gov.au/content/_download/australias_demographic_challenges/html/adc-04.asp:

Immigration
Some have argued that immigration levels can be increased to address population ageing.

Because migrants are predominantly of workforce age, migration will assist in keeping up workforce growth. Moreover, if they are skilled they will raise general skill levels and productivity.

This is in fact happening. The Government recognises that the greatest gains to Australia come from young skilled migrants, and has shifted the balance of Australia’s Migration Program from less than 30 per cent skilled in 1995-96 to more than double that proportion in 2002-03.

But increased migration cannot prevent our population from ageing. This is because migrants who come to Australia will age along with the rest of the population. To maintain Australia’s existing age structure through immigration would require increases in immigration every year — and the increases would need to become progressively larger and larger to take account of the ageing of the migrants themselves. While there are undoubted benefits in maintaining net overseas migration, migration cannot stop the ageing of our population.

[Nick Rowe]

Ralph:

There are two separate questions:

1. Should immigration policy be used to *smooth out fluctuations* in the dependency ratio? (I.e. speed up immigration of the young when we have fewer young people, and slow down immigration of the young when we have more young people.) Call that "countercyclical" immigration policy.

2. Should immigration policy be used to *permanently reduce* the dependency ratio? (I.e. keep the speed of young immigration permanently high to permanently reduce the dependency ratio.) Call that "secular" immigration policy.

Stephen is talking about cyclical immigration policy (that's how I interpret him, anyway). You are talking about secular immigration policy.

Yes, secular immigration policy would imply a permanently higher growth rate in the population, which is a problem, eventually. But countercyclical immigration policy does not.

[Nick Rowe]

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[Nick Rowe]

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[Frances Woolley]

does that do it?

[Patrick]

K: Yeah. My thought was that Canada is a capital intensive economy and older worker are much less productive than younger workers. Also older worker earn more than younger workers, and that the shift to much lower consumption happens only after retirement. So removing retirees from the work force is not going to have a really big impact on capacity, but it will clobber demand.

And, yes. This is obviously just hand waving on my part.

[Simon]

Um.....so what's the upper limit on how many immigrants Canada could hope to attract over the next ten years? I mean, if we wanted to go "wheat boom" crazy again. How many people in the world would be keen to relocate here? And what determines that upper limit?

[K]

Simon: I don't think it matters much what the upper limit is. If you do a fairly straightforward calculation it turns out that the current levels of immigration shown above basically fix the problem (within the mortality plus emigration rate). So unless I'm wrong, we wouldnt have to raise the immigration rate much.

[btg]

Kien:

I think that the dip in age around 20 is due to several factors:

1. children under 18 get treated as dependents - the rules preclude children over 18, but onlder dependent might be allowed in if they were under 18 when the application was processed - i am not sure on this part.

2. to have children in their late teens or early 20s, most immigrants would have to be in their late 30s or 40s, but most immirants are in the 25 to 40 range.

3. students can apply to stay here once they graduate - again, this would tend to favour students over 21, assuming a 3 year dgree and 18 years of age when coming here.

[btg]

nick - the 6 million people stephen shows to "smooth out" the dependency ratio would not actually do that - because the population over age 50 in 2010 is low because these were people born before the peak of the baby boom - the dependency ratio would still increase as the "bulge" moves into the higher age groups in future years.

if the idea is to stabilise the dependency ratio, then as i suggested, the thing would be to have more immigrants under 30 - that is, people born after 1980, and stop immigrants born before 1980.

to maintain a specific dependency ratio in the long run, a proper formula would look at people reaching age 65, look at people 18-25 entering the workforce, and then look at the unemployment rate, and then determine how many immigrants are needed (adjusting for stay at home spouses, and for children who will eventually enter the workforce) to cover the net number people retiring for their remaining life expectancy.

[K]

btg: I think you might have to significantly increase population (or start knocking off old people) if you want to maintain the dependency ratio. The current ratio is artificially low because of the baby boomers. A more reasonable goal would be to target a ratio consistent with a stationary population pyramid. That's not obviously unachievable.

[btg]

K

my point was about what things would stabilse the dependency ratio - as i have said elsewhere, the best solution, and the inevitable one if life expectancies keep increasing, is to increase the retirement age and also to discourage early retirement.

population growht involves incurring a lot of costs - the gta had a population of 4.2 million in 1991 - about 5.9 million now. the transit and road system we have now is pretty much the same as it was in the early 90s, yet it takes billions of dollars to expand transit, roads, subways, hospitals, etc. - over time, the immigrants will likely pay taxes to pay for these things, but that also takes away from the beneifts of immigration, and the costs of these things must be paid for up front, which of course nobody has been willing to do in any of the 3 levels of government.

and as the Aussies pointed out in the quote above, exponential growth doesn't work - we can't keep having a 0.75% per year (or higher) growth rate for ever (Canada would have a population of 1.4 billion in 500 years)

[K]

Fine. But define a stationary population pyramid as one whose shape doesn't change in time including the effect of a constant immigration policy. If the current dependency ratio is lower than the one that is consistent with such a stationary distribution, then it's not sustainable, whatever you might wish for. The current ratio seems likely to be too low since it is the result of a massive rise in the birth rate 50 years ago. It doesn't seem reasonable to try to keep it constant.

[Mark_dowling]

It's not simply a question of who we let in but what contribution they can make to dependency ratio immediately. Workers in regulated professions often face years of low incomes and taxation before gaining a foothold.

The irony is that while I was immigrating for family reasons and was therefore fast-tracked, I would have been marginal on points for independent entry and would probably have had to take French courses to bring my points well above the cut-off. Once I landed however I had a full time job within six weeks because as an IT worker I didn't have some industry group in Ottawa to pay $500 per exam, which my Canadian wife with a foreign law degree had to.

[Andrew F]

So, how do we deal with some of the other concerns about family reunification? Many immigrants who comes here, even if they are under the 30 years of age that would best help to compensate for the baby boom, would also like to bring their parents. If every immigrant under 30 brings two parents aged 55, it doesn't necessarily help.

So, maybe require that the average year of birth of the family be over 1980? In other words, have some babies, then bring mom and dad.

[btg]

K

I do not think that the idea os to create a "stationary population pyramid as one whose shape doesn't change in time including the effect of a constant immigration policy" - to do that, would it not mean letting in people each year based solely on quotas by age.

if we want to maintain a stable dependency ratio, then we face a huge challenge - see http://www.vancouversun.com/news/Parliamentary+budget+officer+calls+Canada+population+problem/4805385/story.html

"Canada's "dependency ratio" — the proportion of retirees to taxpaying workers who can support them — is shifting drastically, one report says, from 4.7 people aged 20 to 64 for every senior in 2009 to a projected 2.5 workers per retiree in 2050"

to maintain 4.7 workers per retiree, or any given dependency ratio level, then the change every year of workers to retirees must be based on this simple formula, assuming that the participation rate stays the same etc. and there are no immigrants over 65:

change in workers = (young people entering the workforce) - (people turning 65) + (immigrants excluding children and stay at home spouses) - (deaths of workers under 65)

change in retirees = (people turning 65) less (deaths of people age 65 or older)

when the peak years of the babyboomers turn 65 (2025) the number of people retiring that year will be very high, and the number of young people (age 10 in 2010 = age 25 in 2025) will be unusually low - so we should increase immigration in that year. assuming that the average baby boom who makes it to 65 dies at 85, then 20 years later in 2045, the number of retiree deaths will be increasing, while the number of people retiring (age 30 in 2010) should be low (the number will depend on immgration of people born in 1980 between now and 2045)

my point was that if the average immigrant is age 30 (i think that daniel stoffman pegged it around 35 - but the median is probably 30) then a policy which ramped up immgration as the boomers reached 65 would create an "echo" in the age pyramid - which in turn would create another smaller echo later,
this is different than the flat line in stephen's 4 graph which would add lots of people who would only be a couple of years younger than the peak and thus would only pay to support those peak boomers in retirement for a couple of years before they themselves retired, when the problem is how to pay for the boomers for 20 years until they die off!

on a slightly different note, i came across this from the fraser institue - not one of my favourite sources, but this is along the lines of my thinking http://www.hrreporter.com/ArticleView?articleid=10324&headline=immigrant-selection-process-should-focus-on-job-offers-fraser-institute

[K]

btg: a stationary pyramid doesn't require quotas by age. Assume any stable fertility, mortality, emigration, *and* immigration age distribution. Wait long enough and you will get a stationary distribution (so long as the fertility rate is non-expansionary). (The stationary distribution is the eigenvector of the density evolution equation given by those rates). The higher the immigration rate, the bigger the stationary population. My suggestion was to choose a desirable population which then, given the immigrant age distribution, implies a stationary population distribution and immigration rate. To get to the stationary state we may have to temporarily maintain an immigration rate that's higher or lower than the asymptotic, stationary state rate.

[K]

Just realized... Immigration is an inhomogeneous term so the stationary population distribution is not an eigenvalue problem. It's Ax + b = x, or (A-I)x = -b, where x is the population vector, A is the transition rate (births, deaths and emigration) and b is the immigration age distribution.

[westslope]

And here I thought immigration was primarily designed to offset the political influence of Quebec......

Or complete the confiscation of aboriginal resources.

Or increase queuing times for health services and other public services. (Canadians love to wait in line ups.)

Silly me.