100 million is a really big number: a review of Doug Saunders' Maximum Canada

The following is a guest post by Mikal Skuterud, professor of economics at University of Waterloo 

Despite my interest in Canadian immigration policy, I’ve been hesitant to read Doug Saunders’ latest book Maximum Canada: Toward a Country of 100 Million. The idea that the solution to Canada’s economic challenges is more people, and a lot more people, seems naïve. In hindsight, I waited too long. Saunders’ account of Canada's immigration history is intriguing and his writing, as always, engaging. 

Canada's history of leaning towards protectionist trade policies and xenophobic immigration policies, what Saunders refers to as the "minimizing impulse," has almost certainly left a lasting legacy. It’s hard to believe that more ambitious and expansionist policies through the post-war years would not have put us on a stronger economic footing today, although big hypothetical questions like this are complex and extremely difficult to answer definitively.  

Nonetheless, the economic challenges facing Canada today are very different and Saunders’ overriding recommendation that a population of 100 million by 2100 should be a policy priority remains, in my view, remarkably naïve.

Saunders acknowledges, more than once, that the population level, in itself, is not a viable policy lever to boost economic growth. As he puts it: "more is not better." The challenge is having "the right people, in the right numbers" working together in the right settings (page 152).

But that's a massive challenge that the book doesn't do enough to describe. Canada has always struggled to attract and retain the most inventive, ambitious, and talented, as the book describes exceptionally well in its first chapters. But this challenge has, if anything, become bigger over time, as growing U.S. universities and salary premiums attract the world’s best and brightest and Canada’s relatively generous welfare state attracts migrants who are less sure of their talents seeking a landing pad should they fall through the economic cracks.

Chapter 7 touches on these challenges but overlooks a large Canadian literature examining them. Despite the much greater attention given to credential recognition issues, including in Saunders’ own discussion of the challenges, the evidence reveals that the challenge is largely not about how Canada integrates immigrants. Research shows that the literacy skills of Canadian immigrants are not only highly rewarded, but equally rewarded to their Canadian-born coworkers. In other words, Canadian immigrants struggle not because their skills are undervalued, but primarily because of shortfalls in the skills needed to be successful (Ferrer, Green and Riddell 2006; Clarke and Skuterud 2016).

Saunders’ claim that "we don't have great data on immigrant jobs" (p.195) is wrong. The quinquennial Canadian Census is a rich source of information on the occupations and industries that immigrants work in, as is the monthly Labour Force Survey. An extensive literature examining these data reveal a dramatic deterioration in the economic integration of Canadian immigrants since the 1980s, which Canada continues to struggle to reverse, despite extensive reforms in our immigrant selection and settlement policies.

The uncomfortable truth is that the first-order challenge has always been, and continues to be, the immigrants that Canada attracts and retains; what labour economists call "immigrant selectivity." This challenge is most stark when we compare economic outcomes of Canadian and U.S. immigrants. For example, Ferrer, Clarke and Skuterud (2019) compare the earnings of university-educated Chinese and Indian immigrants who settle in Canada and the U.S.. While those who settle in the U.S. earn more than similarly-educated U.S.-born workers, in Canada, immigrants earn substantially less.

Blit, Skuterud and Zhang (2019), on the other hand, replicate U.S. research showing large beneficial impacts of skilled immigrants on patents created per capita and find much smaller beneficial effects in Canada. They conclude that for most countries, skilled immigration is unlikely to be a panacea for sluggish innovation and that the U.S. experience may be exceptional.

The potential for increased immigration levels to boost economic growth is further complicated by the fact that the objective of selecting "the right people, in the right numbers" involves an unavoidable quality-quantity tradeoff. This tradeoff is explicit in Canada’s Express Entry System, which prioritizes economic-class applicants with the strongest educational background, work experience, and English/French language skills.

In October 2020, the government announced ambitious new immigration targets that, if reached, will put Canada on the path to reaching the 100-million population objective. As we are already seeing, increasing invitations for admission is producing a decline in entry standards. In other words, in order to increase entries, the government is being forced to reach deeper into the applicant pool and admit immigrants who are less likely to integrate successfully. And this is happening in the midst of an economic crisis with historically high levels of long-term joblessness.

As of December 21, there were 147,487 principal applicants in the Express Entry applicant pool. The challenge in reaching the 100-million objective is not immigrant supply. Saunders argues, probably correctly, that Canada’s historical “minimalist impulse” has kept us from achieving our productive capacity, but there is also an upper absorptive capacity limit, which is undoubtedly smaller in periods of high joblessness.

There is no question that raising immigration levels will boost Canada’s GDP; the size of our national “economic pie.” But what matters for the economic well-being of Canadians is not the size of the overall pie, but the size of the individual slices. As Saunders acknowledges, big countries are sometimes poor (India) and small countries rich (Norway). While increasing the productivity of the existing population unambiguously increases the size of the average slice, increasing the pie by adding more people has a much more ambiguous impact. Despite much wishful thinking about the impact of immigration on innovation and public finances, the Canadian evidence points to a neutral impact on GDP per capita. That is, immigration is unlikely to make those of us already here better off; but neither is it likely to make us worse off.

The narrative that immigrants make us all richer is appealing and goes a long way in convincing Canadians to embrace increased immigration levels as a national policy objective. Unfortunately, it is at best naïve and at worst dishonest. What is much more certain is that immigrants themselves experience significant welfare gains when they settle in Canada. This is particularly true for humanitarian and family-class immigrants, as well as the families they join and leave behind. But in trying to sell immigration by emphasizing how good it if for us, the narrative of how good it is for immigrants themselves is sadly lost.  

Mikal Skuterud, University of Waterloo

 

References:

Blit, Joel, Mikal Skuterud and Jue Zhang (2020), “Can Skilled Immigration Raise Innovation? Evidence from Canadian Cities,” Journal of Economic Geography 20(4): 879-901.

Clarke, Andrew and Mikal Skuterud (2016), “A Comparative Analysis of Immigrant Skills and Their Utilization in Australia, Canada, and the United States, Journal of Population Economics 2: 849–888.

Ferrer, Ana, David Green, and Craig Riddell (2006), “The effect of literacy on immigrant earnings,” Journal Human Resources 41(2): 380–410.

Clarke, Andrew, Ana Ferrer, and Mikal Skuterud (2019), “A Comparative Analysis of the Labor Market Performance of University-Educated Immigrants in Australia, Canada, and the United States: Does Policy Matter?” Journal of Labor Economics 37(S2): 443-490.

Comments

[James Wattam]

Isn't there a problem with using GDP per capita to measure whether immigration makes "those of us already here better off" because the denominator after the immigration takes place will include the new immigrants as well as "those of us already here"? So we could imagine the GDP per capita of those of us already here rises, but the GDP per capita of the immigrants is so much lower (though higher than it was in their origin country) that it washes out to flat GDP per capita overall. So native productivity up, immigrant productivity up, but country productivity flat.

[Mikal Skuterud]

Good question James. I definitely think what matters is whether GDP per capita increases when we include the new immigrants' contributions to GDP in the numerator and their numbers in the denominator. When immigrants become permanent residents, there is no sense in distinguishing between "them" and "us" (I'm one of "them" so I personally find this objectionable). I definitely DON'T think it makes any sense to include immigrants' contributions to GDP in the numerator, but exclude their numbers from the denominator. This of course means that the question of interest isn't strictly speaking whether it makes "those of us already here better off." But the much bigger complication is that there are also big distributional effects. That is, some of the folks already here benefit and some lose. If you want some sense of who the winners and losers are, I'd suggest gauging which groups are the biggest proponents/opponents of increasing Canada's immigration levels.

[Frances Woolley]

James: "Isn't there a problem with using GDP per capita to measure whether immigration makes "those of us already here better off""

I thought you were going to go in a different direction with that thought, and talk about the environmental and other impacts of immigration, which are left out of GDP calculations.

When I was growing up in Vancouver, my parents used to take me hiking in the North Shore mountains. If it was a warm day, and we found some little lake, my Dad would strip down and go skinny dipping. And it was o.k., because you'd hardly ever run into other hikers.

The North Shore mountains are a lot busier now. I can't imagine what they would be like in 100-million-person Canada.

[Erik Lund]

"Saunders acknowledges, more than once, that the population level, in itself, is not a viable policy lever to boost economic growth. As he puts it: "more is not better." The challenge is having "the right people, in the right numbers" working together in the right settings (page 152)."

This is what comes of having academics monopolise the conversation. Education clearly generates lots of good teaching jobs. One of the reasons my tiny little hometown out in the boonies has disappeared is that the schools all closed in the early Eighties. But we might want to step back a bit and ask about outputs. I can position myself as a STEM policy guy, but my PhD only helps the Canadian economy with rambling comments on major blogs.

At my workplace, we're coming off a very successful Customer Appreciation Day,* and we are facing an empty store this morning.

Let's look at some specific examples:

-Tomatoes on the vine are shorting because even though they're supposed to be hothouse products, Lower Mainland greenhouses can't keep up. Therefore, supply is coming in from China via the Port of Los Angeles, as the Port of Vancouver lacks handling facilities for the familiar reasons of economies of scale. More is just clearly better. More Canadians equals better port facilities equals more jobs and higher quality of life.

-Mushrooms are shorting because the Fraser Valley industry has gone through the familiar, economy-wide phenomena of cartelisation. One company took over another, and there are now two competitors, and while in theory they're supposed to be competing on price and volume, in practice they set prices and content themselves with a secure and smaller share of the potential mushroom market. The investment costs of breaking into the industry are unlikely to be recovered by a new competitor, so there's no third company champing at the bit to build a new mushroom farm. One might suppose from housing prices that the money is being put into Vancouver detached homes, instead. Just clearly a better investment!

While the Competition Bureau is supposed to protect us from this sort of stuff, it clearly can't keep up. Some people say that this is a problem with capitalism in general (R>g), without offering a solution. If there was a solution that has acted in the thirty years after WWII, in retrospect it is dynamic population growth. More is again clearly better. (Also, military Keynesianism in the United States, butt his comment is already rambly enough.)

-Broccoli is shorting because this traditional winter vegetable is supplied by gigantic farms in Mexico. After a huge surge over Christmas, stocks have run down, and what broccoli you can buy is low quality product prone to quality rejections. We then scramble to source broccoli from third party suppliers with lower standards than our corporate warehouse. This is in part a story of economies of scale again, but I want to focus on the "bottom up" skillsets in operation here. Buyers and produce managers don't go to college. These are emergent, experience-generated skill sets. There are a lot of them. YOu want more of them? Stop talking about college, start talking about full employment. More is better.

*My views are my own and in no way reflect the views of Empire (Sobeys.)

[ThatMikeBishop]

There are some good points here but the emphasis on "what is the effect of immigration on GDP-per-capita" is wrong-headed. Canada favours young immigrants whose peak earning years are ahead of them. This could mechanically reduce GDP-per-capita, even if it increased every single residents' productivity and income.

If there is something missing from this discussion I'd say it's that red tape and restrictions on building housing do threaten to reduce the gains from immigration.

[James Wattam]

Mikal,

Thanks for your response, I'm one of "them" too. I agree that immigrants should be in the numerator and denominator, but my point is that they're not included in all the measurements over time. If the question is: Does immigration improve the welfare of locals, immigrants, or both? Then looking at GDP per capita for the destination country across time is the wrong measurement because the welfare of the immigrants isn't included in measurements from before they immigrated.

GDP per capita for the destination country averages over locals and immigrants (after the immigration). Isn't it possible for locals' individual slices of the economic pie to increase and for immigrants' slices to be larger than they had in their home country, but the average slice size for the destination country has stayed flat, gone down, or gone up?

Frances,

I wasn't thinking about other impacts of immigration, but I would think more about the improved welfare of people in the origin country due to remittances than too many people hiking. But maybe that's growing up in Saskatchewan vs. the west coast! Still not many people over here and I don't know if that would change much in a 100-million-person Canada.

[Frances Woolley]

ThatMikeBishop: " Canada favours young immigrants whose peak earning years are ahead of them. This could mechanically reduce GDP-per-capita, even if it increased every single residents' productivity and income."

I'm not sure if I follow your reasoning. Say people live until 80. They're out of the workforce or working part time from ages 0 to 20 and ages 60 to 80. So an immigrant at age 25 is actually in the top half of their earning years from a life-cycle perspective. Because all or part of immigrants' low-earning childhood years take place somewhere else, the mechanical effect goes the other way, increasing GDP-per-capita.

[Andrew F]

There might be some geopolitical benefits of a larger population as well. Canada could exercise more influence to advocate for its interests on the world stage with a larger population and economy than most of the 'old world' powers of Europe. We'll never be in the same league as USA, China and eventually India, but we can have more balanced relationships with these powers. And a larger population would help Canada muster the resources to assert its territorial integrity which is going to come under pressure as the north warms.

Furthermore, there are network effects from living in dense urban areas. Canada has limited ability to create cities that function at a level of a world city. Arguably, only Toronto is in that tier. With greater population, Canada could develop more cities to act as engines of wealth creation for the country, particularly in parts of the country that are rather stagnant like Atlantic Canada.

[George Jia]

One of the lessons we learned from the ongoing pandemic is that workers' physical location - especially high-skilled workers - matters less. As the technology around remote working continues to develop and the economy clearly moving towards that direction, should Canada focus solely on immigration to solve its labour shortage (more of a skill mismatch) problem? Perhaps some attention should be paid to regulations and legal frameworks surrounding such arrangements. Of course, Canadian companies are already outsourcing a lot of tasks or opening foreign locations. But, it seems that a more flexible and official remote cross-border working arrangement should be in place. Along with it, the normal employment provision of EI and pension should perhaps be discussed too.