Canada has to focus on becoming a genuine innovation nation

TORONTO—Immigration is now a hot-button issue. It's blamed for housing shortages, high rents, increased demands on the health-care system and other public services and the decline in per capita GDP. While mismanagement of immigration policy has been a major factor in driving the growing resistance to immigration, Canada remains a nation dependent on immigration and this is not going to change. If Canadians want a better-performing economy, then much more attention will have to be focused on innovation-driven productivity, skills training, and bringing more Canadians into the workforce and keeping them there for longer. But immigration will also matter. The reality is that Canada has labour shortages at both the top part of the economy and the bottom—from computer scientists and hospital surgeons at the top, to the people who empty bed pans in nursing homes and serve as security guards in our shopping centres at the bottom—with shortages in the middle as well as we seek skilled trades to fill our housing shortages. Our farmers would not be able to harvest their crops without temporary farm workers from elsewhere and our health-care system would be paralyzed without immigrants. Moreover, many of the jobs occupied by immigrants on temporary work permits are jobs that Canadians do not want to do. They also pay poorly. But these are jobs that have to be done by someone. The issue is not immigration, but how we plan for and manage immigration and, more broadly, how we prepare for our future workforce. A new study from Statistics Canada—Canadian Labour Force: What Will Happen Once Baby Boomers Retire?—assumes in its reference case that 500,000 permanent immigrants will continue to arrive each year from now through to 2041 so that by then the labour force will total 26.8 million, compared to 21.7 million last year. This means that by 2041, some 43.8 per cent of the labour force would be foreign born, compared to 32.1 per cent now. It would also be a slightly older labour force—in 2041, some 23.1 per cent of the labour force would be 55 or older, compared to 21.8 per cent now. Increasing the number of permanent immigrants by another 250,000 a year in fact would have little overall impact. But one initiative merits attention, the study argues, and that is to encourage more Canadians 55 and older to remain in the workforce. Participation rates by older workers, in particular, “could have a significant impact on the size of the labour force in coming years” so “re-attaining older workers—particularly those older than 55 years of age—in the labour market seems to be an important factor in sustaining the growth and demographic weight of the Canadian labour force in the future.” The number of people in the labour force is a key determinant of the size of the potential growth rate of the economy—the rate at which the economy can grow without forcing policymakers to hit the brakes in order to avoid a surge in inflation. It is the economy’s speed limit. Raising that speed limit is a crtical Canadian challenge. As the Statistics Canada report underlines, “a ‘shortage’ of workers or unmet labour demand—as currently experienced in some sectors—could limit the growth potential of the Canadian economy and the relative standard of living of Canadians if not offset by gains in productivity or hours worked.” Our current potential growth rate is too low to generate the wealth we need to deliver higher average incomes for families, capital for investment and tax revenues to finance health care, education, defence, and other public goods. But it is productivity that matters most. Another Statistics Canada study published earlier this year—Canada’s Gross Domestic Product Per Capita: Perspectives on the Return to Trend—underlined that improvements in real GDP per capita can come from three sources: labour productivity, the number of hours worked, and the percentage of the population that is working. Of the three, the most crtical is the improvement in productivity, the study said. Improvements in productivity accounted for 93 per cent of the growth in per capita GDP over the four decades leading up to the pandemic. The slow growth in the future labour force and the drop in work intensity suggest that “productivity will remain the key driver of per capita GDP in the post-pandemic era.” That’s the real challenge. As the study notes, since 1981, real GDP per capita has grown at an average annual rate of 1.1 per cent, from about $36,900 per person to $58,100 per person, in inflation-adjusted dollars. But with the fall in per capita GDP in recent years, GDP per capita is now about seven per cent below its long-term trend, equivalent to about $4,200 per capita. Per capita GDP would have to grow at an average rate of 1.7 per cent for 10 years to get back to its long-term trend. A key actor in productivity growth is investment—the amount of capital invested per worker over the past 30 years was the most important source of productivity growth. But since 2006 this has been in decline—as of 2021 investment per worker by business was about 15 per cent lower than in 2006. Yet while much attention is being focused on immigration, the real solution for a better Canada—raising our productivity performance—gets little attention. This is the real problem. While we have to do a better job of managing immigration, if we want to succeed as a country, we need to focus much more on how we become a genuine innovation nation, building our industries and companies of the future with high productivity, and providing high-paying jobs and generating the wealth we need to provide the public goods that are so important to out well-being. Today, we cannot afford to do what we need or want to do, but poor productivity, not immigration, is the reason why. David Crane can be reached at crane@interlog.com. The Hill Times

Canada has to focus on becoming a genuine innovation nation

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Canada has to focus on becoming a genuine innovation nation

If Canadians want a better-performing economy, then much more attention will have to be focused on innovation-driven productivity, skills training, and bringing more Canadians into the workforce and keeping them there for longer. But immigration will also matter.

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