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Newcomers to Canada Not Driving Employment Gains - Scotiabank -- Canada's expansive immigration policy - which has seen an influx of 1.5 Million newcomers to the country in the last twelve months alone - has been predicated on the assumption that a large volume of newcomers is necessary to support an aging demographic and address labour shortages.

However, recent research from banks including BMO (TSX:BMO) and TD (TSX:TD) has increasingly indicated that the influx of new Canadian residents has had more negative than positive consequences - including the exacerbation of a housing shortage, and worsening weaknesses in Canada's already strained infrastructure, such as healthcare.

A new report from Scotiabank (TSX:BNS)'s Derek Holt now posits that "the narrative that immigration is driving jobs and GDP is more hype based upon spurious correlations than substance", implying that the " Canadian immigration experiment" is not just worsening the housing crisis, and straining Canadian infrastructure. It is also failing to deliver the benefits of the premise this policy has been primarily predicated on.

In the report, Holt notes "The popular theory is that Canada’s jobs juggernaut has been driven by a surge of immigration over 2022–23."

"After all, population, employment, and GDP have all gone up and so therefore population’s large 1.05 million rise last year and this year’s ongoing gains must have driven the other two series in a cause-and-effect sense, right?"

However, Holt notes that the assumption population has driven employment gains and Canadian GDP is inaccurate, and unsupported by data from Statistics Canada. The data, in fact, "suggests that the correlations are spurious in nature".

The data shows that since the end of 2021 through to June 2023—the period of increasingly aggressive pro-immigration policies.

84% of all employment gains in Canada have gone either to those born in Canada or to permanent residents who have been here for 10 or more years. About 14% of total employment growth over this period went to temporary residents.

Of the remaining 2% of employment gains, only 10% were due to landed immigrants who have been in Canada for under 5 years.

Since then, Holt adds, "the 2023-to-date story arrives at the similar conclusion that the vast majority of employment gains have not gone to recent immigrants."

Holt adds several implications that this data forces one to consider. First of these is that "If employment growth is not being driven by fresh arrivals and their conversion to landed immigrant status, then by extension the diversified drivers of overall economic growth are probably not being driven by fresh arrivals."

"This stands in stark contrast to the popular understanding of what’s going on in the Canadian economy and labour force."

He notes that "while surging immigration may be adding to labour supply, but not so much to employment", and will have key implications on the labour force and wage growth.

Another key implication Holt notes is that "If immigration is not driving the employment gains, then perhaps we shouldn’t count upon it to keep employment growth going for as long as high immigration targets are maintained."

Instead, "We need to pay more attention to the drivers of employment in other categories including questions like how much higher can the participation rate go for those born in Canada and for long time landed immigrants."

Perhaps the most important implication Holt comments on is asking why. If immigration to Canada is not supporting job growth and GDP as the "popular narrative" contends, it begs the question, "Why all of this has been the case"?

It's a question worth considering. If Federal immigration policy is not delivering the benefits on which the immigration experiment has been predicated (filling labor shortages, supporting GDP) - why does the policy continue to remain in place - particularly when it exacerbates housing shortages, supports skyrocketing housing prices, and places downwards pressure on critical infrastructure such as healthcare?

It's not a question that we have an answer to, and which, perhaps the Federal Government needs to address.

By Ketki Saxena

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