Immigration is a vital economic driver but is there an optimal level?

With the Canadian government welcoming new permanent residents, study reveals where population starts to negatively impact finances

Immigration is a vital economic driver but is there an optimal level?
Steve Randall

With aging populations and strong competition for talent, immigration is a key factor for global economies.

But a new report warns that the economic benefits of populous Canadian provinces and US states have a tipping point that leads to higher taxes and less flexible labour markets.

The Fraser Institute study says that once populations grow beyond 9.5 million, the advantages of growing populations turn negative.

“Government spending and taxes, and labour market flexibility, or what has been referred to as economic freedom is linked high levels of prosperity, economic growth and overall well-being,” said Professor Russell Sobel, senior fellow at the Fraser Institute and author of The Determinants of Subnational Economic Freedom.

Currently, the only Canadian province with more than 9.5 million people is Ontario with a population of more than 14 million.

The federal government recently announced that foreign nationals approved for permanent residency in Canada can now enter the country again, following suspension due to COVID-19.

Views on immigration

Around one third of Canadians responding to an Angus Reid Institute survey said they felt that a potential 400,000 new Canadian residents was the right level of immigration while 39% think it’s too high, 13% said it’s too low, and 14% are not sure.

Given the large population already, Ontarians remain more open to immigration than many other parts of Canada with 39% saying the government’s expected number is too many or far too many. This compares to 50% in Alberta and 54% in Saskatchewan. Respondents in Quebec and British Columbia appear most open to growing their populations.

With some way to go to reach the 9.5 million mark most provinces and territories will not reach the tipping point cited by the Fraser Institute report but Professor Sobel says it is an important consideration for policy makers.

“Simply put, being too large is a disadvantage in terms of achieving high levels of economic freedom,” he said. “This has implications for states and provinces whose populations already exceed 9.5 million as well as those subnational jurisdictions experiencing population growth in terms of their ability to maintain reasonable levels of government spending and taxes.”