Higher immigration can mitigate, but not counteract, the impacts of demographic aging, according to a new report from the C.D. Howe Institute. In “Inflated Expectations: More Immigrants Can’t Solve Canada’s Aging Problem on Their Own” authors William B.P. Robson and Parisa Mahboubi show the limits of higher immigration as a response to Canada’s demographic challenge, and recommend complementary policies – notably later retirement – to enhance Canada’s prosperity in the decades ahead.
The study underlines the challenge of an aging population in a baseline projection. “The number of people age 65 and over relative to the population of working age rose by more than 10 percentage points over the past 40 years,” note the authors. “It will rise by more than 10 percentage points again over the next 40. Canada’s aging population puts pressure on living standards, dampens growth of government revenue, and presents fiscal challenges – notably to public pension and healthcare systems.”
Building from the federal government’s recent announcements, and inspired by the Advisory Council on Economic Growth’s recommendation for an increase to 450,000 immigrants annually over five years (Advisory Council on Economic Growth 2016), the authors project growth in the working-age population, old-age dependency, and other key measures over the next 50 years.
They consider alterative policy scenarios to address the current dismal outlook: a higher level scenario, in which immigration rises to 450,000 a year by 2021 and stays there; a higher rate scenario in which immigration continues to rise after 2021 to maintain its rate relative to the already-resident population that year; and a later retirement scenario in which normal retirement age rises five years over two decades. They find a combination of the higher rate and later retirement scenarios has the most impact.
The key message from the simulations is that changes in immigration levels have impacts on the margin only: no increase within the realm of practicality can prevent population aging. Other policies to ease the demographic transition, notably encouraging people to work longer, are at least as powerful – and, further, would complement changes to immigration policy by improving Canada’s attractiveness to people willing and able to contribute to the Canadian economy.
“Combining higher immigration with other policies can create a virtuous circle,” says Robson. “The more we do to mitigate the impacts of inevitable aging on the economy and government finances, the more attractive Canada will be to everyone, current residents and potential immigrants alike.”
Click here for the full report
https://www.cdhowe.org/media-release/higher-immigration-cannot-keep-canada-young
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