Canada is enjoying its lowest unemployment rate ever.
On the surface, this may seem strange given the coronavirus pandemic.
However there was little doubt the labour market would recover given the major demographic shifts that were transforming Canada’s workforce prior to the pandemic, and that will continue to transform it over the next decade.
From an immigration policy perspective, one of the biggest concerns is how a recession will impact the labour market performance of immigrants who obtain permanent residence during periods of economic downturn. Research shows that such immigrants may see their labour market outcomes negatively impacted for the rest of their careers in Canada.
This is alarming in light of the major shock to the Canadian economy at the start of the pandemic and Canada seeking to welcome the highest levels of immigration in its history.
But a closer look suggests that the COVID recession is different, and immigrants who have recently landed or who will be landing in the near future are still poised for a bright future in the Canadian labour market.
The first reason for this is the exodus of baby boomers from Canada’s workforce. This exodus helps explain why Canada enjoyed its lowest unemployment rate ever prior to the COVID recession, and has achieved another historic low in the unemployment rate despite the pandemic continuing to impact the Canadian and global economy.
Canada has about 20 million workers, of whom about 9 million are baby boomers. All 9 million of these baby boomers will reach Canada’s retirement age of 65 within the next decade. More of them are retiring which is leaving a larger gap in the labour market. Historically, Canada has been able to fully replace retirees with young Canadian graduates completing their education and entering the workforce but this is no longer the case. Canada’s low birth rate means it must rely on other sources of talent to replace its retiring workers.
Replacing retiring workers is important to keep the economy going and ensure the tax base is large enough to support the services that residents of Canada are able to benefit from such as education and health care. This is even more important as the aging of the population will see Canada’s health care spending rise.
Other talent sources include under-utilized groups such as women, persons with disabilities, older workers, Indigenous peoples, and disengaged youth, among other groups. But adding more of them to the labour market would not fully compensate for all the retirees even if we lifted their employment participation rates to the national average.
This explains why immigration is so crucial to Canada’s economic success. Prior to the pandemic, they comprised up to 100% of Canada’s annual labour force growth on a few occasions, and this will become the norm over the next decade.
With so much experience and skill leaving the labour market, Canadian employers will need to turn to all the talent sources they can find to keep their operations going, which is precisely the phenomenon we are seeing now. The aging of the Canadian labour force is seeing the unemployment rate fall and wages rise, a phenomenon that is benefiting Canadian and immigrant workers alike. What we’re seeing now is likely to continue as more baby boomers retire.
We should also make note of the major immigration policy shifts over the past decade that are also having an impact on the labour market outcomes of newcomers.
One is the shift to a more competitive selection process for skilled immigrants. The federal government and provinces and territories have transformed their selection criteria in recent years to account for human capital factors demonstrated by research to result in stronger economic outcomes for immigrants. Under the Express Entry Comprehensive Ranking System (CRS) for example, candidates who are young, well-educated, fluent in English and/or French, with professional work experience, and other bonuses such as having Canadian education and/or work experience, are awarded a higher CRS score which increases their chances of obtaining permanent residence and ultimately succeeding in the Canadian labour market.
Another major shift has been the increasing number of permanent residents selected from within Canada. Prior to the pandemic, immigrants overseas comprised some 70% of those who landed under Express Entry but last year this figure fell to 30% with Immigration, Refugees and Citizenship Canada (IRCC) relying more on in-Canada candidates to achieve its immigration levels targets amid pandemic-related disruptions such as travel restrictions. It remains to be seen whether IRCC will rely more on selecting immigrants overseas or in Canada after the pandemic, we do know Immigration Minister Sean Fraser’s mandate letter asks him to identify more immigration pathways for in-Canada candidates. In addition, provinces and territories are increasingly selecting more in-Canada candidates via the Provincial Nominee Program (PNP) and other streams.
The in-Canada selection trend is also backed by Canadian government research which shows that former international students and temporary foreign workers benefit in the labour market from their Canadian experience once they gain permanent residence.
A third major consideration is IRCC’s increased investment in immigrant settlement services such as workforce and language training. IRCC now spends some $2 billion per year on such services compared to about $350 million per year twenty years ago. These services are also delivered pre-arrival to give immigrants useful information and supports to help expedite the settlement process once they arrive in Canada.
When all these factors are considered, one is able to better feel at ease that the COVID-induced recession should result in less labour market scarring for newcomers than prior recessions. Compared to the past, Canada has a historically tight labour market, a more competitive selection process, is selecting more immigrant candidates from within the country, and is spending more money to help immigrants succeed.
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