Thoughts

September 03, 2024 | 07:43

Another Turn of the Immigration Dial (TFWs)

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Canada is making further changes to the immigration file that should serve to dampen inflows and cool population growth. The Temporary Foreign Worker (TFW) Program will see harder limits imposed as of September 26th, which builds on earlier-announced international student caps and the broad goal of reducing the population share of nonpermanent residents to 5% (from closer to 7%) over the next three years. The changes include: closing the low-wage stream in CMAs with a jobless rate above 6%; limiting the share of TFWs comprising a firm’s workforce; and, reducing the employment duration for TFWs to one year from two—though some industry exceptions still apply. More details should drip out through the rest of the year, along with a refreshed official immigration levels plan that will reportedly show meaningful changes. The more hawkish stance should begin to carve population growth down closer to 1% in the years ahead, but implementation is still pending.

Why the sudden changes? We’ve argued for years now that some of the critical issues facing the Canadian economy have been provoked by the demand curve— including housing affordability. When the rate of demand growth can’t possibly be met with sufficient near-term supply—be it of housing, personal services, transportation infrastructure or health care—the impact is inflation, inadequate service and crumbling per capita growth. As contrarians, you can also count us in the group that doesn’t believe torrid population growth has ‘kept us out of recession’. In fact, such growth has not only carved down per capita incomes, but has arguably driven acute inflation in certain pockets of the economy that has necessitated higher interest rates, for longer, than we otherwise would have seen.

All that said, this issue has really begun to strike nerves with the job market softening. Job vacancy rates have fallen sharply back to pre-COVID levels, and the unemployment rate has risen 1.6 ppts from the 2022 low, entirely on supply growth. Youth unemployment, which is typically lower-skilled and in direct competition with TFWs and international students, has risen to 14.2%, the highest non-pandemic reading in over a decade. Youth hiring has slowed, but the population in that cohort has exploded by almost 12% in the past two years.

At the same time, current rates of nonpermanent resident inflows are doing no favours to recent Canadian immigrants which the country relies on for longer-term labour force growth. Consider that the unemployment rate of immigrants landed for five years or less (permanent residents, not TFWs or students) is now nearing 13%, or almost 7 ppts higher than for the Canadian-born workforce. That’s the widest gap in over a decade. As the accompanying chart shows, absorption into the job market takes time—immigrants that landed more than 10 years ago have no discernable difference in unemployment versus those born in Canada. But the reality right now is that the current rate of inflow is not getting readily absorbed, which is doing no favour to the domestic job market, nor to those recently coming to Canada on a permanent basis.