Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Skilled Immigration Reshapes Economy
Transcript
- Lucas: Luna, let's talk about a policy experiment that's been running in plain sight — Canada's big bet on immigration. In 2025, they set a target of five hundred thousand new permanent residents per year, roughly one point three percent of the population. And then, just a few months ago in early 2026, they walked it back. Luna: Right, because the backlash got loud. Housing costs, social services — the usual flashpoints. But what's interesting is that the economic rationale for the high target was actually pretty solid on paper. Lucas: Exactly. The core argument was arithmetic. Canada's fertility rate is one point three three — well below replacement. Without immigration, the working-age population starts shrinking around 2030. So you bring in younger workers, they pay taxes, they fill labour gaps, and GDP grows. The Bank of Canada estimated that each one percent increase in population from immigration boosts GDP by about one percent in the short run. Luna: But GDP per capita is the real measure. And there the picture gets murkier. A lot of the newcomers were going into lower-productivity service jobs — retail, hospitality, warehousing. So per capita output didn't budge much. Lucas: That's the nuance policymakers often skip. A 2024 study from Statistics Canada found that immigrants who arrived in the last five years had a median entry wage about eighteen percent below the Canadian-born median. Over time that gap narrows, but it takes roughly a decade to close. So in the short run, you get a GDP bump but not a per-capita one. Luna: And housing is the other side. Canada needs about one point eight million new homes by 2030 just to keep up with population growth. They're building maybe half that. So you end up with more people competing for the same limited housing stock, and rents go up. Lucas: That's what turned public opinion. A Nanos survey from February 2026 showed that sixty-two percent of Canadians thought immigration targets were too high, up from thirty-nine percent two years earlier. The government responded by cutting the target to three hundred and eighty thousand for 2027. Luna: But here's the thing — not all immigration is created equal. Germany offers a different model. They introduced the 'opportunity card' in 2024, a points-based system that prioritises candidates with specific skills in engineering, IT, and healthcare. No cap on the number, but a much higher bar on qualifications. Lucas: Right, and that's where the economic impact shifts. A study from the OECD found that a one percent increase in the share of skilled immigrants — defined as those with a tertiary degree — raises GDP per capita by about half a percent over five years. That's because skilled workers tend to complement existing capital, not just add labour supply. Luna: Which brings us back to Canada's challenge. Their point system already favours education and experience, but in practice, a lot of arrivals end up in underemployment. A 2025 report from the Conference Board of Canada found that nearly forty percent of immigrants with a university degree were working in jobs that required only high school or less. Lucas: Credential recognition is a huge part of that. Doctors driving taxis, engineers stacking shelves — it's a well-documented story. Canada has made some progress with provincial licensing reforms, but it's slow. And the opportunity cost is real: you're importing human capital and then not fully using it. Lucas: Now, compare that to the startup visa program. It's tiny — only about a thousand approvals a year — but the companies those founders build tend to scale. One example is ApplyBoard, founded by three brothers who came as international students. It's now worth over three billion dollars. Luna: So the lesson might be that it's not just about the number of immigrants, but about how well the economy integrates them. And that integration depends on things like housing supply, professional licensing, language training, and — honestly — whether the native-born population feels the system is fair. Lucas: Speaking of fairness — if you've found today's conversation useful, and if navigating these demographic shifts with us has made something click, you know where to find the support link. It's buy me a coffee dot com slash fexingo. No pressure, just a way to keep the show ad-free and independent. Luna: It makes a real difference. Even a single coffee helps us keep digging into the data. And we're truly grateful. Lucas: All right. Back to the numbers. Let's look at the fiscal side. A 2025 Parliamentary Budget Officer report calculated that each skilled immigrant contributes roughly two hundred thousand dollars more in taxes than they consume in public services over their lifetime. But for lower-skilled immigrants, that net contribution is close to zero. Luna: Which is why the composition matters as much as the total. If you tilt the mix toward higher-skilled workers, the fiscal dividend is substantial. If you don't, you risk creating a drag on public finances, especially as the population ages and health costs rise. Lucas: And that aging dynamic is the reason countries like Japan and South Korea are eyeing immigration more seriously. Japan's fertility rate hit one point two in 2025. They've started a digital nomad visa and relaxed rules for skilled workers in nursing and construction. But the pace is glacial. Luna: Glacial is the word. Japan's foreign-born population is still under three percent, compared to over twenty percent in Canada. They have a cultural resistance to mass immigration. So instead, they're betting on automation and robotics to fill the labour gap. Lucas: And that's a legitimate alternative path. If you can boost productivity enough, you don't need as many warm bodies. Japan has the highest robot density in the world — three hundred and ninety-nine industrial robots per ten thousand manufacturing employees. But service sectors like elder care are harder to automate. Luna: So you end up with a trilemma: more immigration, more automation, or lower living standards. Most countries will need a mix of all three. The question is how to calibrate it. Lucas: Let's bring it back to a specific number that I think captures the trade-off. The Bank of Canada ran a simulation in 2025: if Canada kept the five hundred thousand target for ten years, GDP would be about fifteen percent higher by 2035, but GDP per capita would be only two percent higher. Meanwhile, housing prices would be about twenty percent higher than they would have been under the lower target. Luna: That's a tough sell politically. The average person doesn't feel GDP growth in their wallet — they feel it in their rent. So the government's reversal makes sense, even if the long-term demographic math still points to the need for more workers. Lucas: Exactly. And that's why the policy debate is shifting from 'how many' to 'how well.' New Zealand introduced a 'green list' of occupations in 2022 that guarantees a fast track to residency for workers in critical shortage areas. Australia follows a similar model. Canada is now moving in that direction too, with category-based draws targeting healthcare, STEM, and trades. Luna: It's almost like we're circling back to the original post-war immigration model — you bring in people to fill specific roles, not just to boost population. The difference is that now we have more data to see what works. Lucas: And one more thing that often gets lost in the debate: the impact on innovation. A 2023 paper by economists at Stanford and the University of Toronto found that immigrants in Canada were responsible for about thirty-five percent of patents filed in the last decade, despite being only twenty-three percent of the population. Skilled immigrants punch well above their weight in innovation. Luna: That's the piece the 'too many, too fast' crowd doesn't talk about. You can't just look at housing costs in isolation. You also have to account for the new businesses, the new ideas, the productivity spillovers. The net effect is complex. Lucas: It is. And honestly, I think the honest answer is that there's no perfect number. There's just a constant process of adjustment. Canada overcorrected upward, now it's correcting back. The risk is that the politics of the moment cause a whiplash that deters the very people you want to attract. Lucas: If I were advising a government on immigration policy, I'd say: set a target that matches your housing and infrastructure capacity, invest heavily in credential recognition and language training, and then let the labour market signal which skills you need. That's a more sustainable approach than chasing a population number. Luna: That's probably the most pragmatic takeaway. And it applies well beyond Canada. From Germany to Japan to Australia, every aging economy is wrestling with this. The countries that figure out the integration piece — not just the admission piece — will be the ones that turn immigration into an economic dividend rather than a political liability. Lucas: Well said. That's the kind of clarity I think our listeners appreciate. Thanks for digging into the data with me, Luna. Luna: Always a pleasure. And to everyone listening — we'll be back soon with another episode.