Faced with a steady slowdown in labour force growth caused by an extended period of declining birth rates and a sharp increase in the number of retiring “baby boomers,” Canada and several other developed countries are likely to experience severe labour shortages over the next 30 to 50 years.

In addition, the country will experience a significant increase in the dependency ratio (i.e. the ratio of population 65 years + to working age) and ultimately a decline in per capita incomes.

Many who have studied this problem have concluded that by admitting more immigrants, Canada could ensure there would be a sufficient number of new entrants into the labour force.

In turn this could help avoid a worker shortfall and help to maintain the country’s relatively high standard of living.

This theory is challenged in a recent study by the C.D. Howe Institute: Faster, Younger, Richer?

According to C.D. Howe, only by boosting immigration to unrealistically high levels would Canada be able to offset the effect of persistently low fertility rates, limit the increase in the dependency ratio and help prevent a significant deterioration in the overall standard of living.

Avoiding this latter outcome is particularly challenging given that, on balance, net immigration has little impact on output.

Given the limited benefits and relatively high costs of using immigration to solve our demographic problems, the study’s authors suggest three major policy reforms:

• A gradual move to delay the normal retirement age, recognizing that today’s 70 year olds are in better shape than 65 year olds were in the 1980s.
• Measures to raise fertility, boost labour force growth in the near term and reduce the dependency ratio in the longer term.
• Finally, the study indicates that improvements in productivity would have a direct positive impact on future living standards irrespective of flagging growth of the labour force or rising dependency ratios.

The study emphasizes that in the longer term, increased immigration by itself is not really a viable solution to either our “baby bust” or our “retirement boom.”

Only when immigration is complemented by some or all of the three policy measures outlined above is it likely to achieve a satisfactory outcome.