As Canada confronts the challenge of an aging population, a recent report proposes that the nation must augment its immigration intake to achieve demographic balance. The report indicates that to maintain the current old-age dependency ratio as of 2022, the working-age population would need to grow by 2.2% annually until 2040. Moreover, to revert to the average ratio seen between 1990 and 2015, this same demographic group would have to expand by 4.5% each year. While the possibility of increasing immigration levels has sparked debates about the country’s capacity to accommodate more newcomers, proponents argue that the labour market can readily absorb additional workers, and a greater number of working-age Canadians are necessary to support the tax base.
Ensuring Canada’s long-term economic prosperity necessitates immigration, even though it may present certain short-term difficulties. Therefore, policymakers must take several factors into account. One crucial factor is the prevailing economic and labour market conditions in the near term. If there is a consistent need for labour, it indicates that the present rate of accepting both permanent and non-permanent residents may be appropriate, at least for the time being.
What level of immigration is necessary to counterbalance the effects of an aging population?
Randall Bartlett, Senior Director of Canadian Economics with Desjardins Group, suggests that the current rate of admitting newcomers is justified by short-term labour market demands. However, it is crucial to consider the long-term economic implications, especially regarding an aging population’s impact on economic activity and healthcare expenses.
According to the Parliamentary Budget Officer’s Fiscal Sustainability Report, provincial government healthcare spending per capita is projected to nearly double between 2020 and 2040, exceeding $10,000 per person annually. Managing this rising cost without resorting to debt-financing may require exploring options like increasing revenues or reducing spending on other priorities to maintain fiscal sustainability amid mounting healthcare expenses driven by an aging population.
The analysis indicates that a specific old-age dependency ratio (OADR) could potentially counteract the impacts of aging by increasing the working-age population, leading to continuous improvements in the standard of living and ensuring the sustainability of public finances. However, determining the exact “optimal” OADR is beyond the scope of this note. The study aims to assess the sensitivity of the OADR to various rates of growth in the working-age population.
Overall, to accommodate population growth, it must surpass historical norms. Despite current immigration rates, the Old Age Dependency Ratio (OADR) will likely keep rising, reaching over 30% around 2030 and only returning to its 2022 level by 2040. If working-age population growth returns to its 2015-2019 average of 0.7%, the OADR could consistently rise to 35%-40% by 2040. Stopping immigration altogether would lead to a quicker and sustained OADR increase.
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