Bank of Canada governor urges Ottawa to boost immigration to avoid interest rate hikes

Boosting immigration to Canada to fill jobs going begging for lack of workers will help the country stave off even higher interest rates, says Bank of Canada governor Tiff Macklem.

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“Businesses have had a hard time hiring enough workers to produce all the goods and services Canadians want to buy. Job vacancies are elevated, and firms report widespread labour shortages,” he said in a speech at the Conference on Diversity, Equity and Inclusion in Economics, Finance and Central Banking in Ottawa.

Businesses can’t keep up with demand in overheated Canadian economy

“This is symptomatic of an economy that is overheated. Businesses can’t keep up with demand, and this is driving prices higher.”

That inflation can be curbed by raising interest rates.

“Monetary policy affects demand. By raising interest rates, we are moderating spending, and that will reduce the demand for workers. Invariably, this has unequal consequences across sectors and across workers,” said Macklem.

But the governor of the country’s central bank explained immigration could also help mitigate the need for the Bank of Canada to raise interest rates.

“The other way to rebalance supply and demand is to increase the supply of workers,” he said. “That takes time and with inflation already far too high and with elevated risks that high inflation becomes entrenched increasing labour supply is not an alternative to slowing demand. 

“But it is a compliment. And the more we can do on supply, the less we will need to do on demand.”

Macklem’s message is clear: boost immigration or face even higher interest rate hikes.

In 2022, the Bank of Canada raised its target overnight rate seven times, pushing it up to 4.25 per cent, the highest that rate has gone since 2008, in its bid to curb inflation which hit 6.9 per cent in October. 

As the Bank of Canada raised its policy rate from 0.25 per cent in March in that series of rate hikes, it drove up prime rates and mortgage rates, making it all that much harder for Canadians to buy homes. 

Canada, like many other countries, was hard hit by the COVID-19 pandemic and locked down for a while and imposed many public health restrictions, all of which had a massive impact on the country’s economy.

COVID-19 public health restrictions led to unprecedented lockdowns in Canada

“Never before has so much of the economy been shut down, so suddenly and for so long,” said Macklem. 

“But thanks to new vaccines and exceptional fiscal and monetary policies, the recovery was the fastest ever. By August, four months after the employment lows of April (in 2020), nearly two-thirds of Canadian job losses were recouped.”

That fast recovery led to massive labour shortages as employers in several sectors of the economy struggled to find workers who had been laid off and moved on to other jobs.

In its third quarter, 2022 report, Statistics Canada noted there were still 959,600 job vacancies across the country, down 3.3 per cent from the record high of 992,200 vacant positions in the second quarter of the year but still much higher than for the same quarter in 2021.

“It was 8.3 per cent higher than in the third quarter of 2021 and 72.7 per cent higher than in the first quarter of 2020,” reported Statistics Canada.

The job vacancy rate, which is calculated by dividing the number of vacant positions in Canada by the total number of jobs, both filled and unfilled, was 5.4 per cent in the third quarter of 2022.

Immigration Minister Sean Fraser has responded to Canada’s labour shortages by raising immigration targets for each of the next three years to record levels.

In its 2023-2025 Immigration Levels Plan, Ottawa has set the target for 2023 at 465,000 new permanent residents. The country is to welcome 485,000 new permanent residents in 2024 and another 500,000 in 2025.

Canada to welcome 1.45 million immigrants over three years

That’s a total of 1.45 million immigrants to Canada over the coming three years.

Canadian employers trying to survive during this acute labour shortage can recruit and hire foreign nationals through the Temporary Foreign Worker Program (TFWP) and the International Mobility Program (IMP).

The Global Talent Stream (GTS), a part of the TFWP, can under normal processing situations lead to the granting of Canadian work permits and the processing of visa applications within two weeks.

Under the Express Entry system, immigrants can also apply for permanent residency online if they meet the eligibility criteria for one of three federal immigration programs, the Federal Skilled Worker Program (FSW), Federal Skilled Trades Program (FST), and Canada Experience Class Program (CEC),  or a participating provincial immigration program.

Candidates’ profiles then are ranked against each other according to a points-based system called the Comprehensive Ranking System (CRS). The highest-ranked candidates are considered for an Invitation to Apply (ITA) for permanent residence. Those receiving an ITA must quickly submit a full application and pay processing fees, within a delay of 90 days.

Through a network of Provincial Nominee Programs (PNP), almost all of Canada’s ten provinces and three territories can also nominate skilled worker candidates for admission to Canada when they have the specific skills required by local economies. Successful candidates who receive a provincial or territorial nomination can then apply for Canadian permanent residence through federal immigration authorities.