There has been much concern among economists and policymakers in Canada recently about the decline in real GDP per capita since mid 2022. Real GDP per capita is closely related to average well-being, although there are of course other factors affecting well-being aside from the market income that is measured by GDP.
My base case scenario, shown as the dotted line, assumes GDP growth of 0.4% and 2.2%, PR growth of 1.3% and NPR growth of 0% (i.e. NPRs are fixed at 2.5 million).
The other four cases all assume the linear decline in the number of NPRs from 2.5 million to 1.3 million, but they vary in the assumption about the unknown true value of GDP per capita of NPRs. We don't know what the GDP per capita of NPRs is, but we believe it is probably less than 100% of the GDP per capita of PRs.
Given our 1.3% annual growth assumption for PRs and given the scenarios' negative growth path for NPRs, we can easily calculate the future values of total population, which are the same in all four scenarios. Given our forecast for real GDP of 0.4% and 2.2%, we know the future values of total GDP as well. So in my scenarios we know total GDP per capita.
The question I am trying to explore is this: What is the future path of per capita GDP of PRs? Why am I interested in this? Because I think it makes a big difference how much of our current "declining total GDP per capita" dilemma in Canada is because of the surge in the count of NPRs, which is something we could easily fix, and how much is something affecting the GDP per capita of our PRs, which of course is a much deeper problem not so easily fixed. If NPRs are much less productive, on average, than PRs, then the dip in GDP per capita of PRs was relatively mild (blue dashed line) and that's a good thing. If NPRs are just as productive as PRs (black dashed line), then the dip was much deeper and we have a bigger problem.
The comparison of the black dashed line and the black dotted line shows that the number of NPRs in the future scenarios makes a big difference. But we know nothing of what the government's NPR work permits policy will be in 2024 and 2025 (at least I myself know nothing about it). We know what their GDP growth expectations are, but we do not know their plans for NPR work permits. Indeed, we don't know their total population growth assumption either (or at any rate I did not find it in their Economic Statement document).
I hope this addresses your question adequately, but if not please continue the conversation.
Wow! Thank you for this and all the material you’ve made available. You’ve done a good job explaining the relationship between productivity and labour is affected by immigration, aided by the fact of good data. I don’t think data on financing is as good as for other factors but why couldn’t it be? OSFI has, or could have, real time reporting on commercial loan and deposit balances in all the big banks. It could also have anonymized reporting by NAICS code for the key financial metrics (leverage, debt service cover etc) of every industrial sector by size of enterprise so that policy makers could understand better what is going on with respect to business investment. If the Canadian financial sector were not so dominated by the big banks, for whom commercial lending is their least favourite line of business, maybe alternative capital providers would fill the large gap between the degree of support SMEs in other OECD countries get (especially the US) compared to that which SMEs in Canada receive. (See the annual report on Financing SMEs and Entrepreneurs: An OECD Scoreboard). Speaking of which, have you ever looked at this report. Canada’s performance is an outlier (to the negative) and has been for longer than the GDP productivity stats. I would really appreciate if someone with your background took a look. Cheers, Guy
Thanks, Philip. I'm a bit puzzled about section 6: I can understand how reducing the number of non-permanent residents would raise the GDP per capita, but how would it raise the GDP per capita for permanent residents?
Thanks for your question.
My base case scenario, shown as the dotted line, assumes GDP growth of 0.4% and 2.2%, PR growth of 1.3% and NPR growth of 0% (i.e. NPRs are fixed at 2.5 million).
The other four cases all assume the linear decline in the number of NPRs from 2.5 million to 1.3 million, but they vary in the assumption about the unknown true value of GDP per capita of NPRs. We don't know what the GDP per capita of NPRs is, but we believe it is probably less than 100% of the GDP per capita of PRs.
Given our 1.3% annual growth assumption for PRs and given the scenarios' negative growth path for NPRs, we can easily calculate the future values of total population, which are the same in all four scenarios. Given our forecast for real GDP of 0.4% and 2.2%, we know the future values of total GDP as well. So in my scenarios we know total GDP per capita.
The question I am trying to explore is this: What is the future path of per capita GDP of PRs? Why am I interested in this? Because I think it makes a big difference how much of our current "declining total GDP per capita" dilemma in Canada is because of the surge in the count of NPRs, which is something we could easily fix, and how much is something affecting the GDP per capita of our PRs, which of course is a much deeper problem not so easily fixed. If NPRs are much less productive, on average, than PRs, then the dip in GDP per capita of PRs was relatively mild (blue dashed line) and that's a good thing. If NPRs are just as productive as PRs (black dashed line), then the dip was much deeper and we have a bigger problem.
The comparison of the black dashed line and the black dotted line shows that the number of NPRs in the future scenarios makes a big difference. But we know nothing of what the government's NPR work permits policy will be in 2024 and 2025 (at least I myself know nothing about it). We know what their GDP growth expectations are, but we do not know their plans for NPR work permits. Indeed, we don't know their total population growth assumption either (or at any rate I did not find it in their Economic Statement document).
I hope this addresses your question adequately, but if not please continue the conversation.
Philip
Wow! Thank you for this and all the material you’ve made available. You’ve done a good job explaining the relationship between productivity and labour is affected by immigration, aided by the fact of good data. I don’t think data on financing is as good as for other factors but why couldn’t it be? OSFI has, or could have, real time reporting on commercial loan and deposit balances in all the big banks. It could also have anonymized reporting by NAICS code for the key financial metrics (leverage, debt service cover etc) of every industrial sector by size of enterprise so that policy makers could understand better what is going on with respect to business investment. If the Canadian financial sector were not so dominated by the big banks, for whom commercial lending is their least favourite line of business, maybe alternative capital providers would fill the large gap between the degree of support SMEs in other OECD countries get (especially the US) compared to that which SMEs in Canada receive. (See the annual report on Financing SMEs and Entrepreneurs: An OECD Scoreboard). Speaking of which, have you ever looked at this report. Canada’s performance is an outlier (to the negative) and has been for longer than the GDP productivity stats. I would really appreciate if someone with your background took a look. Cheers, Guy
Thanks, Philip. I'm a bit puzzled about section 6: I can understand how reducing the number of non-permanent residents would raise the GDP per capita, but how would it raise the GDP per capita for permanent residents?