Stop Assuming Immigration Will Solve Canada’s Labour Crisis

February 25, 2025 – Canada’s expansive immigration policy from 2016 to 2024 has expanded the labour force but has also increased demand for goods, services, and infrastructure, more likely sustaining or even increasing overall labour shortages rather than easing them, according to a new report from the C.D. Howe Institute.

In “The Immigration Paradox: How an Influx of Newcomers Has Led to Labour Shortages,” Pierre Fortin explains that while higher immigration does benefit individual employers in urgent need of workers, these gains can be offset when the additional demand newcomers generate ripples through the broader economy.

Fortin’s research points out that surging immigration rates have increased overall labour demand. He finds that this demand often keeps job vacancy rates elevated, making it unlikely that rising immigration alone will alleviate nationwide labour shortages. He warns that this outcome, though counterintuitive, exposes a “fallacy of composition.” What works for a single employer does not necessarily hold for the economy as a whole.

“Employers that hire new immigrants to fill vacant positions see an immediate advantage, but that same influx of newcomers increases consumption and spending, contributing to sustained demand for labour in other sectors,” says Fortin, an Institute Research Fellow. “This dynamic can sustain elevated job vacancy rates, particularly in sectors that must respond to rising consumer demand from newcomers.”

Fortin warns that without sufficient investment in housing, infrastructure, and skill-matching, the open-door immigration policy that Canada has followed until recently could be straining the country’s ability to integrate newcomers effectively and exacerbating existing shortages. He suggests that addressing these structural challenges can help reduce employers’ dependence on continuously expanding labour inflows, particularly in low-wage sectors.

“There is no question that immigration has played a beneficial transformative role in Canada’s economy and society,” adds Fortin. “But assuming that increasing immigration will automatically ease labour shortages overlooks the reality that newcomers expand labour demand at least as much as they expand the workforce — potentially sustaining or even increasing economy-wide shortages.”

Read the Full Report

For more information, contact: Pierre Fortin, Research Fellow, C.D. Howe Institute and Emeritus Professor of Economics, Université du Québec à Montréal; Percy Sherwood, Communications Officer, C.D. Howe Institute, 416-407-4798, psherwood@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.