244. Mikal Skuterud: Economist on How Canada’s Immigration Mistake Hurt Citizens

University of Waterloo economist Mikal Skuterud to explain Canada’s immigration policy shift, housing pressure, youth unemployment, international students, temporary foreign workers, Tim Hortons, GDP per capita, Mark Carney, Alberta separatism, public trust, and why Canada needs a clearer, fairer immigration system with host Aaron Pete. 

Transcript

SPEAKER_00 0:00

How did you become Canada one of Canada's leading voices on immigration, labor markets, and the economy?

SPEAKER_01 0:05

I'm an economist. Uh first and foremost, I'm a labor economist. For the past 20 years, I've been mostly focused on the economics of immigration, and in particular in the Canadian context.

SPEAKER_00 0:18

How did that kind of land into your scope of interest as well?

SPEAKER_01 0:21

The direction that the liberal government was pushing immigration policy in Canada, not just after the pandemic, but some of this is evident before the pandemic was of concern to not just me, but to other economists that study immigration.

SPEAKER_00 0:36

What do you think the ramifications of that have been?

SPEAKER_01 0:40

There are beneficiary beneficiaries as you described it, Aaron. And that's the business community.

SPEAKER_00 0:46

Did this bear fruit in any significant way for the benefit of the country as a whole? No. Short answer, no. The other impact of this policy is a newfound interest in separatism. How do you reflect on that kind of path forward? Mikhail, thank you so much for joining us today. It's a privilege to have you on. Would you mind briefly introducing yourself for people who might not be acquainted with your work?

SPEAKER_01 1:18

Yeah, hi, Erin. I'm a professor in the economics department at the University of Waterloo.

SPEAKER_00 1:26

For people who might not know your work and who you are, how did you become one of Canada's leading voices on immigration, labor markets, and the economy?

SPEAKER_01 1:36

I don't know if that's true or not. Um but I, you know, something immigration. I'm an economist. Uh first and foremost, I'm a labor economist. I'm also an immigrant, and I I suppose most researchers they tend to research, choose topics to research that that often have some personal relevance. Um, so I I've been studying for the 20 past 20 years, I've been mostly focused on the economics of immigration, and in particular in the Canadian context. And so, as immigration goes through these cycles, when it becomes a topical issue, then I sometimes get called upon to speak about these issues. And maybe in this most recent episode, when it was becoming quite controversial, I got called on more than in the past.

SPEAKER_00 2:30

And why do you think that was? Do you think that there was an issue? How did that kind of land into your scope of interest as well?

SPEAKER_01 2:38

Um well, yes, I think I think there was an issue. Uh I think the the direction that the liberal government was pushing immigration policy in Canada, not just after the pandemic, but some of this is evident before the pandemic, was of concern to not just me, but to other economists that study immigration. We were in fact consulted by the first immigration minister in the Trudeau government in 2016. That was Minister John McCallum. And we wrote a report for him answering some questions about, you know, the directions they were thinking about moving in. And we advised against many of the directions that they subsequently moved in. Um, I've since learned from speaking to the subsequent ministers that that report was put in the trash and nobody ever saw it, other than John McCallum. Um, and and so yeah, I mean, I think that is what led me to start speaking up a bit more publicly, being willing to speak a bit more publicly about this issue, ultimately because I was concerned about uh the policy direction serving to undermine public support and confidence and trust in our immigration system.

SPEAKER_00 3:51

What was in that report?

SPEAKER_01 3:53

So it was a series of questions that clearly were motivated by the direction that the Trudeau government wanted to push immigration policy in. Um, so for example, it it spoke to, you know, the the idea of moving away from a system which prioritizes skilled immigrants in the applicant queue towards one that is more focused on meeting current labor market needs, which tend to be in lower skilled occupations. That was one issue, and we advised against doing that. Another issue was um trying to really ramp up, scale up international student enrollments at colleges across the country. Um, and we also advised against leaning in heavily on that, um, which that advice again wasn't followed. Um, so yeah, those are just two of the things that were in there.

SPEAKER_00 4:49

Why did you recommend against them?

SPEAKER_01 4:53

Well, I mean, I suppose on both, I mean, there are a number of issues there. Uh, this was a long report, you know, a 45-page report. So in in just a in in in short time to give you kind of an idea, you know, the the very the overriding issue for immigration policy um in Canada when it comes to economic immigration. So that is the part of immigration, it's not about refugees, it's not about sort of family reunify re reunification objectives, but the biggest part of our immigration program is what we call economic class immigration. And in this group of immigrants, um candidates, applicants are selected, right? Because there are more applicants than there are sort of slots that we we fill. So we we have to pick and choose, just like a university has to sort of pick and choose among applicants into their programs and discriminate on some kind of basis. Um, the question is well, how do you discriminate among applicants? And so there's been this long-standing question about whether the objective should be to just try not to be too focused on what current labor market needs are, but instead just focus on what we call the human capital of applicants. You know, how skilled are they? What can they contribute to labor markets? A really good measure of people's human capital is how much they earn in the labor market. It's not a perfect measure, but it's a pretty good measure of what someone's contribution of their human capital is to the economy, is their are their earnings. And so we we kind of want to think about, you know, choosing among the applicants who have the highest human capital, have the highest expected earnings in Canada, and that will raise average earnings and raise kind of average living standards in the population. The counter idea is that we shouldn't be too focused on just skills, because we know lots of immigrants comes with come with university degrees and they never really find the jobs in those fields that are commensurate with their education. So we should instead be focused on well, what does the economy currently need? And those might be in lower skill jobs. In fact, they overwhelmingly, if you look at job vacancy data, they overwhelmingly are in lower skill jobs. And so that's what we should be prioritizing. And so I think the general kind of gist of the report was a concern that the liberal government was not only increasing immigration, like they very deliberately, right very soon after being elected, you know, stated that they were planning to increase immigration levels, which they did to record levels. Um, and not only were they planning that, but there was also this underlying idea that they were moving away from this human capital model of selection towards one that's more focused on current labor market needs. So that's what ultimately we were concerned about. Why do you think they did that? Uh, that's a good question. So Aaron, just to be clear, do you mean what were they why did they choose to increase the immigration levels, or why did they choose to shift the composition of the immigration towards less lower skilled applicants?

SPEAKER_00 7:57

I guess I would broaden it. I would say, why do you think they asked for this report, didn't use the report, threw in the garbage, I I hope metaphorically, and then proceeded down this very, very different track where experts, I don't think, were saying that that was the best path if your report isn't being used.

SPEAKER_01 8:16

Yeah, so that that's a good question that sort of gets on in the in the inside. I think I think the reason why John McCallum contacted a group of us that work in this area. I think there were eight of us in the in the in in that were called and we met with him and then wrote a report. Um, the reason he did is because John McCallum is an economist. So he wanted to speak to the economist. He's also a former academic economist. He he was a professor in economics at Queen's University in early in his career. And so I think he felt comfortable and thought maybe I should talk to some of my colleagues. In fact, that is the opening sentence of the email I received from him is hello, colleagues, I would like to speak to you. This is so you know, early, it was March of 2016, so very early in the you know, like in his mandate um to run the immigration department. So that's why he did that. Now, why was it ignored? Well, because at the same time there was another advisory group. That group was led by Bill Morneau, who you may remember was the finance minister at that time. Bill Morneau similarly struck up a group of people, in that case, it was 13 people. The official name of that group was the Advisory Council on Economic Growth. If you Google search that, you'll find the membership. And what you'll discover is that among the 13 people on that council, there was one economist. And the council focused on economic growth, there was one economist. What were the other people? Pretty much everybody else was either one of these kind of management consulting types, um, you know, from McKinsey and these kinds of places, Ernston Young, and including the chair, who the person who was appointed to be chair, whose name is Dominic Barton. His name has come up and he was very much a part of the liberal early the circles of the liberal circles. Um, and then so they were either those kind of management consulting types or finance people working, people working on Bay Street and so on, right? Um, and and so for example, Dominic Barton's uh good friend, Mark Wiseman, who uh has also been in the news recently, was also on that in the in that advisory council. That advisory council came up with very different recommendations on immigration than uh than we did. And so I think it was pretty clear that for the PMO, uh whether the PMO ever saw John McCallum's report from us um or not, that wasn't what was gonna get prioritized. Um, Bill Moore Morneau's advisory council were the big guys, uh, not the academic eggheads. Uh, they were the ones who are gonna get the play. Now, if any of your listeners, including you, Aaron, um, are interested in this, I have to mention that I think the the best book on immigration policy that has ever been written in Canada was written last year by a columnist at the Globe and Mail named Tony Keller. The name of that book is um Bordering Chaos. And I think three weeks ago the book won the prize, what's called the Donner Prize, which is the prize that we give out every year for the best book on public policy in Canada. And so Tony's book won the Donner Prize. It's a pretty short little book. Um, I actually spoke to Tony quite a bit about, you know, as as he was writing the book. Um, I get some acknowledgments in that book, which I'm very proud of. Um, it he he's just he's you know knocked it out the park. It's it goes through basically everything I just told you, and that whole episode in Canada's history where I think we we really, you know, messed up immigration policy. I mean, this is something, in my view, that Canada's record is exceptional in the world. It's something we should be extremely proud of, our record on immigration. What I mean by that, I mean, we've managed for decades to have high immigration rates combined with strong public support for immigration. And that was ruined, um, to be blunt. It it was. Um, that that shows up very clearly that the the the the Trudeau government ran it off the rails. Um, and so that Tony's book, um, I think is the document that that that records what happened, what went wrong.

SPEAKER_00 12:38

Fascinating. I will absolutely pick up that book. Yeah. What who would your report, who do you think would have been the beneficiaries of your proposed potential path forward or some of your recommendations, who would have been the beneficiaries? And when I say that, I'm kind of thinking, is it Canadians, is it the middle class, is it people in poverty versus what we're saying? And then I'm gonna ask you in the next question to contrast that versus what ended up coming of the actual decisions were made, who benefits from that? So who benefited from the recommendations you made?

SPEAKER_01 13:08

The great, great question. These are what we call distributional effects of policy. So the hard reality is that most policies, um, certainly in recent years in Canada, don't really do much to raise, if you like, as an analogy, sort of the size of the average slice of the economic pie. You know, if you think about the economic pie as the value, all the value of everything Canada produces in a year. And if we did divide that equally between everybody, which we don't, but if we did, we we measure that you uh using what's called GDP per capita. That's the statistic. And the reality is that most policies in Canada are not really directed at growing the size of the average slice, what they're doing is redistributing it, right? They're just saying you're gonna get more and you're gonna get less. Well, that's okay. Sometimes that's a good thing. Um, but what you what you're asking, Aaron, I think is, you know, if we're gonna think about immigration policy as affecting the distribution of the size of the slices, because the hard reality is it probably doesn't do much for the most part. Canada's record is it probably doesn't do much to raise, increase the size of the average slice, but it does change the distribution. And so then you say, well, we have these two recommendation, two kind of policy recommendations, one from the economist eggheads and one from these management finance types with lots of money. Uh how does how do their policies affect the distribution differently? That's a really good question, Aaron. And there's not a simple answer, but let me let me give you the sort of the higher level idea. So the argument for why you want to prioritize high-skilled immigrants is primarily one in which what you do, we know that immigrants will tend to do to have the the effect that for people in the existing population who have similar skills and work in similar occupations as the newcomers, the immigrants, they will tend to be adversely affected by immigration because they're competing with them. But other types of workers who have very different skills than the newcomers, they might actually benefit from the immigration. So a good example of that is you know, if you increase the number of immigrants that do service work in homes, like nannies and house cleaners and childcare workers, people like me that are relatively high income will benefit. In fact, it will probably make me more productive because I don't need to spend my time being cleaning my house or cleaning my clothes or doing any of the domestic duties around my house. That's gonna allow me to focus on my job and what I good at, and that's good for my productivity and my earnings. So I benefit, but if I'm a cleaner myself, a Canadian-born cleaner, I don't like that. I now have to have more competition. So I got to sort of compete for jobs, and the one way to compete, and the main way to compete, is to offer my services at a lower price than the immigrant, but that's not good for me. So so then the idea is there's gonna be these winners and losers. The the the the advantage of high-skilled immigration is what it does is it the competition is being felt by the people who are the highest income people in the society already. The doctors and professors and lawyers and scientists and teachers. Those are the people who feel the competition. It's not the most vulnerable people in society, it's not the lowest income people in society who feel the competition. And so that I think is an important. So what it does is if anything, it pushes down income growth at the top as opposed to pushing it down at the bottom. And when you push it down at the top, you reduce inequality, you don't increase, I exacerbate inequality. And so I think that's an important reason why Canada, with our skilled immigration policy that we've historically had, has been able to maintain this strong public support for immigration, is because most kind of working class people don't look at immigrants and say, well, this is bad. They're competing with me. They look at immigrants and say, Oh my God, these are really important people. They're like doctors and scientists and lawyers, and they're making my life better, right? They're not competing with me, they make my life better. And so people are quite supportive of immigration. So that's the argument for why you don't want to focus on current labor market needs. Okay, so then the the the question is, well, what about the counter proposal? Why would we want to focus on these kind of current labor market needs, often in lower skill labor markets? Well, if I'm running a business, um, if I'm running a business and I'm struggling to get workers, right? I face labor shortages. And my margins, my profit margins are kind of razor thin. Even paying the workers what I'm paying them now, I'm struggling to turn a profit. Now what I find is I'm struggling to hire new workers, and some of my workers are quitting and I'm struggling to replace them. And so now there's more competition in labor markets. And the only way I can compete is to offer a higher wage. The way I compete with my competitor businesses is to say to workers, come and work for me, I'll pay you a dollar more per hour or two dollars more per hour. But if I'm running razor-thin margins, that's gonna be hard to do. That's gonna potentially put me out of business. I could pass on the higher wages in higher prices to my consumers, but they might leave, stop buying my good altogether. So I can't do that either in some cases. And so what do I do? Well, as a business, what I want to do is I want to organize myself into some kind of a collective that I can lobby the government to do what? To increase immigration of low-skilled workers. So there are more workers queuing up outside my door saying, I'll work for the same wage you're paying your current workers. You don't need to pay me more. Just pay me whatever you're paying those guys. And the businesses say, Oh, that's what I need. That's exactly what I'm looking for. And so we know a huge part of immigration policy in Canada is driven by business lobbyists. The the biggest proponents, if you go back, it's very clear, the biggest proponent of increased the expansion of Canadian immigration was a group called the Century Initiative. Who was it led by? Two there were two co-founders of that initiative. One, Dominic Barton, who coincidentally also led Morneau's advisory council, two, Mark Wiseman, who was the founder of the Canadian Pension Plan Investment Board, who coincidentally was also on Bill Morneau's advisory council. So it's really about business interests. Um, and they drove the immigration agenda. And and so then you say, well, why would Trudeau as a left-wing person have got pulled into this? Well, because it was a win for him, too. If you remember the whole political narrative when he was elected, you know, he he was kind of he he was a you know using terms that kind of went back to the time of Wilfred Laurier. There was this popular term he was using at that time in 2015 in that election to Dimit campaign called sunny ways. You know, and the idea was that we were not going to be tough on immigration, we were gonna open ourselves open up to immigration. This was the new diverse Canada. We weren't gonna close in the you know, terms like immigration is our secret sauce, and it was a feel-good narrative. You know, as an immigrant myself, I could get pulled into that narrative too. I mean, I like immigration, um, but my problem was I'm also an economist and I kind of understand some of the challenges with it, but they just, you know, it I think that feel-good, warm, fuzzy feeling around immigration, the kind of lot of the rhetoric, um, I think just made people feel good. And so for the business community and and politically for the Trudeau and liberal government, it was a match made in heaven, and that's what happened.

SPEAKER_00 21:11

Wow, that is like uh stunning to find out. What do you think the ramifications of that have been? And I'm wondering if you could tie in what happened with Tim Hortons, because that's become a huge story in our news. I don't know if you've heard, but Tim Hortons has just released an ad where they very much lean into Caucasian staff members, and there's no disrespect to people from India, but like that's often who you see, at least within the Fraser Valley, working there. Sure. And so it seems like they're trying to change the messaging here. What do you make of that story as it relates to your understanding of the economy?

SPEAKER_01 21:50

There's a really important high level distinction, Aaron, to make. So most of what I've been talking about is what's um what's called permanent immigration. So this Is the system we have that selects new permanent residents of Canada, most of whom will go on within five or six years to become citizens of Canada. Most of the ink most of what you're describing, people low working in low wage in the low-wage sectors like Tim Horton serving coffee, um, most of that growth through in recent years has not been in permanent immigration pathways. It's been in non-permanent pathways. And the two biggest sources of temporary immigration or non-permanent immigration are what we call the temporary foreign worker program, which is, you know, people come in on two or three-year contracts. Now they're only allowed to bring them in on one-year contracts. They're on closed work permits. It says you can work at this place, but once your contract is done, you have to leave Canada. So there's no intention in that program really for them to settle here permanently. The other temporary program are international students, and that was by far the much bigger part. Um, and there's some data. I uh I've looked at this in the data, and it's pretty clear that in Tim Hortons, for example, most of the increase was not temporary foreign workers in but um, but what was was international students who are allowed to work off campus. They weren't always allowed to work off campus, but over time the liberals made that easier and easier. I mean, it started with the conservatives, and the liberals have made it easier and easier for international students to work off campus. So um, so there's there's no question that that that increase happened. And again, it just comes back to the point I was making earlier that that demand for immigration, there are beneficiary beneficiaries as you described it, Aaron. And and that's the business community. I mean, if I own if I own a business, whether it's a coffee shop or anything else, um, you know, I I want a long queue of workers outside my door every day begging and competing amongst each other to get the job where I, you know, to get a job from me. How do they compete amongst each other? They are they bid down the weights. We'll say, I'll work for less than that guy, right? And that's good for me because I want to pay them as little as possible.

SPEAKER_00 24:08

What do you think the outcomes have been? What do you think the results? Like, we're hearing about how there's low productivity, there's low growth, there's arguments we're in a technical recession right now. Like, did this bear fruit in any significant way for the benefit of the country as a whole?

SPEAKER_01 24:26

No. Short answer, no. And and so again, going back to 2016, that's what the economists said. That's in the report. That if the objective of immigration is to grow the overall size of the economy, the total GDP of the country, then increasing immigration makes sense. Because as long as those newcomers are producing something, more will get produced, right? But economists, at least academic economists, think that's a ridiculous objective. Why do we care what the overall size of the economy is? I mean, India's economy is six times bigger than Canada's. Surely we don't want to be more like India. Switzerland's is much smaller than Canada's, but surely we'd want to be a bit richer like Switzerland. And so what really matters is what I was describing before is not the overall size of the economic pie, but when we divide it between all of us that live in the country, how big is the average slice? And the question is when I increase the population through immigration, what happens to the size of the average slice? And that's a much harder question. It's far from obvious what happens to that, because on the one hand, the pie gets bigger, but now I need to divide it between more people, right? And so it's not obvious. And so economists have spent a long time studying that. Um, we had a paper published last year in the Canadian Journal of Economics. That's a peer-reviewed article that that really dives into that. What do we know about what it does to the size of the average slice? And the answer is in the long run, it probably doesn't do much of anything. That's Canada's historical record. Doesn't increase it, doesn't decrease it. Maybe it decreases it a little. That's my reading of the data, but not much. And so we knew that in 2016. And so when the liberal government was coming out with their rhetoric rhetoric saying, you know, we that, I mean, it was very hyperbolic. If you if you remember, if you go back and read the talking points of the liberal government, it wasn't only that immigration, increased immigration was good for the economy, it was an imperative. I mean, they framed it that the Canadian economy was going to fall apart due to our aging, due to our aging population and low productivity, the whole economy is going to fall apart if we don't increase immigration. And all of us economists just shook our heads and thought, what are these people talking about? That's just not true. There's no evidence of that. And indeed, if you look at the you know, GDP per capita growth, especially in the post-pandemic period when immigration rates really took off, GDP per real GDP per capita was declining in a way that hadn't been declined, uh, that you would never see outside of a recession. Um, so yeah, the evidence is pretty clear of what it does. It's not a solution to uh sluggish economic growth. It's also not a cause of Canada's long-running, long-standing productivity problems. It's definitely not a cause. Um, or much deeper problems.

SPEAKER_00 27:27

I'd love to dive into that next. Do you think that Canada's immigration policy contributed to uh slow growth in wages?

SPEAKER_01 27:39

Well, so it's not quite clear that there has been slow growth and well, I mean, what what is slow growth in wages? I guess is the first question. Um, but but wage growth, real wage growth, there is a perception out there that it's flat. Um, and that that's just not true. If you look in the data, it isn't in Canada. Real wage growth is there.

SPEAKER_00 28:00

Um adjusted for inflation. You still think that's true?

SPEAKER_01 28:03

It's there, it's there, and it's growing not that differently than GDP per capita. In fact, in the most recent period, it looks to me like real wages. When I say real, that means adjusted for inflation for prices. Okay. That, or you could think of it as like the purchasing power of my wages, um, that they're growing a little bit faster than GDP per capita. Um, which there is an explanation for that, which if you want to get into the weeds, I can explain. But um, but yeah, so there is there definitely is real wage goals. Now, having said that, here's the nuance. Uh, we have to talk about nuances on your show, right here. So here's the nuance to that is you know, an average can hide some interesting differences within the distribution, right? And we talked about distributional effects, and the reality is that wages aren't growing the same for everybody. Um, and so you know, it it definitely is true that in those occupations where the immigration competition increased the most, that you would expect to see less wage growth. Unfortunately, doing that kind of analysis, that granular granular analysis within occupations is a little bit difficult. And I can assure you there are a lot of academic economists who I was just last weekend in Vancouver at the annual meetings of the Canadian Economics Association, and there is a lot of research exploiting this experiment that Canada ran over the past decade with immigration. I mean, economists are also rubbing their hands, going, Oh my God, this is like a really incredible opportunity to see what immigration does because the rates were so high, right? Um, so I what I'm trying to say is that you know, five years from now, I think you're gonna see a lot more research coming out where we're gonna have some clearer answers to some of these questions.

SPEAKER_00 29:59

Do you think the I think this is interesting because I do think it lands where I don't I don't know if you follow US politics, but we have under Biden, he said the economy is doing great, and citizens said, you don't know what you're talking about, like my life is getting worse. And then now we have President Donald Trump saying the same thing. The um the stock market's rising, and citizens are saying, I am not feeling any economic benefit under this. And so when we say that we haven't seen wage stagnation, do you think that it's possible that what what do you think is contributing to? I think young people and people on lower income jobs and frontline positions feeling more that way. That's kind of the echoes I see in the news is that there's a frustration on those front lines that they're not able to have what we often call a living wage or uh an affordable life and they can't get into the housing market. What do you think's contributing to their kind of sense of frustration?

SPEAKER_01 30:57

You know, I'm gonna give you again a nuanced answer that you, your readers, good readers, your listeners probably haven't heard before. I have no direct evidence of this, but I I I think there's an interesting idea. That the question is, how do people think about rising prices in their lives when they go to the grocery store, when they have to pay their rent? Um and how do they relate that to how their wages are rising in the job they do? And I think there's something very different about prices increasing and how it affects people's sense of well-being. You know, when you go to the grocery store and you see rising prices, you have you have absolutely no control over that. And it's really hard to know who to blame for that. Um, and it's very and and what also tends to happen in an economy is the price increases tend to lead the wage increases. So when there's a you know increasing inflation, prices are rising faster than wages, and that tends to happen first, and then wages have to kind of adjust, and they take a while to catch up. So for a period of time at least, you're falling behind, and there's nothing you can do about it. You go to the store, your landlord, everybody's asking for more, and you're not getting more in your bank account through your wages, and so there's a sense you're doing worse, and it's not just a sense, it's real. You really are. Um, and you and it's something you feel very um powerless over. There's nothing you can do about it. Whereas wages is something in our lives that we send send, we might have a little bit more control over in the sense that we can ask our boss. I mean, we kind of know who controls our wage, we can ask our boss for more. Um, we can change jobs, we don't like our wage, we quit. That's that's the always an option, and find a new job that might offer a higher wage. It might not be as an attractive job, but it might be a higher wage. So we have some more sense of control over our wages. But prices, when I got to buy milk for my kid or something, you're like, there's not a lot you can do about that. And so I think I think we've learned this lesson lesson through history that inflation, price inflation, has a very high cost in a society. Um, in in sort of again, undermining public support for our our political leadership and how they're running the economy, because they're the ones, and obviously, that's who we're gonna blame as our political leaders, even though sometimes they have very little to do with it. Well, that's who we're gonna blame. And so I think you know, how do how if you go through history, um, there have been periods with much higher inflation rates than we saw in the most recent period. And if you go back and look at how consumers dealt with high uh, or even go to other countries that regular, like Argentina has dealt with high uninflow inflation rates for for decades and decades, it is really costly for politicians. I mean, it leads to revolutions, it very often has led to revolutions, right? And so that explains why the Bank of Canada has a single objective, a single target in what they do. They are tasked with keeping the inflation rate at 2% year over year. Prices should not, on average, the prices of the things we consume should not be increasing by more than 2% year over year. Um, they are told we don't when you're deciding on interest rates, like there was an announcement today, when you're making those decisions about whether to increase the prime lending rate or decrease it, we don't want you to pay attention at all to what's happening in labor markets or what unemployment rates are. We want us you to be singularly focused on just keeping inflation at roughly 2%. Um, and I think that served the economy well because until recently that was very successful. We we lived through a period of 20 years of very little inflation in Canada, roughly 2% all the time. Um, so people kind of build in expectations and you can live with that. When I know every year it's just gonna go up by 2%, I can live with that, right? You don't kind of notice it. But when it goes off track and now it's going up by 8% as it peaked at in in after the pandemic, that really hits people hard.

SPEAKER_00 35:17

I couldn't agree more. One of my curiosities from your perspective, Mark Carney is an economist, and I did a longer breakdown on him on that he's a very intelligent individual. He knows how to operate with institutions, uh, he knows how uh how to effectively communicate to I think bring the temperature down in the room. But I wonder from your perspective, how are you seeing that change? I know that he's trying to, he's brought down some of those immigration numbers, but when you look at how he's operating, you're able, I think temperatures sometimes rise on issues. And so there's a frustration right now. And I'd just be interested in your sober reflection on how is he performing from an economist's perspective when you're seeing some of these decisions being made. Uh, some of them are to reduce the amount of immigrants coming in. How are you reflecting on some of the things you're seeing in comparison to the Trudeau era liberals?

SPEAKER_01 36:10

So I'm just gonna stay in my wheelhouse and answering that question, Aaron, and that's on the economic immigration. And um to be sure, the liberals made a dramatic U-turn in their immigration policy beginning in January of 2024. So we can pinpoint when it happened. There was a series of announcements in November 2024. They announced the new immigration level targets, and it was as clear as that as anything that they had made literally a U-turn. What do I mean by that? They they, you know, when when the government in November, federal government in November, announces their immigration targets, they announce it not just for the following year, but for the next three years. So every year they announce targets for a three-year window. What that means is, of course, that if I'm gonna, there's a potential that I'm gonna revise my own targets from the previous year, you know, you know, and that's what happened for the first time in Canadian history. In November 2024, the liberal government, Trudeau, not Carn Carney was not in the picture, Trudeau was still the prime minister. They revised their own previous targets for immigration downwards. We've never seen that. So that was a very significant mea culpa, a recognition that we got it wrong, that we've mismanaged the system. They said as much. The immigration minister, two weeks before making that announcement, I was sitting at the Trudeau Airport in Montreal and I got a text message saying, Mikhail, what should we do with the immigration levels? That's kind of what was going on. I spoke to a liberal MP about this, Nate Erskine Smith, who's also been in the news. He told me what happened within the caucus. Every caucus member was given a piece of paper with three options keep immigration rates as they are, lower them modestly, or lower them substantially. The outcome of that caucus vote is they lowered them substantially. So it was a very clear recognition going into the Carney election that we got this wrong. If we have any chance to keep our seats in the next election, we've got to, you know, admit we've got this wrong. So so I think that happened before Carney. So that had really nothing to do with it. It was also under Mark Miller, uh, while he was immigration. As soon as Kearney came in, Mark Miller was out as immigration minister, and there's a new immigration minister. The new immigration minister, whose name actually escapes me, I have had no contact with. You rarely hear Carney speak about immigration. So the frankly, I don't know what's happening. Very little has happened in this kind of policy shift away from skilled immigration to lower skilled immigration. That's true still today. Nothing has changed on that front. All they've done is reduce the immigration levels, which is significant. But in terms of like who we prioritize when we select immigrants, it we we this kind of historic way that Canada used to prioritize the most skilled applicants, we're still not following that approach. We haven't returned to that approach, which is what economists have been advocating for.

SPEAKER_00 39:31

The minister is Lena Diab, uh, which is interesting. I haven't heard uh from her either. That's it. Uh do she's very quiet. Yeah. Do you think um what do you think the ramifications of moving away from this are gonna be? We've we've had this change. Do you think the economy is gonna be experienced shifts, impact, negative impacts, positive impacts? What do you think some of the ramifications of of this steps might look like?

SPEAKER_01 40:00

So so I think like there's sort of three things that that people felt um w went wrong, were going wrong. One is there was a sense that youth labor markets, that there was a lot of competition for jobs, especially in summer jobs, really low-skill jobs, like the Tim Hortons jobs you described earlier. There was just too much competition for those jobs. And and clearly it was contributing to some extent to higher youth unemployment rates. That was the first thing. The second thing is housing markets. There's just absolutely no, I've looked at the data, the CMHC has looked at the data. No question, immigration was adversely affecting prices in housing in rental markets in particular, but housing markets more generally. So, um, so there are you know potentially depressing wages in some low-skilled sectors and increasing rents in you know, apartments, and that comes back to what we were talking about before, how people were feeling poor. And so part of the blame was going towards the liberal immigration policy, justifiably. Um, I it wasn't managed well. The other part, and this was the part that worried me the most, is that most of the immigration were these that were people coming in as international students or temporary foreign workers on work permits. So they were coming to Canada with no permanent status. They were being lured by universities and colleges who were charging them exorbitant tuition fees. Why were they paying these fees? Because they were promising them a pathway to citizenship. And the same with the temporary foreign worker program, employers were saying, you know, come work, there'll be some pathway to PR. And so that was leading to large numbers of my hopeful migrants coming who wanted to settle in Canada permanently. But the the it just wasn't sustainable because the numbers who are coming, there just aren't enough slots of this permanent system to absorb them all. And so what's happening now is there's a very large population of people with no legal status in Canada whose permits have expired, and they are in some cases not even don't have the financial resources to leave um to get a flight home, right? And so there is um a growing population of people that are undocumented. And I think that's a first-order problem. I think that's a that's a very significant issue. Um, when you have the US has dealt with that for decades, Canada has never had to deal with an un undoc, a large undocumented population, but there's big consequences of that. And so the question is well, what's the what's the consequence of now reducing immigration levels? Well, we've already seen some of it. Housing markets seem to be stabilizing. Lots of evidence that rents are coming down in these cities that saw the biggest increases in immigration. Youth unemployment has leveled for the past two years. Youth unemployment rates are roughly stable. I'm seeing some news already that this summer it looks like job opportunities for young people are a bit better than they were last summer. So we're seeing some of that come back into balance. Um, the big issue for me still is this large population of people, um, which we don't really have very good data on because just by their very nature, they're they're undocumented, so there isn't data on them. But I do, I am concerned about this population, and I think the government needs to do a much better job of tracking this population to know how big it is.

SPEAKER_00 43:25

The other impact of this policy is a newfound interest in separatism. Uh, we've heard in in Quebec an interest in potentially having that conversation again. They've had policies to protect themselves from the federal government's decisions around immigration to a certain extent. And now Alberta is talking about uh Premier Daniel Smith is saying she'd like to explore something similar. Do you think that that's the right level of analysis? Like provinces and um and the federal government, they have different duties. And so it's flirting with the idea of trying to move. Into a different lane a little bit. And I know Quebec has done it, so there's there's precedence there. How do you reflect on that kind of path forward?

SPEAKER_01 44:08

I think that's a very, very bad pathway forward. I would argue against it over and over and over again. I I think the good the federal government needs to be in control of immigration policy, needs to decide who we're gonna prioritize for immigration, and then tie its hands and just follow that, you know, strategic plan of this is these are the types of people we're gonna prioritize. And there's a way to even sort of automate that system, that the government so that the it's not politicized. So the minister of the day has no ability to sort of pick and choose. You want that out of the hands of the minister of the day. Should be completely non-political, how we prioritize applicants. But but a devolution of that power to select immigrants to provinces is a terrible idea. Because what it does, it it again, it pushes the system back towards prioritizing current labor market needs, local labor market needs, because the business lobbies within every province capture the program, right? So the truck drivers uh, you know, associate the truck, the you know, the trucking association, they get special programs to prioritize truck drivers and the fish plant workers in New Brunswick, they capture the New Brunswick Parliament to, you know, pass special immigration programs to prioritize migrants who want to work in who are willing to work in in my in in seafood uh processing plants for low wages. So that's and the problem ultimately is that you know, we have a probably the most fundamental constitutional right of every Canadian is the freedom of movement across borders. And so when you give provinces power to select, there's absolutely nothing they can do to retain those people. Um, so if you give Prince Edward Island their own immigration program, the evidence is very clear. People don't stay. They they they use the system because it has lower standards to get permanent status. But as soon as they get that permanent status, they move, most often to Toronto, because that's where they want to live. And so that makes absolutely no sense to this devolution of economic selection powers to provinces, makes no sense. And so I would argue that I I completely agree with your point, Aaron, that the these kind of separatist movements are, at least in Alberta, and maybe the renewed interest in Quebec is is in part and maybe in large part a consequence of what has happened to Canada's immigration system in recent years. Um, again, it makes me terribly sad. Uh I am saddened by the fact that we have undermined public support for immigration. I have um, and I'm saddened by the fact that this is leading to these kinds of separatist sentiments. I think that's a very sad consequence of the mismanagement of the system.

SPEAKER_00 47:01

One of the things that I've said on this program before that I sort of think about more broadly is during the Wetsuetan protests, we saw a lot of like anti-indigenous sentiments and frustrations around their role in blocking roadways. And at the time there were like highways that were being blocked off. And people were saying, I think, mean things during that period in response to being blocked on the road. And I think if you block people when they're trying to drive down the road, they're gonna say some things you don't want them to say. Just that's like human nature. And I see a lot of anti-immigrant sentiment and let's close down the borders, let's shut everything down. And I view that in somewhat the same lane, which is just this is this is people who don't have your level of expertise trying to share their frustration in some sort of way. And I'm just wondering how much do you think is that? And how much do you think this was just how much do you think we need more of a reckoning from our government, the minister to come out and do an apology? Like, how much do you think there is pent-up emotion still on this file?

SPEAKER_01 48:05

Do you want my my optimistic hat on or my pessimistic hat for this?

SPEAKER_00 48:10

Let's do both. Let's hear both of your hats.

SPEAKER_01 48:13

You know, the way you describe that, Aaron, um, with these protests, I think is just so spot on. Um, I couldn't have said that as well. You that that was that's really good. I think it has to do with people feeling they've lost control. They've lost control of an important part of their lives, right? That's what leads to protests and revolutions ultimately, right? Is that um people need a sense that they have some control over their lives. And immigration is something that people, I think in recent years have lost trust in the federal government to manage. And and and justifiably they lost trust. Um so my optimistic response is that there's not a lot of inertia that in in that we can regain Canadians trust or the federal, it's not me, I don't think I'm responsible for it, but the federal government can regain Canadians' trust in the system. Um, we've certainly by lowering levels, I think also by pushing the system towards one that has this singular focus on the most skilled applicants, the most talented, the doctors and scientists and university, people like me that live very privileged lives, you know, I should be facing competition from candidates from around the world, right? I should be, and I'm okay with that. But people working, they're struggling to, you know, got a job at Walmart, you know, stocking shelves. Um, I don't think there's any need for them to face more competition in their lives, right? So I think we need to get back to high-skilled immigration and and that priority. Um my pessimistic view is that there is a lot of inertia in these. Um I think the the term, if you want to look it up, that economists call this kind of thing is hysteresis, that there could be a shock to a system and it just doesn't disappear. It permanently all scars the system in some sense. And that would be my pessimistic view. And I'm I can't I don't have a crystal ball in front of me, so I don't know. But I think it's absolutely true. I mean, we're it's this is still quite fresh. As I said, it was early 2024. We're still just, you know, 2026, two years later. Um, give it another five years and come back to me. But I hope that we're on a better path and that the kind of the negative rhetoric that people feel about immigration, that a lot of that I hope has dissipated. But, you know, that I want to make clear when I say that, I I think it's completely wrong to dismiss people's um feelings on this issue and their frustrations on the issue. I I have no sympathy for for when, you know, there's a fine line there where concerns about immigration turn into xenophobia and worse racism. That I have no sympathy for. There's never, I have no tolerance for that. But frustration with immigration, um, and and with kind of feeling that you're you're competing for housing and for work and it's undermining your standard of living. I'm very sympathetic to that. And dismissing that, those sentiments, I think is is very dangerous for politicians to do. I think we need to recognize, and the government needs to recognize the consequences of their mismanagement of the system.

SPEAKER_00 51:30

And when you find out to your point that it would, this was not based on what's best for Canadians and let's make a decision. This was led by business lobbyist groups, is terrifying. And I think that leads to your point. Like, I don't know if you follow Morgan Hoosel, who's uh written books like the art of money and stuff, um, but he he does a lot of writing on money. I have his book. Actually, he he wrote the first book, which is uh the psychology of money, which I felt very interesting. And uh so, so he talks about in that book that you're just you're kind of defined by your time. And I think sometimes we don't like the idea of that. But when you go through a recession, like my grandmother used um milk 10 days after the expiry date, all the way until she passed away. And that's just how she was raised. She has more than enough money to pay for more milk if she needed it. That's just the she was the product of her time. And when you go through these types of shocks, I think people who went through this 10 years, and when they were trying to get in the housing market and they were trying to get a job and they were trying to make a life for themselves, this will define how they think about immigration until they're 90 years old. And just embracing that and being okay with that and not hating your grandpa because he's gonna use milk past the expiry date, like just understanding people are a product of their time. I grew up during the 2008 financial uh recession and like trying to get a job was really hard. So my mindset is like, I need to work hard. I have to work harder than whoever's next to me because I had to apply to like 15 different fast food companies to get one job for minimum wage at $7 an hour. Like that was how I grew up. And so I carry that now, and I'll probably carry that till till the day I die because it's how you formed under that pressure. And it was a defining chapter of our history. And so I completely agree with you on that. I think my closing question would just be what would you recommend? Uh, we've had the privilege of having like ministers on. If they heard this, what would you want them to know? What would you want them to be thinking about?

SPEAKER_01 53:25

So I I, you know, I write about this a lot, and and and and my I think that the number one priority now in immigration policy is not pie in the sky. Um it's quite simply to return to a system that we once had. And and so I think we, you know, we've sort of got the level somewhat under control. Um, you know, I I don't think there's any need to reduce immigration rates more than they are now. I don't think most Canadians realize just how much they've they've been cut. Um, you know, we're seeing declining population in Canada, not declining population growth rates, but the actual Canadian level of the Canadian population is we're shrinking. That's how much immigration has been reduced. So I don't think we need to do more on that front. What we need to do is is get be a lot smarter about how we select the system that we use to select among applicants. And that system right now looks like a lottery. And it's not only unfair to Canadians because we sort of don't get the best and brightest, um, but it's unfair to the migrants themselves because navigating that system is very difficult and is impossible without paying a consultant or lawyer. And there's no need for it to be that way. There is a way to build a system that's completely transparent, that people go online, they put in their attributes, the system tells them what their points are in this point system, which is essentially just a prediction of what their earnings will be in Canada. And then we just select among the best. You know, we set a cutoff and say, this is the people above, just like a university selects students, right? We take their GPAs and whatever else and we re-rate them and take the best. That's the way the system used to be, and that's the way it we need to get back to it. Instead, of what's happened is the system has been kind of undermined by creating all these ad hoc streams. It's a complete mess that nobody knows how to get. And why are there all these streams? Because all these special interest, mostly business lobbyists, but other interest groups as well, want some of the kinds of immigrants that they care about. And so we have all these special streams, which is just a disaster for the system. Um, so that is my number one recommendation is just simplifying the system, making it a lot more transparent and easy for migrants to navigate.

SPEAKER_00 55:46

How can people follow your work?

SPEAKER_01 55:49

Uh I don't know. I I don't really, I mean, I am on X, I guess. I put up some my I I will say my reason for being on X and remaining on X, I've been on there since like for about six years, is just a singular objective. There's a lot of misinformation around there, especially around the Canadian economy and labor markets. So what you'll see is my kind of ritual is I get up in the morning, make myself a coffee, sit down on my desk, and I'll produce a chart for the day and I'll put it out there. Just some I'll crunch some numbers with a labor force survey or something. I'm pretty good at that. Been doing it for 20 years. So that's the one one of the few things my wife says I'm useless, but she she's doesn't appreciate that that is something I can do. So I do that in the morning, I put it out, and then I go walk the dog and have a shower and I come back and I do my real work. But you know, if you go, I I'm like a lot of mornings, I'll put out some evidence. Like in the last couple mornings, I put stuff out. So that's somewhere um where I love the name of your show because the hard reality is that these issues that we debate, they're they're contentious for a reason. And that is that there isn't just one side to these stories. There are many sides to these stories, and mostly the sides are about these distributional effects that I was talking about. There are winners, you know. If I could come up with an economic policy that anybody, everybody in the economy benefits from, I'd be prime minister tomorrow. Who wouldn't vote for me if we're all gonna benefit from it? Who wouldn't vote for me? Right. So the whole point of what makes policy hard is that what policymakers do is they change the rules in a way that benefits this group at the expense of this group. And so that's what makes it contentious, and that's where the nuance comes in. Because you ask me what's the effect of this policy, there's rarely a short answer in economics that says, Well, depends on who you are. If you're these guys, you might lose, if you're these guys, you might benefit. And I think I think that's a really useful way to think about economics, is like what are those trade-offs, right? And are the trade-offs the ones that I as an individual care about? Um, yeah.

SPEAKER_00 58:01

What is that Thomas Sowell saying? There are there is no right or wrong, there are only trade-offs.

SPEAKER_01 58:07

That's it. I love that. Yeah, I love that. That's so true. I mean, there is now having said all that, that's kind of a little bit of pessimism again. Putting on my more my optimism hat, there is potential in an economy, there are win-wins, right? And when we talk about productivity gains, that's what we're talking about. We're talking about policies that have the potential to rate to increase the average size of the economic slice of the economic pie. So we we pent and if we can do that, if we can do that, you know, you you might people will say, well, GDP is the wrong measure, it's too crude. Because the policy only benefits these people and does nothing to help these people, might even make them worse off. But what an economist says, as long as the policy is increasing the average, right? Increasing the average, then we can use policies to redistribute. We can spend the extra on whatever we want. If we value the arts, we can put it towards our grants for the arts, right? If we wow value reducing child poverty, we can put it towards that. If we why if we value clean water in Moosini, where I've spent time, we can put it towards that. In the in the northern Ontario First Nations communities, still struggling with getting clean water, right? Let's put it towards that. But the point is, without being able to grow the average, we can't do that because redistributing anything to Moussanye or anywhere else means taking away from somebody else, right? And that's the problem. That's why this this issue of productivity growth is really important. And um, I'm I've still some optimism that we can make headway on this. We'll see.

SPEAKER_00 59:54

Well, I'd love to have you back on to do a full episode just on productivity because I think that's the direction we need to start to move in as well. But thank you for coming on today. You cover a topic that, to your point, can lead into xenophobia and racism so quickly. And it's so important that we we take a level-handed approach to a really important topic, but a really complicated topic that does have direct impacts on people's lives. And you've done that in this conversation today. So thank you so much for being willing to join us. And I hope we can do another in the future focused on productivity, because I think uh we need to get to work on trying to figure out the path forward on that before it's too late.

SPEAKER_01 1:00:32

That was awesome, Aaron. Great questions. I really enjoyed this. Thanks a lot.