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Ottawa’s policy following the pandemic to ease border restrictions in response to record high job vacancies lacked a “balanced” approach that ultimately compelled the federal government to take the rare step of reducing its annual immigration targets, economists say.

The federal government now wants a net reduction of about 900,000 temporary residents, such as international students and foreign workers, in the next two years and has cut its permanent residency targets — the quota for mostly skilled newcomers who eventually become citizens — to 395,000 in 2025 from 500,000.

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The government expects the new targets to take Canada’s population growth rate below zero per cent in 2025 and 2026, after increasing at a record rate of about three per cent in the past two years when it added about two million people.

The reduction in targets was the right move, Douglas Porter, chief economist at BMO Financial Group, said, but the “big swings” in population growth rates aren’t great for the economy.

“It’s a pretty big shift in policy and it will require some heavy-duty adjustments in businesses,” he said. “In an ideal world, we would have had population growing one to 1.5 per cent steadily over the four-year period, instead of two years of three per cent and close to zero in the next two years.

Canada needs immigrants because of its aging population, but the government’s “stop, start” immigration policy creates “economic volatility” and doesn’t send a clear message to businesses or even the government officials responsible for making long-term plans, Toronto-Dominion Bank‘s senior economist James Orlando said.

“I don’t think you just turn this on, turn it off, because the uncertainty it provides is the real problem,” he said. “If you have an idea about the population growth, you can plan houses, buildings, doctors, etc.”

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Canada reported almost one million job vacancies coming out of the pandemic in 2022, so the federal government allowed businesses to hire more foreign workers, permitted international students to work longer hours and increased its permanent residency targets.

Those moves led to a record increase in the number of temporary residents in the past two years. Most of the foreign workers hired during this period were in the low-wage category, such as cleaners, cooks, hotel attendants and food servers.

Some economists back then warned the increasing number of low-wage workers could negatively affect productivity levels, which essentially measure the country’s output per hour and are a good indicator of how efficient an economy is.

In February, Immigration Minister Marc Miller said businesses had become addicted to temporary foreign workers as Ottawa began reversing the steps it had introduced in 2022. In certain cases, additional restrictions were placed, analysts say, as the number of job vacancies declined and the unemployment rate began to rise.

These steps reflected the changing economy, Prime Minister Justin Trudeau said at a press conference last week. He said Canada closed its borders during the pandemic, but then had to increase the number of people coming into the country to address significant labour shortages afterward.

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But “our economy is in a different place” now, he said. “We need to let our communities, infrastructures, catch up to the population. That’s why we’re pausing population growth by reducing immigration numbers for the next two years, so we can get back pragmatically to a place where Canada can once again grow.”

Supporting businesses with additional workers during an “extremely unusual” phase of the economy was required, but economists say the government may have overreacted.

“We were in COVID, everybody was panicking,” Benjamin Tal, deputy chief economist at CIBC World Markets Inc., said. “The government was trying to help the system, but it was too much of a good thing … the reaction to the job vacancy numbers was too much. They are dropping like a stone now.”

The government is now forced to “correct quite heavily the other way,” which isn’t a great outcome, Porter said. The BMO economist said the market and the economy have “self-correcting features” built into them and could have “largely corrected” themselves.

“When you have high prices for something, people will curtail their demand, suppliers will try to increase their supply and eventually things will heal and correct,” he said. “Some adjustments were probably required in 2022, but had (the government) not done them, we may have seen more investment in automation and perhaps better productivity growth.”

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A better alternative would have been to “moderately” increase the number of newcomers and for very specific occupations instead of having allowed an “endless flow of cheap labour to the country,” Tal said.

At the time, the Bank of Canada was raising interest rates, putting a lot of pressure on the economy, and consumers were pulling back on spending, Orlando said. Bringing in a whole wave of new consumers helped offset some of that, which probably prevented a recession, he said, but the economy still significantly underperformed on a per-person basis.

“We avoided a recession, but what the numbers didn’t account for was the quality of life,” he said. “Just because GDP was out of recessionary territory didn’t mean that the well-being of Canadians was improving. I think the balance didn’t exist.”

Economists and immigration consultants also doubt whether the government can meet its target of a net reduction of about 900,000 temporary residents in the next two years. They expect many residents to become undocumented and for the number of refugee claimants to increase.

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“People have invested significant amounts of money to come here and not all of those people are going to leave,” Zeynab Ziaie Moayyed, a Toronto-based immigration consultant, said. “I think it’s going to continue to cause chaos and confusion for a number of years as the current applicants work their way through the system.”

Similarly, Tal said that while the job shortage situation was temporary, the government’s solution to increase the population was permanent.

“Many non-permanent residents were here not to just study or work for a short period of time; they were here with hopes of citizenship,” he said.

With about three million temporary residents already in the country, the government wants at least 40 per cent of its annual permanent residents to come from this group. This could prevent companies from accessing foreign high-skilled workers and be forced to rely more on foreign workers in low-wage industries, Tal said.

Economists say there are several lessons to be learned from the recent episode, but the most important is that the government should “be very careful about making large, abrupt shifts,” Porter said.

• Email: nkarim@postmedia.com

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