I just want to say from the outset that since this is your 74th meeting, I don't think you'll hear much that's new to you, but I'll see if I can provide a new way of framing, maybe, the report you're going to do.
I also want to say at the outset that in case I come across as somehow being against an immigration pilot, I'm not. I'm actually strongly in favour of higher immigration levels to Canada and increasing investment in newcomers once they're here. I really want to see an Atlantic immigration pilot succeed.
From that perspective, I want to raise a concern that I have with a lot of the discussion that I hear in Atlantic Canada, which is that it largely focuses on issues of labour supply and a belief that by adding more people to the economy we can drive growth. This is something that's going to be a problem if we don't start to think more about a complementary strategy of private sector investment to bring up labour demand and create opportunities for newcomers.
One of the issues that's going to come up is that it's hard to picture how increasing labour supply can cause growth unless we have a glut in labour market that can depress wages and then bring in the investment. We have to think through the mechanism we're thinking of. A labour supply strategy requires gluts that will drive investment by increasing return to capital. The alternative is to figure out other ways to bring in the investment first, stimulate the wage growth, and stimulate the productivity of labour. Labour will come in to follow the opportunity.
An example of why I'm concerned about this is a study we recently conducted looking at return migrants to New Brunswick. Using tax filer data, we followed New Brunswick residents who moved out to Alberta and worked for at least two years, and then we looked at them when they came back to New Brunswick. We looked at what their earnings were like when they were in Alberta, what they were like when they returned, and what did this tell us about the New Brunswick economy and its capacity to absorb more labour.
If it was the case that New Brunswick was lacking labour, then by bringing back these more experienced, higher human capital return migrants who know the culture and the labour market well, we should have seen that their earnings were higher when they returned than when they left. We should also have seen that their earnings were a product of who they are as opposed to where they worked, so that when they moved to Alberta, their earnings would be in line with the human capital endowment they took from New Brunswick. We would expect to see some kind of earnings relationship when they returned.
What we saw was that a New Brunswick resident who moved to Alberta was worth twice as much while they were working there as they were in New Brunswick. Upon returning to New Brunswick, they had the same earnings as they would have had had they never left. When a worker's human capital is worth twice as much in Alberta as it is in New Brunswick, this tells us that it's not the person, that it's the place.
What we have to think about is what it is about the place that makes someone worth so much less. The biggest difference between Alberta and New Brunswick is the amount of capital per worker, or the level of labour demand. What this tells us is that if you pick a human capital policy like immigration alone to drive growth, you're pushing on a rope. You just don't have the capacity in the economy to absorb the added labour.
If we're not going to add to labour demand and it's not possible to consider an investment strategy, how does immigration drive growth?
There are two remaining channels that we can think about. One is the churn. This is something that we learned about in Canada in the 1990s with the great brain drain. Canadians were moving to the U.S., and we used immigration to backfill the labour supply that was created by the out-migration. We have substantial out-migration from Atlantic Canada, so what we would be using immigration for is to replace as much as we can the human capital that we're losing from the exodus.
The other side that you hear a lot about is labour shortages. This amounts to finding immigrants to fill gaps. The challenge with this is that it's largely anecdotal how big these labour shortages are, just like it has been across Canada when labour shortage is raised to justify a different immigration stream. We don't know how much potential the gap filling has to absorb more immigrants.
The bigger concern that I have is that the reason you get gaps in the labour market—skill shortages and labour shortages—is that you have something that's dysfunctional in your labour market. Wages can't adjust and employment can't adjust. If you're bringing more people into a labour market that's dysfunctional, it's not clear that adding them is going to resolve the problem. It's not clear that these gaps can be filled in a sustainable way without causing problems for a valuation of a pilot like this.
In conclusion, as someone who sees benefits from immigration to Canada, I would like to see an immigration strategy for the Atlantic region that's sensible in its scale in terms of the labour market of the region. I believe that is going to require a pretty serious discussion that brings investment strategies in as a complementary focus.