Prime Minister Mark Carney is facing growing pressure from business groups to allow more immigration to address Canada’s labor needs, but the prospect of welcoming more migrants carries political risk for him.

Carney’s government has curtailed the number of newcomers arriving in Canada through a lower annual cap on new permanent residents and increasingly strict rules for temporary workers and foreign students. But business groups say restrictions have gone so far that they’re now struggling to hire qualified skilled workers in some communities.

The government is expected to release its immigration levels plan, which provides a three-year outlook, in budget documents on Thursday. Industry groups, including the Canadian Federation of Independent Business, and some provincial premiers have called on Ottawa to give provinces more control over migration policy to deal with the gaps.

But any increase will face scrutiny. A surge of temporary residents after the Covid pandemic caused Canada’s population to grow by almost 3 million people in three years, straining the country’s housing supply and social services. While that has now slowed significantly, a recent opinion poll found nearly half of Canadians still think immigration is too high.

The government has reflected on when the country could resume “some controlled increase in the population,” Carney said in a September interview with The New York Times. This week’s budget may show whether he has decided to shift policy or stay the course.

Canada’s population grew by 0.5% in the year ended July 1, the slowest pace for that time period since World War I. The slowdown was driven by a decline in non-permanent residents, including international students. The median age as of July 1 was 40.9 years, up from 40.6 a year earlier.

“I worry that we have turned the dials way too low and that there are some pretty significant labor market and population implications of the recent changes to immigration that may not be in Canada’s long-term interests,” said Dan Kelly, chief executive officer of the CFIB.

Canadian workers aren’t applying for jobs that employers struggle to fill, particularly in more rural communities, he said. In Atlantic Canada, for example, the construction industry has fewer builders since the government reined in immigration, as older employees retire or leave.

The slowdown is also hitting profitability in some industries. Canadian telecommunications shares have tumbled 13% this year, as vanishing population growth deprives wireless and cable companies of a pool of new subscribers.

Some economists warn the country risks repeating mistakes it made after the pandemic if it once again uses immigration to meet business requests for more workers.

“This whole idea that labor shortages are some kind of a problem that governments have to solve, it’s completely nuts,” University of Waterloo economics professor Mikal Skuterud said in an interview. “It’s one particular interest group that it benefits, and that’s the business lobby.”Skuterud cited research by economist Pierre Fortin that found the recent immigration surge exacerbated labor shortages in Canada, instead of alleviating them. That’s because new residents added demand to the economy, according to Fortin’s report, published by the C.D. Howe Institute.

“When an individual business hires someone from a foreign country, it definitely improves his/her labor force as expected. But you have to reject the idea that if everyone does that, that it’s going to solve the whole-economy problem of labor shortages,” Fortin said in an interview.

Last year’s immigration plan held the target for new permanent residents at 380,000 a year from 2026 through 2028. On Thursday, the government may revise that goal and will set a new target for 2029.

Tyler Meredith, an adviser to former Prime Minister Justin Trudeau, said he expects any increase would be small — “to just open the mind a little bit to the idea that we probably need to have some amount of a growing increase per year.”The Canadian Chamber of Commerce isn’t calling for higher or lower immigration, but wants a “pace-based approach” aligned with local labor market needs, said Adam Hajji, the group’s director of government relations.

“A lot of the policies look at the country as a whole,” said Hajji in an interview. “But the realities, when it comes to the labor market, are very different from a region to another and even within a specific province.”Several provinces agree. Newfoundland and Labrador, Prince Edward Island, New Brunswick and Saskatchewan say they would like greater control over immigration to help employers fill jobs, including through the provincial nominee program, which allows them to select immigrants for their regions.

In a referendum in Alberta last month, 55% of voters supported the province taking increased control over immigration. A coalition of business groups from Western provinces called for “strengthening” the provincial nominee program, warning that the government’s building agenda will depend on the availability of labor.

Many economists have said Canada needs to refocus its immigration system on skilled workers with high-income potential.

Marc Desormeaux, an economist with the Business Council of Canada, said he applauded recent changes to prioritize applicants with Canadian work experience or a qualifying job offer in a high-wage occupation.

“Canada should continue improving its selection process going forward to ensure that economic immigration is focused on attracting skilled talent that contributes to productivity and our standard of living,” Desormeaux said.