Canadian Immigration: a Labour Market Canadian Immigration: a Labour Market and Productivity Perspectiveand Productivity Perspective

Presentation to the Fraser InstitutePresentation to the Fraser Institute

Canadian Immigration Policy ConferenceCanadian Immigration Policy Conference

June 4-5, 2008June 4-5, 2008

Immigration continues at a High LevelImmigration continues at a High Level

Immigration

0

50,000

100,000150,000

200,000

250,000

300,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Temporary Foreign Workers Permanent Residents

Economic GrowthEconomic Growth Immigration increases population and thus GDP.Immigration increases population and thus GDP. But in the simple world described by the Cobb-But in the simple world described by the Cobb-

Douglas production function without economies of Douglas production function without economies of scale and with two factors of production and a scale and with two factors of production and a homogeneous labour force, it does not necessarily homogeneous labour force, it does not necessarily increase per capita income unless it raises increase per capita income unless it raises productivity. productivity.

With the FTA/NAFTA and globalization, there is no With the FTA/NAFTA and globalization, there is no reason to expect economies of scale.reason to expect economies of scale.

In fact, there is more likely to be diseconomies of In fact, there is more likely to be diseconomies of scale caused by urban congestion and pollution like scale caused by urban congestion and pollution like in Toronto.in Toronto.

And immigrants must find productive employment if And immigrants must find productive employment if they are able to contribute to economic growth.they are able to contribute to economic growth.

ProductivityProductivity Productivity has become Productivity has become

a Canadian obsession.a Canadian obsession. Immigration is said to be necessary to raise Immigration is said to be necessary to raise

Canadian productivity and to enable us to compete Canadian productivity and to enable us to compete internationally.internationally.

The exact mechanism is usually not stated other The exact mechanism is usually not stated other than opening Canada to new ideas and markets.than opening Canada to new ideas and markets.

There are some very prominent entrepreneurs who There are some very prominent entrepreneurs who came to Canada as immigrants and who made major came to Canada as immigrants and who made major contributions to the development of the economy.contributions to the development of the economy.

On the other hand, Robert Putnam has recently On the other hand, Robert Putnam has recently suggested that immigration reduces social solidarity suggested that immigration reduces social solidarity and social capital, which could undermine and social capital, which could undermine productivity.productivity.

Growth Accounting suggests Growth Accounting suggests Immigration has lowered Immigration has lowered

ProductivityProductivity Growth accounting is a commonly used Growth accounting is a commonly used

approach for estimating the impact of various approach for estimating the impact of various factors on productivity such as education and factors on productivity such as education and the age and sex composition of the labour force.the age and sex composition of the labour force.

It involves using earnings weights to decompose It involves using earnings weights to decompose the effects of the various factors.the effects of the various factors.

When applied over the 1990-2004 period, it When applied over the 1990-2004 period, it suggests that immigration lowered productivity suggests that immigration lowered productivity by around 1.5% or 0.15% per year.by around 1.5% or 0.15% per year.

More on ProductivityMore on Productivity

One of the sources of the gap between One of the sources of the gap between productivity in Canada and the U.S. is less productivity in Canada and the U.S. is less capital per capita in Canada.capital per capita in Canada.

In the In the International Productivity MonitorInternational Productivity Monitor (autumn 2003) Monitor, Rao, Tang and (autumn 2003) Monitor, Rao, Tang and Wang attributed 12% of the productivity Wang attributed 12% of the productivity gap to the lower intensity of capital.gap to the lower intensity of capital.

Immigration decreases capital intensity at Immigration decreases capital intensity at least in the short run.least in the short run.

CompetitivenessCompetitiveness Productivity and competitiveness Productivity and competitiveness

are not the same thing.are not the same thing. Low-wage labour can increase competitiveness Low-wage labour can increase competitiveness

even if it lowers aggregate productivity by even if it lowers aggregate productivity by complementing higher skilled labour and complementing higher skilled labour and lowering costs.lowering costs.

But any such benefit in Canada would be largely But any such benefit in Canada would be largely accidental as the Government doesn’t seek to accidental as the Government doesn’t seek to attract low-wage labour.attract low-wage labour.

And any potential competitiveness benefits from And any potential competitiveness benefits from the existence of potential low-wage labour can the existence of potential low-wage labour can be offset by social welfare programs that be offset by social welfare programs that discourage work and that must be financed discourage work and that must be financed through taxation.through taxation.

Labour Market NeedsLabour Market Needs Employers are always griping about Employers are always griping about

shortages of labour.shortages of labour. But you’ll never hear them say anything But you’ll never hear them say anything

about the need to raise wages to attract more about the need to raise wages to attract more workers.workers.

The production process can always make use The production process can always make use of more labour if there is a surplus of people of more labour if there is a surplus of people willing to work for low wages. willing to work for low wages.

Also if large numbers of immigrants are Also if large numbers of immigrants are admitted to Canada with certain education admitted to Canada with certain education and skills, it can discourage Canadians and skills, it can discourage Canadians from acquiring the same credentials from acquiring the same credentials unless, of course, those of the unless, of course, those of the immigrants are not recognized . immigrants are not recognized .

The Impact of Immigration on the The Impact of Immigration on the Labour MarketLabour Market

Has many dimensions.Has many dimensions. Labour force participation rates and Labour force participation rates and

employment rates, and unemployment employment rates, and unemployment rates of immigrants.rates of immigrants.

Earnings of immigrants.Earnings of immigrants. Indirect Effects on Canadian-born.Indirect Effects on Canadian-born.

Growing Realization that Growing Realization that Immigration has not been Working Immigration has not been Working

as in the Pastas in the Past Up until around 1980, the pattern was that immigrants Up until around 1980, the pattern was that immigrants

came started out earning about 80% of Canadian-born, came started out earning about 80% of Canadian-born, but then moved up to and even beyond the average but then moved up to and even beyond the average over a 10 to 20 year period.over a 10 to 20 year period.

Afterwards, at the same time as the source countries of Afterwards, at the same time as the source countries of immigrants and other characteristics of immigrants immigrants and other characteristics of immigrants such as language and job experience changed, there such as language and job experience changed, there was a deterioration in the labour market performance was a deterioration in the labour market performance of immigrants.of immigrants.

In 1993 point system was modified to put more In 1993 point system was modified to put more emphasis on education (human capital approach).emphasis on education (human capital approach).

Skilled Class was increased and Family Class reduced.Skilled Class was increased and Family Class reduced. In 2002, this was reinforced with more points for trade In 2002, this was reinforced with more points for trade

certificate or second degree, less for experience.certificate or second degree, less for experience.

More Skilled and Less Family Class Admitted after 1993

020,00040,00060,00080,000

100,000120,000140,000160,000

80 82 84 86 88 90 92 94 96 98 00 02 04 06

Family Class Skilled Workers

Education of Immigrants Has Increased Dramatically

0

50,000

100,000

150,000

80 82 84 86 88 90 92 94 96 98 00 02 04 06

University High School or Less

Employment rates of Recent Employment rates of Recent Immigrants and Canadian born,Immigrants and Canadian born,

25- to 54-year-olds 25- to 54-year-olds

Recent Immigrants and Canadian Recent Immigrants and Canadian born,born,

25- to 54-year-olds 25- to 54-year-oldsMen Women

Emp. Rate

Unemp. Rate

Emp. Rate

Unemp. Rate

Recent Immigrants

2001 74.5 11.4 53.2 15.7

2006 78.6 9.3 56.8 14.3

Canadian Born

2001 85.7 6.3 76.3 5.7

2006 86.3 5.2 78.5 5.0

Yet Immigrant Earnings Have Continued to Deteriorate

0

0.2

0.4

0.6

0.8

1

1980 1990 2000 2005Ra

tio

to

Ca

na

dia

n-B

orn

With Degree Male With Degree Female

No Degree Male No Degree Female

Median earnings, in 2005 constant dollars, of male Median earnings, in 2005 constant dollars, of male and female recent immigrant earners aged 25 to 54and female recent immigrant earners aged 25 to 54

 

  with auniversity degree

with nouniversity degree

Year males females Males Females

1980 48,541 24,317 36,467 18,548

1990 38,351 25,959 27,301 17,931

2000 35,816 22,511 25,951 16,794

2005 30,332 18,969 24,470 14,233

Recent Immigrant to Canadian-born Recent Immigrant to Canadian-born Earnings RatioEarnings Ratio

  with auniversity degree

with nouniversity degree

Year males females Males Females

1980 0.77 0.59 0.84 0.86

1990 0.63 0.63 0.67 0.77

2000 0.58 0.52 0.65 0.66

2005 0.48 0.43 0.61 0.56

Relative Earnings of Recent Immigrants Males aged 25-44 who worked full-year, full-time

(Average for all immigrants equals 1)

0.00

0.50

1.00

1.50

2.00

2.50

US UK Oceania Europe E. Eur. Africa Asia S. Eur. LatinAmerica

Caribbean

Source: Statistics Canada, Census 2001.

CIC has attributed continuing CIC has attributed continuing deterioration to IT Bustdeterioration to IT Bust

Maybe a third of the skilled were computer Maybe a third of the skilled were computer professionals and engineers.professionals and engineers.

And sure there was a bust. And sure there was a bust. But in early 2000.But in early 2000. Why is there still a problem in 2005 after the Why is there still a problem in 2005 after the

market has improved and salaries have risen? market has improved and salaries have risen? And IT Professionals should be flexible.And IT Professionals should be flexible.

This episode reveals the dangers of having This episode reveals the dangers of having CIC/HRSDC pick professions in demand given CIC/HRSDC pick professions in demand given the long lags in process.the long lags in process.

What will be their next big mistake?What will be their next big mistake?

Some Political ExplanationsSome Political Explanations Canadian are racists.Canadian are racists.

• Then why do they welcome so many Then why do they welcome so many immigrants?immigrants?

It’s the Government’s fault for not spending It’s the Government’s fault for not spending enough money on training, subsidized enough money on training, subsidized internships and mentoring, language internships and mentoring, language education, and credentials assessment and education, and credentials assessment and validation.validation.• And, of course, the presumption is that whenever And, of course, the presumption is that whenever

the Government spends money on anything, the the Government spends money on anything, the desired results are always produced. desired results are always produced.

More Analytical StudiesMore Analytical Studies Garnet Picot and his colleagues at Statistics Garnet Picot and his colleagues at Statistics

Canada have found that Canadian employers Canada have found that Canadian employers don’t value foreign experience and heavily don’t value foreign experience and heavily discount education.discount education.

Lack of fluency in English and/or French is also Lack of fluency in English and/or French is also a problem.a problem.

Bonikowska, Green et Riddell attributed a Bonikowska, Green et Riddell attributed a large part of the earnings gap of male large part of the earnings gap of male immigrants to the difference in cognitive immigrants to the difference in cognitive abilities as measured by the IALS.abilities as measured by the IALS.

The ranking published by Jia Tong University in The ranking published by Jia Tong University in Shanghai contains only a handful of Third Shanghai contains only a handful of Third World Universities in the top 500.World Universities in the top 500.

The 2007 Rankings of Jiao Tong The 2007 Rankings of Jiao Tong University of ShanghaiUniversity of Shanghai

Only one university outside the developed Only one university outside the developed world on the list of the top 100 universities – world on the list of the top 100 universities – The State University of Moscow. Canada has The State University of Moscow. Canada has four. four.

Only 23 on the list of the top 500 universities, Only 23 on the list of the top 500 universities, while Canada has 22.while Canada has 22.

Few Third World universities in elite (mostly Few Third World universities in elite (mostly China ex Hong Kong [12], India [2], Chile [2] China ex Hong Kong [12], India [2], Chile [2] Brazil [4], Mexico, Egypt, Turkey), and none Brazil [4], Mexico, Egypt, Turkey), and none in the Philippines, Pakistan or Iran the in the Philippines, Pakistan or Iran the number 3, 4 and 6 source countries in 2006.number 3, 4 and 6 source countries in 2006.

But virtually all major Canadian universities.But virtually all major Canadian universities.

The Result has been Increasing The Result has been Increasing Poverty among ImmigrantsPoverty among Immigrants

The increased poverty in the main The increased poverty in the main immigrant-receiving centres of Toronto , immigrant-receiving centres of Toronto , Montreal and Vancouver is concentrated in Montreal and Vancouver is concentrated in immigrant communities that are becoming immigrant communities that are becoming increasingly ghettoized.increasingly ghettoized.

At the same time, poverty is falling among At the same time, poverty is falling among the Canadian-born.the Canadian-born.

A growing disparity between rich and poor A growing disparity between rich and poor along ethnic and racial lines.along ethnic and racial lines.

Percentage of Immigrants Below LICO, 2005 Census

0

10

20

30

40

Can.-born

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20+30+

Number of Years Since Immigration

%

Low-Income Rates For Economic Families in 2000 (%)

Period of immigration

TotalBefore

19611961-1970

1971-1980

1981-1990

1991-2001

1991-1995

1996-2001

ImmigrantPopulation 19.1 6.8 8.2 10.4 17,2 33.6 25.2 41.2

Place of origin

USAUSA 10.0 4.2 5.8 7.5 9.7 19.2 13.3 23.2

Europe 10.9 6.9 8.4 8.2 10.5 24.7 14.5 33.7

Africa 28.1 7.1 7.2 10.0 20.7 42.6 34.8 48.8

Asia 26.9 8.7 8.3 11.3 19.4 36.8 27.8 44.6

Note: The figure for the non-immigrant population is 11.2%.Note: The figure for the non-immigrant population is 11.2%.

Source: Census, 2001 Source: Census, 2001

Growing Immigrant Poverty Undermines Growing Immigrant Poverty Undermines

the Economic Rationale for Immigrationthe Economic Rationale for Immigration Poor immigrants will take advantage of existing social Poor immigrants will take advantage of existing social

and welfare programs and demand more. and welfare programs and demand more. In 2005, recent immigrant families already received a In 2005, recent immigrant families already received a

higher proportion of their income from government higher proportion of their income from government transfer payments.transfer payments.

Taxes will eventually have to be raised to pay for the Taxes will eventually have to be raised to pay for the increased spending, creating disincentives for growth.increased spending, creating disincentives for growth.

For immigrants not to be a fiscal drain, they need to For immigrants not to be a fiscal drain, they need to earn as much as everyone else and certainly not be earn as much as everyone else and certainly not be poor.poor.

Milton Friedman said you can’t have both free Milton Friedman said you can’t have both free immigration and the Welfare State.immigration and the Welfare State.

Total backlog mushrooms Total backlog mushrooms if no action is takenif no action is taken

Is C-50 the Solution?Is C-50 the Solution?

Immigration system is out of control.Immigration system is out of control. IRPA and point system has produced a IRPA and point system has produced a

deterioration in immigrant earnings and deterioration in immigrant earnings and growing immigrant poverty.growing immigrant poverty.

Backlog threatens to produce even an Backlog threatens to produce even an greater deterioration.greater deterioration.

At least, C-50 will stop growth of backlog At least, C-50 will stop growth of backlog and moderately improve the matching and moderately improve the matching between immigrants and jobs.between immigrants and jobs.

in theory, but in practice.

250,000 immigrants is 250,000 immigrants is too manytoo many

The selection system is incapable of choosing so The selection system is incapable of choosing so many immigrants that will do well in the Canadian many immigrants that will do well in the Canadian labour market even after the longest prolonged labour market even after the longest prolonged expansion of the post-war period.expansion of the post-war period.

The situation can only worsen if the economy slows The situation can only worsen if the economy slows and unemployment climbs.and unemployment climbs.

The only way to ensure that the immigrants chosen The only way to ensure that the immigrants chosen will do better is to be more selective and to cut down will do better is to be more selective and to cut down on the number admitted.on the number admitted.

The selection system will have to be revamped and The selection system will have to be revamped and immigrant performance more carefully monitored.immigrant performance more carefully monitored.

Potential Benefits of Lower Potential Benefits of Lower ImmigrationImmigration

Promote integration of immigrants in Promote integration of immigrants in labour market.labour market.

Increase the immigrant earnings. Increase the immigrant earnings. Stop increases in poverty.Stop increases in poverty. Reverse the net fiscal drain.Reverse the net fiscal drain. Tighter labour market.Tighter labour market. Upward pressure on wages and Upward pressure on wages and

incomes of Canadians.incomes of Canadians.

Improvements in the Selection Improvements in the Selection SystemSystem

Much can be learned from the Much can be learned from the Australian model that could be Australian model that could be applied in Canada.applied in Canada.

Recognize that education isn’t Recognize that education isn’t homogeneous.homogeneous.

Focus on international students and Focus on international students and foreign workers is a move in right foreign workers is a move in right direction.direction.

The Tools Exists to Make Sure The Tools Exists to Make Sure Immigration is WorkingImmigration is Working

The IMDB and the LAD-IMDB and the LFS could The IMDB and the LAD-IMDB and the LFS could be used to monitor annually the performance of be used to monitor annually the performance of immigrants in the labour market.immigrants in the labour market.

The number admitted could be adjusted until The number admitted could be adjusted until the immigrants admitted are able to earn around the immigrants admitted are able to earn around 80% of comparable Canadian-born.80% of comparable Canadian-born.

This was the ratio in the past when the This was the ratio in the past when the immigration program was working and immigration program was working and immigrants were able to catch up.immigrants were able to catch up.

Attention could also be paid to make sure Attention could also be paid to make sure existing Canadian residents were not displaced.existing Canadian residents were not displaced.

To end on an up-note, it’s To end on an up-note, it’s encouraging that the Government encouraging that the Government

has finally recognized the existence has finally recognized the existence of a problem and is trying to do of a problem and is trying to do

something about it.something about it.