immigration and the canadian welfare state 2011

8/6/2019 Immigration and the Canadian Welfare State 2011

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Immigration&Refugee Policy

Studies in

May 2011

Immigration and theCanadian Welfare State

2011

by Herbert Grubel and Patrick Grady


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www.fraserinstitute.org / Fraser Institute

Studies in

Immigrationand Reugee

Policy

May

Immigration and theCanadian Welare State 2011

by Herbert Grubel and Patrick Grady
http://www.fraserinstitute.org/http://www.fraserinstitute.org/


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Fraser Institute / www.fraserinstitute.org


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ContentsSummary / v

Highlights / vi

Introduction / 1

1 Taxes paid by immigrants / 4

2 Benets received / 8

3 Taxation and benets together / 12

4 Other benets and costs o immigration / 14

5 Policy recommendations / 23

6 Summary and conclusions / 40

Reerences / 42

About the authors / 47

Acknowledgments / 48

Publishing inormation / 49

Supporting the Fraser Institute / 50

About the Fraser Institute / 51

Editorial Advisory Board / 52


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Immigration and the Canadian Welare State 2011

Summary

Tis publication provides an estimate o the scal burden created by recent

immigration into Canada and proposes reorms to existing immigrant selec-

tion policies to eliminate the burden. It uses a 2006 Census database to esti-

mate the average incomes and taxes paid on these by immigrants who arrived

in Canada over the period rom 1987 to 2004. It also estimates other taxes

they paid and the value o government services they absorbed.

Te study concludes that in the scal year 2005/06 the immigrants on aver-

age received an excess o $6,051 in benets over taxes paid. Depending on

assumptions about the number o recent immigrants in Canada, the scal

burden in that year is estimated to be between $23.6 billion and $16.3 billion.

Tese estimates are not changed by the consideration o other alleged benets

brought by immigrants.

o curtail this growing scal burden rom immigration, the study proposes

that temporary work visas be granted to applicants who have a valid oer or

employment rom employers, in occupations and at pay levels specied by

the ederal government and determined in cooperation with private-sector

employers. Immediate dependents may accompany successul applicants.

Te temporary visas are renewable and lead to landed immigrant status i

certain specied employment criteria are met.


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vi / Immigration and the Canadian Welfare State 2011


Highlights

Nearly a quarter o a million immigrants have entered Canada annually during

the last two decades. Te eects that these immigrants have had on economic

and social conditions in Canada have been considered by Grubel (2005). He

estimated that as a result o the immigrants low average incomes and the

operation o the welare state with its progressive income taxes and universal

social benets, in 2000 immigrants received rom all Canadians an annual net

scal transer o $18.3 billion. Te main objective o this study is to improve on

Grubels calculations using previously unavailable ocial income and tax data

reerring to immigrants that arrived over a dierent and longer period. Te

study used data rom the 2006 Census (2006 Census Public Use Microdata File

[PUMF]) that contains inormation on 844,476 individuals. Tis sample rep-

resents 2.7% o the Canadian population and allows making statistically valid

generalizations or the entire population.

Calculating the net scal cost o recent immigration

In the year 20051 the immigrants in the Census database, who arrived in

Canada over the period o 18 years rom 1987 to 2004, had an average income

o $25,396, on which they paid an average o $3,438 in income taxes. Te

comparable gures or all Canadians were $35,057 or income and $5,995 or

taxes, based on the entire sample o individuals. Te data thus implies that,

on average, immigrants incomes were only 72.4% o income earned by all

Canadians and that they paid only 57.3% o taxes.

Te study also took account o other taxes paid by immigrants and

Canadians, such as sales and property taxes. It ound that immigrants on

average paid $10,340 while all Canadians paid $16,501 in income and other

taxes. Te study also considered the amount received as government bene-

ts by the average immigrant and all Canadians, concluding that immigrants

received $110 less in benets than all Canadians. Te combination o average

tax payments and benets received resulted in the basic nding o the paper:

in the 2005/06 scal year, the average net scal transer per immigrant came

to $6,051 due to the $6,161 less taxes paid and $110 less in benets received

by the average immigrant compared with the averages o all Canadians.Assuming that an average immigrant pays taxes and receives benets

or 45 years between his or her arrival and end o lie, this basic estimate

1 Calendar year 2005 overlaps the 2005/06 scal year. Both 2005 and 2005/06 are used

in this publication because the census data is or calendar year 2005 and the scal data

is or scal year 2005/06.


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Immigration and the Canadian Welfare State 2011 / vii


implies that each immigrant receives, on average, net benets worth $272,295.

It also implies that the 3.9 million immigrants who arrived between 1987

and 2004 received, in scal year 2005/2006, net benets worth $23.6 bil-

lion. However, ater adjusting the number o immigrants or emigration and

mortality, the number o immigrants receiving the net benets alls to 2.7 mil-

lion and the estimates o the total net benets is reduced to the $16.3 billion.

Tese gures should be seen in relation to some program spending

by the ederal government. Tus, in the 2005/06 scal year the $23.6 billion

transer to immigrants equals 4.7% o total program spending o $503 billion,

and comes to 1.18 times the cost o general government services o $20 bil-

lion and 1.79 times spending on the environment o $13.2 billion. Using the

lower estimate o $16.3 billion or the transers, they represent 3.2%, 82%, and

123% o the three selected ederal government spending gures, respectively.

Other benets and costs o immigration

Te study also examines popular propositions about benets provided by

immigrants or Canadians that are not reected in the scal estimates. Te

analysis concludes that none o these propositions hold up to close scrutiny.

It is said that the ospring o immigrants will repay Canadians or the

scal transers received by their parents and grandparents, but they would

do so only i, persistently and on average, they have incomes and pay taxes

much above the average o all Canadians. Tis outcome is unlikely given that

the ospring o immigrants in the past eventually have taken on all o the

characteristics o the average Canadian.

Immigrants are believed to solve the problems o ununded liabilities o

Canadas social programs. However, according to careul studies by actuaries,

immigrants arriving in acceptable numbers cannot do so, simply and mainly

because immigrants age and also receive the costly benets.

Immigrants do ll jobs that Canadians do not want and thus benet

the economy but, in the absence o immigration, these jobs would pay higher

wages and would be lled by Canadians or eliminated by the application o

labour-saving technology. Under these conditions, poverty in Canada would

be reduced substantially.

Immigrants raise aggregate national income but do not in the process

increase per-capita incomes o all Canadians. In act, as the study shows,

they lower per-capita incomes ater taxes, the most important measure o

economic well-being.

Policy proposals

Te paper presents a proposal or immigration reorm that is aimed at the

elimination o the scal burden imposed on Canadians through current poli-

cies. Te principle or reorm is that the number and composition o immi-

grants should be determined largely by market orces within a ramework set


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viii / Immigration and the Canadian Welfare State 2011


and managed by government. Under the proposal, the overall immigration

levels could increase, decrease, or remain unchanged, but would most likely

decline signicantly.

Te proposed system or selecting immigrants is based on the model

that underlies the present NAFA rules, which allows the ree ow between

Canada, Mexico, and the United States o workers who hold valid contracts

or employment in the country o immigration and or a specied list o

occupations. Under the proposed policy, persons entering Canada with such

contracts and their dependants would be eligible to become immigrants in

the traditional sense and ultimately to acquire citizenship ater remaining

employed or a number o years. Te role o the government would be to set

rules or the qualication o applicants, evaluate their health and security

risks, and ensure that employment is maintained and that violators o rules

are deported.

Te implementation in practice o policies or immigrant selection

based on these principles requires a large set o detailed rules, regulations,

saeguards and standards, the design o which should be undertaken only

ater intensive public consultation and input by experts. Te paper consid-

ers a small number o such rules but is designed mainly to stimulate discus-

sion about the proposed selection principles and the practicality o detailed

implementation measures.


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Immigration and the Canadian Welfare State 2011 / 1


Introduction

Nearly a quarter o a million immigrants have entered Canada annually during

the last two decades. Te eects that these immigrants have had on economic

and social conditions in Canada have been considered in a number o papers

and conerence volumes that have been published by the Fraser Institute (e.g.,

Grubel, 2005, 2009). In particular, the study by Grubel (2005: 19) analyzed

the economic eects o Canadian immigration. He estimated that, as a result

o the immigrants low average incomes and the operation o the welare state

with its progressive income taxes and universal social benets, immigrant

who arrived between 1990 and 2002 received rom all Canadians an annual

scal transer o $18.3 billion in 2002. Grubels study had to use a number o

assumptions about magnitudes or which no ocial data was available and

admittedly provided only a rough ballpark estimate.

Te present publication replaces some o these assumptions with more

comprehensive statistical data rom the 2006 Census (Statistics Canada, 2009),

thus making the estimates more reliable and precise. Moreover, it includes

data or immigrants who arrived ater 2002 and during years rom 1987 to

1989, or whom data was either not available or not used in the study o 2005.

At the outset, the reader should be warned that this paper has a very specic

ocus and does not analyze a wide range o social and security problems sur-

rounding Canadas present immigration and reugee policies. Tese issues

are discussed in conerence volumes edited by Moens and Collacott (2008)

and Grubel (2009), which contain chapters by experts working in several

social-science disciplines.

Outline

Section 1 presents data on personal income taxes paid by recent immigrants

and all Canadians in the sample and gives estimates o the amount o other

taxes paid by the two groups. Section 2 considers the dierence in the value

o government services consumed by immigrants and all Canadians. Section 3

presents the scal costs imposed by immigrants by bringing together the

estimates calculated in the preceding sections o tax paid and government

benets consumed. Section 4 summarizes arguments about non-scal bene-ts and costs o immigration, which are relevant to assessing the scal issues

in a broader economic context.

Section 5 presents a proposal or a undamental reorm o the existing

immigrant-selection policies, which is derived rom our ndings on the high

scal costs o the present selection policies. Te policies proposed are not

opposed to immigration but rather are intended to replace the judgement o


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2 / Immigration and the Canadian Welfare State 2011


civil servants on who is to be admitted into Canada with judgements made

by private employers in Canada. Te nal section o the paper gives a sum-

mary and some conclusions.

In reading this publication, note that we ully accept the economic

logic o the classical, textbook case or ree immigration with all o its posi-

tive eects on reedom, national income, and global welare. We recognize,

however, that this theoretical case or ree immigration is based on the key

assumption that governments do not engage in income redistribution by pro-

viding cradle-to-grave security through its welare-state policies. Tat this is

clearly not the case or Canada provides the basis or our considerable and

important modication o the classical case or ree immigration.1 As Milton

Friedman, who was one o the twentieth centurys staunchest advocates or

reedom, said: You cannot simultaneously have ree immigration and a wel-

are state (Friedman, 1999).

1 For an exposition o the classical case or immigration, see Grubel (1981) and or the ben-

ets o a ree international circulation o brainy migrants, see Grubel and Scott (1977).A case can be made that immigration into a welare state orces government to abandon

its costly social-welare programs or at least make it more ecient. Tis argument is not

ound in the text-book case or immigration and our analysis and policy recommenda-

tions are based on the view that the welare state will be changed only very marginally, i

at all, by the pressures brought upon it by immigration. Te desire o the public or the

benets o the welare state is simply too powerul to allow any signicant reductions in

social benets.


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1 Taxes paid by immigrants

Te basic inormation we use to estimate the personal income taxes paid by

recent immigrants is shown in table 1. Tis inormation was derived rom the

2006 Census Public Use Microdata File (PUMF), which was purchased rom

Statistics Canada (2009). Te le contains 844,476 records, presenting data

rom the 2006 Census on individuals representing 2.7% o the Canadian popu-

lation. Tis sample is large enough to permit reliable conclusions to be drawn on

the income taxes paid and transers received by recent cohorts o immigrants.

As can be seen in table 1, the cohort o 64,792 immigrants in the data-

base, who arrived in Canada over the period o 18 years rom 1987 to 2004,

had, in the year 2005,2 an average income o $25,396, on which they paid an

average o $3,438 in income taxes. Te comparable gures or all Canadians

were an average income o $35,057 and income taxes o $5,995, based on the

entire sample o 692,509 individuals age 15 and over or whom income and

tax data was available.3 Te table also shows the average employment income

or the two groups (used in the calculations in table 2). Te main dierences

between income and employment income are that the ormer includes trans-

er payments as well as earnings rom investments. Te data does not allow

us to distinguish between these two sources o income earned in addition to

that rom employment.4

Te last row o table 1 shows the ratio o the average income o immi-

grants to the average income o all Canadians: 72.4%; and the ratio o employ-

ment income: 81.0%; and the ratio o income taxes paid: 57.3%, which was

derived by dividing rows (1) and (2). Te income ratios are larger than the

tax ratio because the progressivity o the income tax system results in all

Canadians with higher incomes paying a proportionately higher amount in

taxes than recent immigrants. Te ratio or taxes paid o 57.3% is used in the

income tax calculations in table 2.

2 Calendar year 2005 overlaps the 2005/06 scal year. Both 2005 and 2005/06 are used

in this publication because the census data is or calendar year 2005 and the scal data

is or scal year 2005/06.

3 Tis includes all the individuals in the PUMF sample 15 years o age or older or whichdata was available. While it is the most appropriate group or the purposes o the current

analysis , it is not the most appropriate or meaningul comparisons o income and tax. For

that purpose, the sample should be limited to age groups that are most likely to be in the

labour orce. See Grady, 2010 or this type o analysis or the 25-to-64 year age group.

4 However, the data does show that investment income o immigrants is 41.4% o that

earned by Canadians, which goes a long way to explain why the average income and

employment income o immigrants is only 72% and 81% o all Canadians, respectively.


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Characteristics o immigrants and income taxes paid

Tere are our points worth noting about the calculations in table 1. First, the

immigrants who arrived in 2005 are excluded rom our calculations since

they were not necessarily in Canada or the ull year and their annual earn-

ings would thereore be biased downward.

Second, the ratios use the average incomes o all immigrants who

arrived between 1987 and 2004, regardless o the act that they are hetero-

geneous in a number o ways, just as the sample o all Canadians consists o

persons o dierent age, education and other characteristics.

Tird, one o the sources o heterogeneity among immigrants is that they

include all classes o immigrants, which have dierent average levels o income:

economic immigrants perorm the best, ollowed by amily class or reugees

depending on the time horizon (Wanner, 2003; Abbott and Beach, 2009). Tis

act has interesting implications or other analysis o immigration policies

but it is not relevant to our calculations and thereore is not explicitly incor-

porated. At the same time, however, it does strongly inuence our proposals

or reorms o the immigrant selection system presented in section 5 below.

Fourth, the heterogeneity o immigrants extends to their dierent

lengths o stay in Canada. Numerous studies have shown that the earnings

and incomes o immigrants improve through time as they adapt to, and

become integrated into, the Canadian labour market.5

5 Te increase in earnings o immigrants through time has attracted much attention rom

researchers: Frenette and Morisette (2003), Worswick (2004), Picot and Sweetman (2005),

and Picot (2008). Tese studies traced the incomes o the same cohort o immigrants

through time. While our data is consistent with the ndings o these studies, it is worth

noting that the results are not strictly comparable since our data reects the incomes o

dierent cohorts in the year 2005 and not the incomes o the same cohorts through time.

Table 1: Income and taxes paid by immigrants and other Canadians in 2005

AverageIncome

AverageEmployment

Income

AverageIncome Tax

Paid

Number oObservations in

Sample

() Immigrants $, $, $, ,

() All Canadians $, $, $, ,

() / () .% .% .%

Note: Recent immigrants are compared with all Canadians, which includes themselves, because

the government revenue and expenditure data, which must be adjusted, is or all Canadians.

Source: Calculations by authors or recent immigrants and the entire Canadian population done

rom Census PUMF(Statistics Canada, 9). Total income is provided by the variable totinc

in the fle, and income tax by the variable inctax, both o which are averaged across individu-

als to calculate averages. All recent immigrants and Canadians reporting income or income tax

were included in the sample.


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In gure 1 we document this phenomenon using data in the PUMF le.

Te graph shows the average income and taxes o immigrants relative to those

o all Canadians as a unction o the time that immigrants have spent in Canada.

For example, the average income o immigrants who arrived during the period

rom 1999 to 2004 was 62.4% o the average income o all Canadians. For those

who arrived during the years rom 1987 to 1992, the percentage was 83.6. Tus,

our cross-sectional data or dierent immigration cohorts in 2005 shows the

same improvement in the average income o immigrants the longer that the

immigrant cohort is in Canada as that revealed by data on cohort perormance

across time presented in the studies cited in ootnote 4.

Other taxes

Government revenues in Canada are raised not only through the personal

income taxes just considered but also through a number o other taxes

imposed by all levels o government. able 2 shows the types o taxes in

One o the most interesting and disturbing acts about the incomes o immigrants is

ound in Picot, Garnett, and Sweetman (2005). Tey discovered that the average incomes o

cohorts have decreased through time and, while the incomes o these cohorts continued the

usual pattern o rising as they became more integrated into the labour market, the most recent

cohorts have never reached the income ratios attained by cohorts that had arrived earlier.

0

20

40

60

80

100

1987-19921993-19981999-2004

Percentage

Figure 1: Average income and income tax of recent immigrants as percentage of

those of all Canadians, for cohorts arriving 19992004, 19931998, 19871992

Source: Calculations by authors for recent immigrants and the entire Canadian population done

from Statistics Canada, Census 2006 PUMF(2009). Total income is provided by the variable totinc

in the le, and income tax by the variable inctax, both of which are averaged across individuals

to calculate averages. All recent immigrants and Canadians reporting income or income tax

were included in the sample.

Average incomes

Income taxes

72.9%

83.6%

62.4%

44.6%

57.8%

71.4%

Period of arrival


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column (1), while column (2) gives the total revenue raised by each type o

tax. Column (3) shows the percentage distribution o revenues among the

categories. Column (4) translates this total into per-capita amounts, based

on the countrys estimated population o 31.6 million in 2006. Te crucial

estimate or our analysis is the per-capita taxes paid by immigrants in each

o the types o taxes shown (6). It is unortunate that this inormation is not

available rom publically available sources, nor can it be extracted rom the

PUMF database.6 Tereore, the ratios shown in column (5) are based on

assumptions spelled out below, but are deliberately biased in avour o over-

stating rather than under-stating the amounts paid by immigrants.

Tus, the ratio or Health and social insurance levies is assumed to be 100%

on the grounds that these taxes are levied on only a maximum level o income

that is reached by most immigrants. Te ratio or General sales taxes is assumed

to be 72% on the grounds that the ederal value-added tax and provincial

sales taxes are levied on consumer expenditures that are related to aver-

age income ratios. Te ratio or Corporate income taxes is assumed to be 30%

because recent immigrants are judged likely to hold only small amounts o

6 Te inormation on the dierent types o taxes paid is absent rom the PUMF le because

it is not collected. In the case o the personal income tax, the inormation is obtained

through a link between the Census and income-tax data contained in the 1 orms led

with Revenue Canada. Tis link occurs only or 1 lers who specically consent on the

Census long orm.

Table 2: Taxes paid by Canadians and recent immigrants, all levels o government, 2005/06

() () () () () () ()

Type o tax $ billions Percentageo totalrevenue

Dollars percapita or allCanadians

Tax paid byimmigrantsas % o allCanadians

Dollars percapita paid

by Immigrants

Diference ($) inper-capita tax,

() ()

Personal income taxes , . , , ,

Health & social insurance levies , . , ,

General sales taxes , . , ,

Corporate income taxes , . , ,

Property & related taxes , . ,

Other taxes , . , ,

Total , . , n.a. , ,

Note: The total taxes paid include those paid by immigrants, so that the average paid by non-recent immigrants shown is

biased downward since recent immigrants are known to have below average tax payments.

Source: Statistics Canada, ; calculations by authors.


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common stocks that bear the burden o the corporate income tax. In support

o this assumption, we note that according to the PUMF data the immigrants

investment income is only 41% o the average o all Canadians and that this

probably includes a disproportionate amount o investments other than cor-

porate stocks. It was assumed that the amounts paid as Property and related

taxes and Other taxes were related to total income.

Te last row o table 2 shows the sum o all taxes paid by the average

immigrant ($10,340) and the average o all Canadians including immigrants

($16,501) in the scal year 2006 (ending March 31, 2006 and overlapping

with the 2005 calendar year rom the Census). Tese values will be used

below in the calculation o the scal transers rom other Canadians to recent

immigrants.

7 Economic theory suggests that corporate income taxes are passed on to consumers.

However, this conclusion is not relevant to the present analysis. Instead, it is legitimate

to ask who bears the direct scal burden o paying the tax as a result o the ownership o

corporations.


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2 Benefts received

Government spending is designed to benet all people living in Canada.

However, since one o the objectives o the welare state is to redistribute

income, many spending programs benet those with low incomes propor-

tionately more than those with high incomes, just as taxes all more heavily

on those with high incomes than on those with low incomes. While the redis-

tributive eects o government spending are clear in the aggregate, there is

no statistical inormation available to allow direct accounting o the degree to

which demographic groups like single mothers, the disabled, and immigrants

benet rom each. Tereore, the ollowing analysis o the degree to which

immigrants benet rom specic spending programs relies on assumptions,

which are spelled out and justied or most categories by reerence to some

ragmentary evidence that exists on the incidence o spending.8

Our calculations o the expenditure component o the net scal trans-

er to recent immigrants are presented in table 3. Column (1) lists the di-

erent types o spending programs, column (2) total expenditures, and col-

umn (3) expenditures per capita or all Canadians based on a population

o 31.6 million. Te amounts in table 3 represent the spending by all levels

o Canadian government, consolidated so as to remove intergovernmental

transers. Program spending excludes debt-service payments o $44.8 billion,

which do not provide current services or Canadians and immigrants and

were thereore excluded rom our calculations. Tis exclusion is reasonable

on the grounds that, to the extent that the past decits necessitating the inter-

est payments resulted in the creation o tangible assets like inrastructure and

8 In this context, it is useul to introduce two historic notes. First, at the time the social con-

tract guiding the welare-state provisions was adopted, the issue o including immigrants

was moot because they had records o economic success that prevented their identica-

tion as a group needing net scal transers. Tereore, their arrival and existence were not

an issue and no statistical records were kept ocially to record the benets they received.

Te situation is dierent now. Recently arrived immigrants are a distinct and large group

o people who, according to government statistics, have low average incomes and other

needs that are covered under the contract. Yet records are still not being kept.Second, in Canada since 1980 even reugees who are not landed immigrants but are in

the process o having their claims assessed or residency are automatically entitled to all

the benets o the countrys social program. Tis condition is the result o the Supreme

Court o Canadas Singh decision (Singh, 1985), which was based on the courts inter-

pretation o the Charter o Rights and Freedoms. Parliament never took on the task o

clariying the relevant clauses o the Charter to prevent the burden imposed on citizens

by this ruling.


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the maintenance o intangible assets like reedom and the Canadian way o

lie, they provide benets that accrue equally to Canadians and immigrants.

Te gures in column (4) are central to the calculation o net scal

costs presented in section 3. Tey show the percentage assumed to apply tothe benets received on average by recent immigrants relative to the bene-

ts received by all Canadians under each type o program. In most columns,

this gure is 100% and reects the view that recent immigrants benet as

much per-capita as do other Canadians. In some cases, such as in the cat-

egoryEnvironment, the underlying rationale should be obvious. Most readers

will agree that all persons in Canada benet equally rom the maintenance

Table 3: Benets received by Canadians and recent immigrants, all levels o government, 2005/06

() () () () ()

Type o government expenditure(program spending)

Totalexpenditure($ millions)

Per-capitabenets

received ($)

Benets receivedby recent

Immigrants (% oother Canadians)

Per-capitabenets received

by recentImmigrants ($)

General government services ,

Protection of persons and property 43,299 1,370 72 987

Health , , ,

Social services , , ,

Education 84,760 2,682 109 2,924

Recreation and culture ,

Labour, employment and immigration 2,480 78 120 94

Housing 4,527 143 110 158

Regional planning and development ,

Transportation and communication ,

Resource conservation and industrial development ,

Environment ,

Foreign afairs and international assistance ,

Research establishments ,

Other expenditures ,

Total , , ,

Note: Spending categories or which the immigrants are estimated to receive lower or higher benefts are show, e.g.:

Protection of persons and property.

Source: Statistics Canada, ; calculations by authors.


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or improvement in the quality o the environment. Most o the other spend-

ing categories to which the 100% gure has been applied should be similarly

obvious.9 Let us now turn to a discussion o the spending categories or which

the immigrants are estimated to receive lower or higher benets.

Protection o persons and property

Here we assume that the benets rom protection are proportional to income.

Since the income o immigrants is 72% o that o Canadians, we use this

gure here.

Education

Spending on Education, or which the percentage is assumed to be 109. Tis

requires some explanation as it results rom an analysis o the three main

underlying components: primary and secondary education, post-secondary educa-

tion, and special retraining services (Statistics Canada, 2010). For primary and sec-

ondary education, it is assumed that recent immigrants obtain a benet o 150%

o the Canadian average. Tis reects the act that, according to the Census,

recent immigrants received a per-capita share o child benets that is 66%

higher than the Canadian average, but it also makes some allowance or the

act that the child benet is income tested inating this number somewhat.

For post secondary education, it is assumed that the benet is only 50% o the

average. According to a study o the use o educational services in Canada by

Horry and Walker (1994), the children o amilies with low incomes are less

likely to attend institutions o higher learning than the children o amilies

with high incomes. Te Census suggests this might be the case as the rate o

attendance at school or recent immigrants was only 75% o the Canadian

average. As attendance at primary and secondary schools is compulsory, the

largest part o this dierence must be attributed to dierence in attendance

at post-secondary institutions. For special retraining services, it is assumed that

recent immigrants receive 20% more benets because o their greater need.

For the ourth component, other education, it was assumed that recent immi-

grants receive the same average per-capita benets as all Canadians.

9 Te provision o many government services requires the use o large xed investments

and the marginal cost o covering additional persons is near zero. Spending on roads

and the environment are good examples. Te 250,000 immigrants who arrive every year

amount to only a very small addition to the number o people who use Canadas roadsand other inrastructure. It can thereore be argued that their arrival does not necessitate

new spending in these categories. However, this argument is valid only in the short run.

Eventually, as more and more immigrants arrive and add to trac, the capacity o roads

has to be increased to accommodate them. In the present analysis, we look beyond the

short-run eects and assume that immigrants add to the need or xed investment in

inrastructure and the agencies administering environmental protection so that the xed

costs increase with the arrival o additional immigrants.


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Labour, employment and immigration

Spending on Labour, employment and immigration is assumed to benet immi-

grants 20% more than other Canadians because they have more dealings

with the government on immigration issues related to the amily reunica-

tion program, the processing o reugee claims, and related issues. Te low

average incomes o immigrants also lead to the use o more benets under

programs that deal with labour markets and employment.

Housing

Housing is the nal category o spending that immigrants are assumed to use

more than other Canadians. Te assumption is that immigrants benet by 10%

more than other Canadians on the grounds that upon arrival they have tem-

porary access to ree or heavily subsidized housing while they settle and nd

employment. Furthermore, the many low-income immigrant amilies bene-

t disproportionately rom government programs designed to make hous-

ing more aordable, particularly in the urban areas where they tend to settle.

Total benefts

Te last row o table 3 shows that the average per-capita amount o benets

received by all Canadians exceeds that received by immigrants by $110, or

$15,907 minus $15,797.


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3 Taxation and benefts together

Te scal cost imposed on other Canadians by recent immigrants through pro-

visions o the welare state can be calculated by using the ollowing ormula:

FT = (Ta Ti) + (Gi Ga),

where FT is the average per-capita scal transer to immigrants rom all

Canadians, Tis the average per-capita taxes paid, G is the average per-capita

benet received through program spending, a denotes all Canadians, and i

denotes recent immigrants. Using the gures derived in the preceding sec-

tions, the scal costs are:

FT = ($16,501 $10,340) + ($15,797 $15,907) = $6,161 $110 = $6,051

Tis gure represents the central nding o this study: on average, immi-

grants coming into the country between 1987 and 2004 received per-capita

scal transers rom other Canadians worth $6,051 in the scal year 2006.10

It is important to note, and is evident rom the analysis above, that

these transers do not appear explicitly in any government accounts or other

ocial statistics. Tey are simply the result o the way in which Canadas wel-

are state operates and the ocially documented act that recent immigrants

on average earn much lower incomes than other Canadians.

It is useul to put the gure o $6,051 or the average, annual, per-capita

scal transers rom all Canadians to recent immigrants in perspective. First,

i the average immigrant pays taxes and receives benets or 45 years between

his or her arrival and end o lie, every recent immigrant benets rom transers

worth $272,295, disregarding all eects o discounting and ination. Second,

during the 18-year period rom 1987 to 2004, a total o 3.9 million immigrants

arrived in Canada according to the administrative data collected by Citizenship

and Immigration Canada (2010). In the scal year 2006, they would have

imposed a cost o $23.6 billion on Canadians i none o the immigrants had

10 It is interesting to note that the equivalent gure in Grubel (2005) was $6,294, suggesting

that the more reliable data on immigrants relative incomes and tax payments did not have

a signicant impact on the estimate, though it might have been expected that the growth

in average income and government spending during the ve additional years covered in

the present study would have increased this number. But, this should be oset by the act

that using all Canadians instead o other Canadians to calculate the amount o the scal

transer tends to understate its amount.


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emigrated or died. However, because o emigration and mortality, o those 3.9

million immigrants only 2.7 million still remained in Canada according to the

2006 Census, a representative sample o which is ound in the PUMF database

used in the basic calculation o costs above.11 Te annual scal subsidies to

these remaining immigrants in 2006 were $16.3 billion.12

o put these gures into perspective, it is useul to consider them in

relation to some program spending by the ederal government in 2006. Te

larger o the estimates, $23.6 billion, is 4.7% o total program spending o

$503 billion, 1.18 times the cost o government services o $20 billion and

1.79 times the spending on the environment o $13.2 billion. Using the lower

estimate o $16.3 billion, the transers were 3.2%, 82% and 123% o the three

selected ederal government spending gures, respectively.

It is clear that the choice o the number o immigrants receiving scal

transers made in the preceding calculations reects our judgement. We used

the number o immigrants who have arrived in 1987 and later because it was

ater Canadas controls on immigration were eased and the annual inow o

immigrants was allowed to increase substantially. Tis is the group used in

the compilation o the income and taxation statistics shown in table 1 and in

the analysis presented in tables 2 and 3.

It would also be quite deensible to use the number o immigrants who

arrived over a longer time period, including those who arrived ater 2004 (i

the data was available) and beore 1987. However, the purpose o our analysis

is not to come up with the denitive estimate o the scal costs, but instead

to show that Canadas current immigration policies are generating substan-

tial scal transers rom all Canadians to recent immigrants. It is our hope

that this will be sucient to encourage public discussion about the aord-

ability o existing immigration policies and possible reorm proposals. And

the need or this discussion will only become even more pressing over time

as the size o the transers to immigrants will increase every year with the

arrival o additional under-perorming cohorts o immigrants.

11 An interesting issue is the extent to which the immigrants leaving Canada returned home

or went on to greener pastures, perhaps in the United States. Tis is important because

o its impact on the labour market perormance o immigrants. More research is needed

on whether Canada is losing some o its most successul immigrants or only those who

were unable to adapt to Canada. It would also be o interest to learn how many o these

immigrants will return to Canada later in their lives to take advantage o Canadas gener-ous health and welare system.

12 Te number or 2010 would be even higher as approximately another million immigrants

(net) entered Canada over the period rom 2005 to 2009. I these immigrants and the

predecessors continued to underperorm in the labour market as seems likely given the

disproportionate impact o the recession on immigrants, another $5.9 billion could be

added to the $16.3 billion, raising the net scal benets to immigrants net o emigrants

in 2010 to $22.2 billion.


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4 Other benefts and costs

o immigration

Many Canadians with whom we have discussed our estimates o the costs

o current immigration policies have suggested that they represent only one

part o the equation, neglecting some economic and social benets immi-

grants bring to Canadians that are not included in the narrow estimate o

scal transers to immigrants. Te nature and merit o these benets were

discussed in Grubel (2005) and (2009). For readers not amiliar with these

publications, we briey summarize, evaluate, and update the arguments here.

Immigrants and their ofspring will eventually

repay the scal transers they received

Tis view is based on the notion that immigrants will repay the transers

they have received once they are ully integrated into the economy and they

and their children earn wages that are high enough. Clearly, the truth o this

notion depends on how well the new Canadians and their children will do eco-

nomically in the uture. I, in the uture, the average incomes o these immi-

grants only just reach the average income o all Canadians, there will be no

repayment o the transers since as a group they will only pay taxes that match

the benets they receive. Immigrants will repay the transers only i they

eventually earn signicantly more than average incomes or a period in their

lives long enough to repay the earlier costs incurred on them. Unortunately,

the available empirical evidence suggests that recent immigrants are not even

closing the income gap with non-immigrants (Picot and Sweetman, 2005;

Picot, 2008), a ar cry rom earning incomes above average.13

13 Te statistical evidence on the persistence o immigrants low average earnings can be

considered something o a surprise since Canada has used a points program or selection

that puts heavy emphasis on educational attainment and language prociency and, as a

result, has attracted disproportionately many immigrants who are proessionals with uni-

versity education. However, in reality only a relatively small proportion (less than a th)

o immigrants admitted are actually selected based on points and most are members orthe amilies o skill-class immigrants or amily-class immigrants.

Attempts to explain this phenomenon point to the act that Canadian proessional

associations oten do not accept the educational background o immigrants unless they

pass examinations establishing their competence. Many immigrants do not pass these

examinations and have to work in lower-paid occupations where the value o their

human capital depreciates and they get caught in a low-wage trap that is extremely


25/62



Te ospring o immigrants are also not likely to repay the scal costs

their parents have imposed on Canadians. Te reason is that, as these o-

spring tend to integrate ully into Canadian society, their economic character-

istics and average incomes tend to become the same as those o all Canadians.

Tey receive on average benets equal to their average income and tax pay-

ments so that they generate no scal surpluses.14 And there is no guarantee

that this will happen even or the next generation i they are too disadvan-

taged rom the onset by their parents low incomes.

Immigrants are needed to solve the problem

o ununded liabilities o social programs

Te ununded liabilities o Canadas social programs are caused by low birth

rates and the aging o the population, which were not expected when they

were introduced in the years ater the Second World War. Te argument in

avour o more immigrants to solve this problem is deceptively simple and

appealing. Young immigrants will pay taxes that can be used to pay or the

unds going to the elderly recipients o social program benets.

Unortunately, while this simple argument is true in principle, it

misses the magnitude o the existing problem, which has been studied by

considering the best estimates o uture birth and death rates o Canadians

and exploring what happens to the age structure o the population and the

dicult to exit. And all o this is being exacerbated by the impact o the recent reces-

sion, which has hit new immigrants and other recent entrants to the labour orce much

harder than more established workers.

Controversies exist over the causes o the ailure o highly educated immigrants to

land jobs in Canada that are consistent with their qualications. One o the reasons maybe that the proessional associations set tests that discriminate against oreign educational

attainments. Another may be that the quality o education obtained by the immigrants

abroad does not meet Canadian standards or that potential employers do not know the

quality o education provided by the degree-granting institutions and are unwilling to

take the risk that the quality is low. Yet another possible explanation is that some o the

certicates o educational attainment are bogus and that the Canadian ocials in charge

o disqualiying individuals with such certicates have insucient resources to do so

eectively. Chances are that all o these explanations o the poor economic record o

highly skilled immigrants contribute to the phenomenon. Tere are thus many dicul-

ties that must be overcome in any attempt to correct the situation.

14It might also be noted that the issue o repayment o the scal burden is complicatedby the act that it is imposed on one generation o Canadians, which would not benet

even i the ospring o the immigrants were to earn above-average incomes. Te scal

surpluses thus generated would go to another generation o Canadians, which may or

may not experience a reduction in immigration or the selection o immigrants that have

above-average incomes and thus do not impose a scal burden on it. Tis possibility raises

issues o the airness o intergenerational transers.


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resultant dependency ratio (number o retired persons receiving pensions

and requiring costly medical care relative to the number o persons working

and paying taxes). One study o the issue is by Statistics Canada and comes

to the ollowing conclusion:

Even a substantial increase in the number o immigrants could not

stop Canadas population aging. For example, i Canada was to admit

our times as many immigrants per year, the populations median age

would still increase, rom the current 38.8 to 44.1 years in 2056. Tis

would mean an average o about one million immigrants per year or

the next 50 years. Regardless, the proportion o seniors would increase

rom the current 12.3% to 22.3% in 2056. (Statistics Canada, 2006: 6)

In another study, Banerjee and Robson (2009) consider what number o

immigrants would be required to maintain the current 0.2 dependency ratio

(there are 20 retirees who receive benets rom the taxes paid by every 100

workers). In one section o their study, they assume that uture immigrants on

average are only 22 years old, which is an age that would make them long-term

contributors to the unds needed to nance social benets or retirees. While

it may be impossible to nd enough immigrants o this age, the assumption

provides a powerul insight into the magnitude o the problem o ununded

liabilities caused by the aging population and low birthrate.

ellingly, Banerjee and Robsons calculations show that to maintain

the dependency ratio at 0.2 until 2050, the annual rate o immigration would

have to average about 2% o the population (it has been about 0.75% in recent

years). Tis rate o immigration would raise Canadas population to 139 mil-

lion in 2050 and the number o immigrants would be 1.8 million that year

alone. In another calculation, they assume that the selection o immigrants

continues to bring in immigrants with the same age characteristics as are

produced under the present system. Tey nd that under these assumptions

the maintenance o the dependency ratio would result in a population o 235

million in 2050.

Tese studies clearly indicate that immigration cannot solve the prob-

lems likely to be caused by the aging o Canadas population. Te number

o immigrants required would seriously tax the countrys ability to absorb

them in the economy and society. It would also be very dicult to nd the

required number o immigrants with the desired skills, education, and age,especially since in traditional source countries ertility is in decline and eco-

nomic opportunities and incomes are rising rapidly.

It can be argued that, while increased immigration cannot solve the

problems o population aging and low ertility rates in Canada, it can at least

make a contribution. However, as the simulations show, even small reduc-

tions in population ageing require greatly increased rates o immigration;


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and, as Banerjee and Robson point out, there are other, more ecient ways

to decrease the size o ununded liabilities o the countrys social programs.

Te best o these involves increasing the average age o retirement gradually

by just two to three years.

Te most obvious solution to the problem lies in an increase in the

ertility rate o Canadians to the level o 2.1 children per woman, which is

required or long-run stability o the population. Past attempts by govern-

ments to increase ertility rates have not been successul, but it is interest-

ing to speculate whether reduced immigration rates would do so. Consider

that Canadians o child-bearing age weigh many actors when they decide

on the number o children they wish to have. wo o these actors undoubt-

edly are the cost o housing and concerns about the environment. As noted

above, both o these actors are increased by the mass immigration that

results rom present policies over many years. Tereore, it is possible that

reduced immigration would raise the ertility rate o Canadians, and that

could lower or even solve the countrys problem o ununded liabilities o

social programs.

Immigrants are needed to ll job vacancies

Employers in Canada are strongly in avour o present high rates o immigra-

tion because they consider immigrants to be an attractive source o workers

to ll the low-paying jobs that Canadians do not seem to want or jobs that

require high levels o skills and training that are scarce among Canadians. It

is not possible to ault employers or taking this position. Tey are rightly

concerned with the bottom-line o their businesses and they are entitled to

lobby or policies to improve it.

However, what is good or business is not necessarily always good or

Canadians in general, especially i benets or business are paid or by the

general public through higher taxes, as is the case with immigrants that ll

the low-paying jobs and induce scal transers under the provisions o the

welare state. Te public is repaid in part or these subsidies by lower pro-

duction costs that are passed on to consumers through lower prices o goods

and services. An empirical study is needed to establish whether taxpayers as

consumers benet or lose in the process, but there is a strong presumption

that they lose because government subsidies in any orm induce the ine-

cient use o resources.

Another aspect o the relationship between the need to ll job vacan-cies and immigration is that immigrants add to the demand or labour because

o the purchases they make and demand or inrastructure they create. In this

context, it is important to realize that in any dynamic market economy, there

are temporary shortages and surpluses o labour, simply because o the exist-

ence o business cycles, which have aficted market economies throughout

history, even when the role o governments in the economy was minimal.


28/62



In addition, temporary shortages are aggravated by the length o time

required to educate and train workers, especially or occupations requiring

high levels o skill. Te labour shortages can be alleviated by migrants, but

present immigration policies ail to vary immigration levels according to

conditions in the business cycle and do not repatriate immigrants that are

no longer needed during periods o high unemployment. o the contrary,

under present policies, immigrants add to unemployment i they arrive when

unemployment is high.

Te question is, whether in the absence o immigration, Canada would

suer rom a permanent shortage o workers. Economic theory suggests

that such permanent shortages would not persist. I, or instance, workers

in the garbage collection industry, which is sometimes cited as an industry

with job vacancies Canadians do not want to ll, cannot be ound, employers

would raise wage rates until the vacant jobs are lled. Employers would end

up with the same rates o prot though, because they would adopt labour

saving capital and the producers o the capital would come up with new

technologies that would save even more labour and raise the skill level o

the job. Teir prots would also be maintained as they pass on some o the

higher labour costs to the consumers o their services. Tese higher costs

in turn would induce consumers to reduce their need or garbage collection

so that in the end, an ecient equilibrium in demand, supply, prices, and

wages would be achieved.

A similar process o adjustment as that described or low-skill and

low-wage jobs would occur in industries that have vacancies or jobs requir-

ing high levels o education and training. In the absence o immigrant work-

ers, wages would rise and induce more Canadians to get the needed edu-

cation and training until the shortages are eliminated. And, Canada does

have an educational and training system capable o producing the required

skilled workers.

It is ironic that, under the present system that lls job vacancies with

immigrants, there exists the possibility that immigration does not eliminate

labour shortages but perversely worsens them. Te reason is that immigrants

add to the demand or goods, services, and government inrastructure and

other services. No empirical studies o this phenomenon have been made but

it is interesting to note that the number o recent immigrants who have settled

in Vancouver during the ve-year period rom 2005 to 2009 is 180,846,15 or

36,169 per year, which comes to about 3,000 per month. I we assume thatthe average amily size o these immigrants is three, then there are 1,000 am-

ilies requiring the construction o new dwelling units per month or about 250

15 Te numbers used in this paragraph are ound in Citizenship and Immigration Canada,

2010: Permanent residents, .


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every week.16 Furthermore, these immigrant amilies add to the demand or

spaces in schools, universities, hospitals, transit acilities, airports, roads, and

bridges. Te construction o all o these acilities requires labour and creates

labour shortages that in turn will be lled by even more immigrants that will

require more construction, and so on in a never-ending cycle.

Immigrants are needed or economic growth

Immigrants increase the growth o aggregate national income and output,

which is oten argued to be a desirable end in itsel. More sophisticated argu-

ments are that such growth raises Canadas inuence in the world and that

it results in dynamics that encourage growth by stimulating change and a

general belie in progress. In act, maximizing aggregate national income is

a totally inappropriate goal o government immigration policies. Te ocus

should instead be on maximizing immigrations eects on per-capita income

and thus living standards.1 o illustrate this point, it could be noted that ew

Canadians would preer to live in China, which has the second highest aggre-

gate national income but still has living standards, measured as per-capita

GDP, o less than a tenth o Canadas.

Te main nding o this study is that in recent years the low average

incomes o immigrants in combination with the provisions o the welare

state have reduced the average per-capita incomes o Canadians. Te issue

thereore is whether a larger aggregate income osets these reductions in

per-capita income because o the benets derived rom greater inuence

in world aairs and the benecial dynamics that eed back on growth itsel.

Te idea that the average Canadian puts value on the act that the

country has more inuence on world aairs has not been tested empirically

but, even i this were the case, it is sae to suggest that it is not as import-

ant as the level o income. Te idea that aggregate economic growth driven

16 In 2009, the number o principal skilled immigrants into Canada was 40,735. Tey

were accompanied by their immediate amily o spouses and dependents numbering

55,227. During the same year, 46,921 spouses, dependents, and older children arrived

in Canada to join their spouses who earlier had arrived as skilled immigrants. Te total

number o persons related to the 40,735 skilled immigrants thereore was 40,735 +

55,227 + 46,921 = 142,983. Tis number implies an average amily size o 3.5 or the

40,735 skilled immigrants.

Tis calculation is merely illustrative since it does not account or the act that theamily reunication immigrants join skilled immigrants who had arrived in earlier years

and that 17,179 parents and grandparents o skilled immigrants and their spouses arrived

in 2009 and are likely to have joined their ospring in their dwellings. Available data does

not permit these renements to the calculations to be made.

17 A committee o Britains Upper House o Parliament criticized the Labour government

or misleading the public by justiying its high immigration policies on the grounds that

they raise total national income (Green, 2009).


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by high population increases leads to higher per-capita income involves the

complicated and inconclusive empirical ndings o the theory and literature

o economic growth.

Moreover, per-capita income is only an imperect measure o living

standards. Non-monetary actors like the pollution and congestion that

increase with population growth and have negative eects on living standards

also should be taken into account. I these determinants o living standards

were properly reected in measures o living standards, the countries with

low population growth could easily have higher real per-capita well-being

than those with higher population growth. So or the purposes at hand, su-

ce it to say that there is no conclusive evidence that a larger Canada would

be better and would benet existing Canadians.

Miscellaneous benets

A nal set o benets oten mentioned in discussions over immigration poli-

cies involves non-economic actors. One such idea is that, as citizens o a rich

nation o caring individuals, Canadians are ennobled by allowing people rom

the rest o the world to share the countrys economic riches, political stability,

and tolerance and by allowing them to escape the misery ound in their own

countries. While it is not possible to put any dollar value on such eel-good

benets stemming rom our current immigration policies, it is legitimate to

note that it comes at a considerable scal cost and that the same number o

poor oreigners could be helped at a much lower cost through traditional

oreign-aid programs. Canadas oreign assistance is budgeted at $5 billion in

scal year 2010/2011, just over 30% o our estimate o the net scal transer

to recent immigrants. Tese bilateral and international aid programs do not

require the relocation o individuals that disrupt their lives, separate am-

ilies, and bring large costs or taxpayers needed to assist immigrants settling

in Canada.

Another benet rom immigration oten mentioned is that it enriches

the cultural lie o Canadians. Te value o this eel-good benet also is impos-

sible to measure but it is legitimate to note that Canadians already enjoy an

abundance o ethnic restaurants and estivals and that urther increases are

likely to bring relatively smaller additional benets.

A nal benet rom immigration oten mentioned is that a tolerant

multicultural society nourished by immigrants is better than the Eurocentric

society that existed beore the 1970s. Tis view is deeply entrenched in theminds o many Canadians and is a source o pride. However, as important

research has shown, there are grounds or concern that the multicultural-

ism existing in Canada carries with it threats to national unity, culture, and

security,18 as well as the scal costs documented above.

18 For a ull discussion o these issues, see Gallagher, 2009 and Mansur, 2009.


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Other costs: efects on poverty

Canadians are concerned about the distribution o income, especially the

proportion o amilies that have incomes below what Statistics Canada

denes as the low-incomes cut o (LICO) levels.19 Unortunately, under the

present immigrant selection system, large proportions o immigrants have

incomes that are below the poverty line or prolonged periods ater their

arrival in Canada. Tis act is documented in a study by Statistics Canada

(Picot, Lu and Hou, 2009), the results o which are presented in table 4.

Te data in this table shows that, based on market income, in 2005

the poverty rate among Canadian-born was 23.2% while it was 32.7% among

all immigrants. Tese gures imply that rate o poverty among immigrants

was 60% greater than among Canadian-born. Te corresponding gures or

income ater transers and beore taxes were 13.3% and 21.6%, respectively,

indicating that the governments policies to reduce poverty are having the

desired eect. However, the excess o poverty among immigrants under this

denition o income remains at 60%.

Te table also shows that the share o immigrants among Canadians

with low income decreases with the length o time immigrants are in Canada

and that ater 20 years in the country, immigrants have the same poverty rate

as the Canadian-born. Tis desirable eect is due to the eorts o immigrants

to improve their language and other skills needed to be successul in the

labour market. However, again there is no guarantee that this will continue

to happen in the uture at the same pace. Burton and Phipps (2009: 45)

have ound that the position o children coming rom low-income amilies in

the income distribution exhibited considerable stickiness and that this was

exacerbated by their being non-white as are the greater majority o recent

immigrants. However, it is clear that during the 19 years o above-average

poverty rates, these immigrants receive above average amounts o benets

aimed at reducing poverty. Te costs o these payments are a component o

the scal burden estimated above.

Note that these estimates are biased downward since they do not take

account o the act that the immigrants with incomes below the poverty line

tend to have low skills. Tey compete with Canadian-born workers with low

skills and depress the wages they earn. As a result, the level o poverty among

Canadian-born and the benets they are provided with are greater than they

would be without the competition or jobs stemming rom the immigrants.

Te act that poverty rates among immigrants relative to those amongthe Canadian-born do not continue to decrease ater 20 years provides

indirect evidence that, ater initial periods o learning and labour market

19 We cannot enter here into a discussion about the shortcomings o the LICO index as

a measure o poverty. For a ull discussion o dierent denitions and measurement o

poverty, see Sarlo, 1996.


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integration, the economic perormance o immigrants generally is the same as

that o other Canadians. I indeed this proposition is correct under the most

optimistic o assumptions, it ollows that on average they pay taxes equal to

the benets they receive, just as all Canadians do. Te immigrants, thereore,

do not ultimately pay enough taxes to compensate Canadians or the scal

costs they imposed during the 19 years when their economic perormance

was below average. And, there is real risk that the continuing deterioration

o the perormance o recent immigrants in the labour market could result in

the end o the convergence that has heretoore characterized the Canadian

immigration experience.

Table 4: Low income-rates, Immigrants and Canadian-born, 2005 (Percent o all income earners)

() () () () () () () ()

Canadian-born

Allimmigrants

Years since immigration

or less +

Market income

Percent . . . . . . .

Ratio (3) (8)/(2) . . . . . .

Ater transers, beore taxes

Percent . . . . . . .

Ratio (3) (8)/(2) . . . . . .

Source: Picot, Lu and Hou, 9.


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5 Policy recommendations

Beore turning to our proposals or changes in Canadian immigration poli-

cies owing rom the ndings just presented, we wish to introduce some

ideas that should enter into decisions about changes to immigration policies.

First, most Canadians are happy to live with the welare state that redis-

tributes income rom the rich to the poor, be they the unemployed, the sick,

or the elderly. But the transers to immigrants are altogether dierent rom

those to needy Canadians. Until they arrive at our borders, immigrants are

oreigners and not part o the Canadian social contract that guides the welare

state provisions. Immigrants are only here because we allow them to come, so

that the scal burdens they impose can be attributed to our deliberate deci-

sion to allow them to become landed immigrants. By the same token, we are

ree to stop these scal burdens on ourselves i we choose to do so either by

changing immigration policies or by severely limiting immigrants access to

the benets o the welare state.

Second, it is important to consider that Canadians have the right to

limit access to the countrys social institutions, income, and wealth that they

and their ancestors have created. In a sense, Canada is like a private club

(Gibson, 2009), whose members have the right to exclude others rom shar-

ing in its benets without proper compensation to existing members. Clubs

do not allow non-members just to enter the premises and use the acilities.

Nor do they allow individual members to grant the ree use o club privileges

to outsiders just because it suits them. What is right or clubs in the minds

o most Canadians should also be right or Canada.

Tird, in a ree society like Canadas, individuals decide to maximize

their well-being by considering choices they ace with regard to their work,

spending, investment, and many other issues. One o these choices involves

the number o children they wish to raise. Into this decision enter personal

preerences, but also considerations about the eect that their children will

have on the size o the countrys population, congestion, pollution, climate

change, and overall quality o lie or themselves and the country and world

as a whole. Te government o Canada should be obligated to respect the

population growth that results rom the decisions made by Canadians andshould not change it without much more public consultation than has ever

taken place concerning these consequences o population growth.20

Finally, the precarious scal conditions o Canadian governments

caused by short-run cyclical decits and, more important in the long run, by

20 Tis idea is ound and discussed more deeply in Krikorian, 2008.


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the ununded liabilities o social programs, give special urgency to the dis-

cussion o immigration policies at the beginning o the second decade o the

twenty-rst century. Changes in immigration policies can contribute to the

alleviation, or possibly even the elimination, o scal decits. imely steps

to curtail urther increases in the scal burdens imposed by poorly selected

immigrants will reduce scal pressures on governments and curb the growth

o underunded liabilities o social programs such as health and pensions. Te

money saved could be used to lower taxes or reduce debt rom what they would

be otherwise and ultimately to meet the scal demands o an aging population.

Changes to immigration policies

Changes in immigration policies have proound and complex eects on the

economy, society, and culture. Tey need to be discussed publicly and widely.

Indeed they should ultimately be subjected to a public reerendum or become

a major issue in regular elections beore being enacted by parliament. Te

changes to Canadas existing immigration policies that we propose are oered

as a starting point or such discussions.

As a general and important point, we want to make it clear that our

proposed policies are not designed explicitly to reduce or move to zero the

level o immigration. Tey are thus not anti-immigration. Rather they are

aimed solely at eliminating the scal burden imposed on Canadians through

current policies. As will be seen below, under our proposed policy changes,

the number and composition o immigrants will be determined largely by

market orces. Overall immigration levels could, in theory, increase, decrease,

or remain unchanged. But whatever the new levels may turn out to be, they

will prevent urther increases in the size o the existing scal burden.

Te system or selecting immigrants to Canada proposed below repre-

sents a radical reorm o Canadas existing immigration system. It shares some

eatures with N status used relatively successully under the NAFA treaty

signed by Canada, Mexico, and the United States. Under it, nationals o one

o the signatory countries who possess specied skills and have valid oers o

employment are allowed to take up residence in either o the other countries

through a grant o N status (which or Mexicans requires a visa). Tis N

status, which is initially or three years, can be renewed a number o times or

even indenitely. However, it does not lead to permanent residency or green

card status and thus does not qualiy the individual and his or her dependants

to become immigrants in the traditional sense and ultimately to acquire cit-izenship. Holders o temporary work visas or status who become and remain

unemployed or a specied time can be required to leave the country.21 Our

21 Our proposal is also consistent with recommendations made by Sweetman (2004) and

in the OECDs report on Canadas immigration system: Canadian immigration policy

could make greater use o temporary work permits (2003: 123). Since this report was


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proposal also bears some similarities with the existing emporary Foreign

Worker Program (FWP), which has been expanded to cover growing num-

bers o highly skilled and educated. But again the FWP does not include a

generally available ormal pathway to permanent residency status (the Canada

Experience Class, however, does allow FWs and students to apply or perma-

nent residency status rom inside Canada).

Te ollowing specic proposals contain time lines and other discrete

criteria that in most cases are made provisionally and need to be discussed

widely beore they are ready to be embodied in legislation. Readers should

keep this act in mind and ocus on the merit o the general objectives o, and

principles underlying, the proposed policies.

1 Entry into Canada or settlement is granted only to oreigners who have a valid

oer or employment in Canada in occupations specied in a list created by

the ederal government with the assistance o private-sector employers. All

the grounds or granting immigrant visas presently in place are to be discon-

tinued, except those applicable to reugee claimants, which are largely set

by international treaty obligations and will not be discussed here. And, the

emporary Foreign Worker Program would, o course, also be replaced by

our proposed new program,22 as would the Provincial Nominee Programs

negotiated with most provincial governments.

2 Applicants with valid job oers will receive temporary work visas or them-

selves and visitors visas or their dependants. Te work visas will be valid

or two years or as long as the oreigners remain employed and they can be

extended or two more years. Te loss o employment is cause or deporta-

tion ater a grace period o three months to nd a new job.

3 Ater the end o our years, and unlike under the FWP, the oreigners admit-

ted can become landed immigrants with all the rights and obligations

accorded this type o visa presently. Landed immigrants become eligible to

apply or ull citizenship two years ater they achieve this status.

The role o government

Te governments role in the operation o the proposed temporary work visa

system is limited to:

written with much input rom the government o Canada, it probably reects the views

o inuential civil servants and politicians.

22 Te rationale or the existence o other temporary worker programs should also be re-

examined. While some, such as the Seasonal Agricultural Worker Program, seem to be

working as intended, others like the Live-in Caregiver Program have been subject to abuse.

But again a detailed assessment o these programs is beyond the scope o the present paper.


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1 speciying occupations or which temporary work visas are issued;

2 excluding applicants likely to become a burden on the public health care sys-

tem and/or a threat to national security;

3 setting up and supervising a privately run system or the collection o inorma-

tion about the residence and work status o holders o temporary work visas;

4 ensuring that those holding work visas ollow the prescribed rules and enorc-

ing rules or deportation.23

Proposals in detail

Te ollowing set o recommendations eshes out the basic ideas just pre-

sented. O course, the devil is in the details, and many additional details

would need to be worked out in actual legislation.

1 Te issuance o temporary work visas (WVs) or entry into Canada requires

documentation proving that the applicant has a legitimate job oer rom an

employer in Canada and that the oer is or work specied in a list compiled

and kept current by the government.

2 Work visas will be issued by a Canadian embassy abroad or citizens o all

countries other than the United States, who can obtain the visa at border

points o entry.

3 Te work visa is valid or two years. It can be renewed or an unlimited num-

ber o times, or two years each time, upon presentation o evidence o con-

tinued employment.

4 Ater our years in Canada and continued employment, the holders o WVs

can obtain permanent immigrant visas. Landed immigrants will be eligible

to apply or citizenship two years later.

23 Tis raises the issue o the governments ability to deport immigrants in Canada on WVswho do not comply with the terms o the visa. Te government has been trying to deal

with this issue in the case o reugees. Unless some reasonably expeditious way o remov-

ing oreigners rom the country can be arrived at, it will be extremely dicult, i not

impossible, to impose any system o border controls on the inow o people rom abroad.

One possibility that has been put orward is the use o the notwithstanding clause in the

immigration legislation to remove the ull range o legal appeals right up to the Supreme

Court guaranteed under the Charter o Rights and Freedoms.


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5 Te spouses and dependents o the holders o WVs may enter Canada under a

program o amily work visas (FWVs), which allow them to accept employment.

6 Te holders o WVs who lose their jobs must nd new employment within

three months or leave Canada, unless the spouse is employed under the

FWV provision.

7 Investors and entrepreneurs who can document that they own at least $1

million24 that they want to invest in Canada are eligible or investor work

visas (IWVs) valid or two years, renewable biannually and allowing con-

version into immigrant visas ater our years. Renewal o the IWV requires

documentation that investments worth at least $1 million have been made in

Canada and that the investor has led Canadian income-tax returns. Failure

to provide evidence o an investment means that the investor is required to

leave Canada within three months o the determination.

Te radicial aspect o the proposed temporary employment visa program is

that it is designed to eliminate the existing need or government employees

to make judgments about the eligibility o applicants or immigrant visas that

are based on documents o questionable value that the applicants submit. It

also eliminates the need or government employees to make judgments about

whether an applicant has the personal characteristics to succeed economi-

cally in Canada. Instead, Canadian employers will make these judgments

beore they issue employment contracts, having properly evaluated the suit-

ability o the immigrants education, work experience, and language skills or

success in the job.25 Tese employers are motivated by their own sel-interest

to make the right decisions as wrong decisions lead to nancial losses and

endanger the very existence o the employers enterprises. Tese nancial

losses could be reinorced by penalties or a

immigration and the canadian welfare state 2011

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