Abstract: In Europe discussions about immigration policies have been wide-spread and heated ever since a flood of illegal immigrants have reached Europe’s shores and caused problems with labour markets, housing, fiscal, social and cultural institutions. Some commentators see the solution to some of these problems in the adoption of the Canadian model for the selection of immigrants. This paper contributes to this discussion by a description of current Canadian immigration policies and a discussion of the negative economic and social effects it has produced. It concludes with a presentation of reforms of the existing system that have been proposed and speculates why politicians have been unwilling to adopt any of these reforms.
Note: I thank Martin Collacott and Patrick Grady for their helpful comments on an earlier draft of this paper, a summary of which has been published in German in the Swiss magazine Weltwoche on December 30, 2017. The article has been accepted for publication in the ifo DICE Report - Journal for Institutional Comparisons, Forum on the special topic “Labour Migration Policies” scheduled for publication in March 2018 by the ifo Institut - Leibniz-Institut fuer Wirtschaftsforschung an der Universitaet Muenchen. DICE Reports can be found at www.cesifo-group.de/DICEreport.
The paper can be found at the Social Science Research Network website http://ssrn.com/abstract=
JEL Classification: F21, F22, J6, O4, O5
The European Community and its member countries are searching for solutions to the problems caused by the ongoing flood of migrants from abroad. One solution discussed widely involves the adoption of the system used by Canada in the determination of the number and characteristics of migrants admitted (Slater 2015 and Meardi et.al. 2016). In considering the adoption of the Canadian model, policy makers need to know that while it promises many benefits in theory, in practice it is seriously flawed and might not serve Europe well.
The model has the following basic features. The government annually submits an immigration target for the year to Parliament, which is routinely approved without debate. In 2017 the target was 300,000, up from 280,000 the year before and 240,000 on average during the years 2006-2016. It is slated to rise to a 350,000 by the year 2020. Since the mid-1980s, the target has been set to have immigrants represent about .75 percent of the existing population.
The immigrants are selected by Canadian officials from a large pool of applicants and are granted visas after assignment to four different categories (Government of Canada (1)), the largest of which represents “Economic immigrants”, who are mainly skilled workers but also includes their accompanying spouses, partners and children, investors, the self-employed, caregivers and entrepreneurs. The economic immigrants make up 58 percent of the total.
The second class are the “Family class immigrants”, one quarter of which are parents and grand-parents and three quarters are the spouses, partners and children of immigrants who had not accompanied their spouses when first they settled in Canada. They made up 28 percent of the total while “Refugees” (also known as Refugee Claimants) 13 percent and “Others” one percent of the total.
The economic migrants are selected through the use of a points system (Immigration Canada (2)) that assigns a maximum of 25 for the level of education, 24 for language proficiency in English or French, 21 for work experience and 10 each for age, arranged employment and adaptability. For admission, the economic migrants need to have at least 67 out of 100 possible points and, like all immigrants, must meet health and security requirements. A small number of economic immigrants are admitted without use of the points system by provincial governments to meet special local needs.
Recently, this system has been modified (Semotiuk 2016) through the creation of a class of applicants with “Canadian work experience”, which in turn was modified by the introduction of the class qualifying for “Express Entry”. The main goal of these modifications has been to enable a large number of foreign students who have completed a university education in Canada to receive immigrant visas more easily and quickly since through their educational achievements they have demonstrated their knowledge of English or French and likelihood of economic success.
Applicants in the investor class (Government of Canada (3)) do not have to pass the points test and until 2014 were admitted if they could show that they have business experience, a net worth of at least CAD $1.6 million and will invest at least CAD $800,000 in Canada. A new program (Canada Visa (No date)) requires that they have a net worth of at least CAD $10 million and the funds to invest CAD $2 million for 15 years in the Immigrant Investor Venture Capital Fund.
Parents and grand-parents are granted immigrant visas if their offspring already in Canada commit themselves to cover their cost of living and medical care and the annual quota allocated by Parliament is not exhausted.
Canada’s handling of its international obligation for the admittance of refugees (Historica Canada No date) should be of particular interest to Europeans. Canada supports refugees escaping the turmoil of civil wars and unrest indirectly through financial grants to international agencies that operate refugee camps abroad. The idea is that these types of refugees will and should return to their home countries after the end of hostilities, where they have strong ties. It is believed that if they settle in Canada, they are likely to remain and are lost to their native countries’ reconstruction efforts.
Refugees who flee persecution, torture and the threat of death and reside in the international camps are interviewed by Canadian officials who travel to these camps. Under the 2017 plan, immigration visas are granted to 40,000 of the neediest of them. Refugees asking for acceptance at Canada’s airports have been very small in number relative to those resettled from camps abroad because of effective agreements with airlines to prevent boarding of potential claimants without a visa.
Canada has no problems protecting its borders from illegal immigration of the sort that plagues Europe. Canada’s long coast lines are difficult to reach by small boats from overseas and past experience shows that large ships will be turned away so that none have attempted access for many years. Agreements with international airlines have been used successfully to limit severely the arrival of asylum seekers at Canada’s airports.
The land border is in principle protected from the inflow of asylum seekers by the Safe Third Country Agreement with United States (Government of Canada (4)) under which refugee claimants can be turned back on the grounds that they are leaving a safe country and are shopping for access to more generous social assistance programs.
Canada’s government is proud that its policy of selecting immigrants without regard to their ethnic, racial or religious backgrounds.
What Lessons for Europe?
So what aspects of the Canadian model could be used in the design of a rational and publicly acceptable policy for the European Union and its members?
The Canadian model has no information that could help in the design of dealing with Europe’s pressing problem of how to more effectively protect its borders from asylum seekers, how to deal with the perceived threat to its religious and cultural institutions and practices and to protect the public from terrorism.
The main appeal of the Canadian model to European policy makers stems from its presumed success in selecting immigrants who benefit their countries by raising the income of their populations, tax revenues and contributions to social insurance programs.
The first effect is the subject of much disagreement among economists. Conventional price theory suggests that the pay of immigrants equals their marginal contribution to output and as they use their income to buy an equal amount of goods and services, the incomes of native workers are unchanged. Some economists argue that the native workers benefit because immigrants offer them the opportunity to trade and by complementing them at work raise their productivity. The value of these effects is very difficult to estimate but at best is very small relative to the fiscal burden caused by the Canadian immigrants in recent decades.
The main cause of this fiscal burden is that Canadian immigrants who arrived after 1986 in the year 2005 had average incomes equal to only 70 percent and pay income taxes equal to only 54 percent of the average paid by other Canadians, while at the same time they absorbed the same amount of government services as did other Canadians in the form of free health, educational and social programs and through spending on the protection of persons, property, the environment and the many other spending programs characteristic of modern industrial countries. This information about the performance of recent immigrants is provided by Statistics Canada and is used by Grady and Grubel (2009) to consider their implication for government policy.
The difference between the taxes paid and benefits received by the average recent immigrant has been estimated in the Grady-Grubel study to come to about $6,000 per year. Considering the total number of immigrants in 2013, this difference implies that they imposed a fiscal burden of about $30 billion on other Canadians that year. This burden increases with the arrival of more and increasing numbers of immigrants.
The $30 billion equals about five times what Canadian governments spend on foreign aid and foreign affairs and equivalent to 70 percent of what they spend on the military and the protection of persons and property.
The idea that immigrants can prevent the pending insolvency of unfunded public pension program is illusory. Immigrants reduce the unfunded liabilities while they are young but increase them once they are retired. Computer simulations show that immigrants can reduce unfunded liabilities only if their numbers increase continuously to offset this aging effect. For immigrants to offer a solution to the problem of the unfunded liabilities, the annual inflows would soon reach unsustainable levels (Bannarjee and Robson 2009).
What Explains Failures of the Model?
One explanation of the poor economic performance of the system is that in 2015 only about 30 percent of all immigrants, the so-called principal applicants have passed the points test. The other 70 percent consist of their spouses and children, parents and grand-parents, and refugees whose economic prospects have not been assessed.
Investors, who might be expected to have high incomes and pay high taxes, fail on both grounds because many of them invest their money in housing rather productivity-enhancing business capital, continue to live in their native countries and pay income taxes only there. Their spouses and children live in the houses they have purchased and live on non-taxable transfers from the investor while they use Canada’s free health, education and other social programs.
Because of these problems, the system described above was changed in 2014 to where investors now face much stiffer requirements to qualify for a visa, which has led to a dramatic reduction in number of investor immigrants and the damaging practices described.
Another explanation of the poor economic performance of recent immigrants is that the quality of their education and skills required by the Canadian government (Government of Canada (5)) do not actually meet Canadian standards because the foreign institutions of higher learning used to document the immigrants’ educational attainment levels themselves have lower standards.
For example, Canadian employers with immigrants who have an engineering degree from an Asian university often use them only to prepare engineering drawings rather design buildings and bridges. Another example involves immigrants with certificates qualifying them to work as medical doctors. Most of them are unfamiliar with Canadian institutions, practices and pharmaceutical products and take a long time to pass Canadian examinations qualifying them to practice medicine in the country.
Further adding to the poor economic performance of immigrants admitted on the basis of their high selection points is that some may have used forged certificates of educational and language attainments (Green 2009). No reliable estimates exist of the magnitude of this problem but may be inferred from the fact that many small shops located around the Canadian High Commission in Delhi are doing a thriving business selling such certificates and the internet offers many business addresses for the purchase of fake certificates (Diploma Company (no date)).
Labour market discrimination has been cited as an explanation of the low incomes of recent immigrants. Such discrimination may exist, but its importance is diminished by the fact that for some time many businesses in Canada have been run by immigrants who according to the work of Nobel laureate Gary Becker (summarized by Murphy (2015)) may be expected to hire underpaid immigrant workers to maximize their profits but who in the process raise the wages of the workers suffering from discrimination by other Canadian employers.
Other Problems with the Canadian Model
Canada’s immigration model has had some other effects that do not increase the well-being of the general population. Thus, as the data on incomes show, immigrants have increased the supply of low-skilled and low-paid workers, many of which filled jobs that Canadians are unwilling to accept at existing wage levels. This fact is praised widely, but it also has an important down-side.
These immigrants depressed the wages of all low-skilled workers and increased the incomes of employers and professionals. Abdurrahman Aydemir and George Borjas (Aydemir and Borjas 2007) concluded that immigration decreased the earnings of Canadian high school dropouts relative to the earnings of workers with at least a college diploma by at least 12%. As a result, the inequality of Canada’s income distribution has increased significantly.
The hiring of low-skilled and low-wage immigrants has had an additional negative effect. It reduced the incentives of employers to invest in labour-saving capital and technology. Such investment would have raised the productivity and wages of Canadian workers and made them more willing to accept the jobs that previously they had shunned because they paid them too little. These benefits could have been attained while the profits of employers remained unchanged.
Absorptive Capacity and Parliament
Parliament’s setting of the annual number of immigrants has not worked well for Canadians as there are important indications that it exceeds the country’s economic and social absorptive capacity.
Most of the immigrants have settled in Montreal (14 percent), Toronto (40 percent) and Vancouver (15 percent) to join communities of people from their home countries (Metro Vancouver (no date)). Virtually none have settled in Canada’s vast, thinly populated areas because they are not well suited for human habitation and have been losing jobs and residents since farming has become increasingly mechanized.
Every week about 250 immigrant families have been adding to the demand for housing in the Greater Vancouver area and 400 in Toronto (Government of Canada (2)), (Statistics Canada 2017). This added demand has contributed significantly to the increase in the cost of housing in these two cities, which is viewed by many to have reached a crisis level. Speculators, who are often blamed for these price increases merely are anticipating their continuation and move forward in time the expected future excess demand for housing and price increases caused to a considerable degree by the large number of immigrants.
Importantly, these large additions to the population in these large cities have also taxed the capacity of the cities’ road, water, sanitary, transit, recreational, medical and educational facilities to where traffic congestion, wait-times for medical treatment and access to public recreational opportunities facilities impose great economic costs and inconveniences on the population.
Advocates for the present level of immigration argue that all of the costs just described would disappear if the supply of transportation infrastructure, housing, hospitals, schools etc. kept up with demand. These advocates blame governments’ inadequate funding and excessive regulations for the existing problems (Lammam 2017). This proposition is valid but misses the point that the political system has now proven for many years that it is incapable of providing the funding and of deregulating the construction industries to prevent the housing crisis and crowding of public facilities. In addition, the fiscal burden caused by recent immigrants contributes to the scarcity of funds for government spending on housing and infrastructure.
Yet, the solution to, or at least alleviation of these costly burdens on Canadians could be achieved by a number of policy changes, which were suggested to me in an email by James Bissett, a former Ambassador and
“Replace the judgement of civil servants in the selection of immigrants with that of Canadian employers who have powerful incentives to hire only applicants whose wages match their productivity, but who, in order to ensure that the taxes they pay at least match their use of public services, are required to hire only immigrants whose wages are at or above the average in the region in which the employers are located. Investors should be required to put their funds into productive business investment and pay taxes on their incomes abroad. In the future, parents and grand-parents should not be granted immigrant but only visitor visas.”
Another suggested solution would be to reduce temporarily the number of annual immigrants significantly to, say 50,000, which would cease mass immigration but allow the beneficial flow of migrants that have skill sets they can use to serve the interest of the economy and society. After the construction of housing and infrastructure has caught up with demand and the absorptive capacity of the country has been determined in the light of recent developments, the number of immigrants per year can be changed to the optimum level.
Politicians have ignored the call for the kinds of reforms suggested by Bissett and for the temporary reduction in immigration levels that would make immigration policies properly serve the public interest. Why have politicians ignored these suggestions for reform? The answer is found in public choice theory (Lee 2012): Politicians are afraid that powerful and highly motivated interest groups will reduce their financial and electoral support and thus threaten their parties’ election chances.
These interest groups consist of immigrants who want to see their communities grow in numbers and political influence; employers wanting cheap labour and larger markets for their output; the construction and real-estate industries benefiting from the growth in the residential housing market; the owners of homes who enjoy large capital gains on the property; the builders of transportation infrastructure facilities who are needed to deal with traffic congestion; the professionals who enjoy the larger markets for their services as supervisors in businesses teachers and professors; the civil servants and welfare workers who are paid to serve the needs of immigrants and the vocal groups of idealistic individuals who believe that it is Canada’s responsibility to reduce poverty and suffering in the developing world and whose views are spread widely by the media.
Lined up against this collection of powerful, rich and idealistic supporters of the present immigration policies are the overwhelming numbers of Canadian voters who are too busy working and caring for their families to have the time to inform themselves about the burdens immigrants impose on them, especially since the interest groups and politicians with the help of the media are very effective in hiding or denying the damage mass immigration is doing to their interests (Munger 2017).
Canada’s first-past-the-post electoral system discourages the foundation of an anti-immigrant party of the type found in a number of European countries where proportional representation has allowed such parties to achieve substantial electoral successes and seats in parliament and which have influenced the debate over and the design of immigration policies. Canada’s immigration policies will remain unchanged at least until a reform of the electoral system, which the present government has promised in its election campaign but has failed to implement after two years in office.
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