Letting the Market Determined the Number of Immigrants

This article appeared in the Globe & Mail newspaper on May 11, 2012 as part of a week-long series of articles discussing Canada's immigration policies and the merit of substantial increases in the annual numbers admitted into Canada.

Since the early 1980s, Canada’s immigration selection policies have focussed on the principal applicant’s highest educational achievements and language skills, explicitly to ensure that immigrants would be suitable for employment and economically successful once they arrived.

But data based on the 2005 census and published by Statistics Canada show these policies have not been successful.  Immigrants who arrived between 1987 and 2004 earned incomes that were on average equal to only 70 percent of the incomes of Canadians.  These recent immigrants have higher than average levels of unemployment and lower labour force participation rates.  They also disproportionately have incomes below the official poverty line.

Significantly, these recent immigrants pay income taxes that are only 54 percent of the national average.  Because of their low incomes, they also pay less than the average in other taxes.  At the same time, these immigrants are entitled to all of Canada’s generous social programs and enjoy at no costs the benefits of the country’s spending on infrastructure and security.

In Fiscal Transfers to Immigrants in Canada: Responding to Critics and a Revised Estimate, my co-author Patrick Grady and I estimated the average new recent immigrant is imposing a fiscal burden on Canadians of about $6,000 annually as they use that much more in government services than they pay in taxes.  The total fiscal burden in 2012 was around $20 billion for immigrants who arrived between 1987 and 2011.

This fiscal burden will never be repaid.  The 2005 employment income of the sons of second generation visible-minority immigrants (where one or both parents were born abroad), was only two thirds of non-immigrant Canadians.  Third and later generations will most likely have the same average incomes as other Canadians and thus will never pay enough taxes to compensate for the fiscal shortfall recorded by their parents.

Reforms of the present immigrant selection policies are needed to prevent a growing future fiscal burden. Immigration Minister Jason Kenney has begun this process. 

One of the most important changes is giving preference to applicants who have a pre-arranged employment contract for work in Canada.  Grady and I recommended this change because it would relieve civil servants of the responsibility of selecting immigrants on the basis of information that by its very nature is imperfect and would allow employers to make the initial decision as to which applicants have the needed occupational and language skills to earn their pay and become economically successful Canadians.

Limited experience with this pre-arranged job-offer criterion, which provincial governments have also embraced enthusiastically, shows much promise.  It is time to use job-offers as the main criterion for the admission of all skilled immigrants, who may be accompanied by their immediate family members.   

The successful operation of this system will require a quick approval process and continued government involvement in its administration and the screening of immigrants to protect public security and health.  Adequate resources must be devoted to monitor the income tax returns of immigrants to make sure they are indeed paid the amount promised in the employment contract and that they have not become unemployed for prolonged periods.

The avoidance of the fiscal burden also requires that the immigrants’ pre-arranged contract offers pay equal to at least the average income of Canadians.  This condition is needed to prevent a flood of low skilled immigrants with little earnings capacity who would not pay enough taxes to cover the cost of the public social programs they are entitled to.

The proposed policy would not only stop the growth of the fiscal burden but would solve two problems associated with the present system.  It would make the number of immigrants responsive to business cycle conditions and would determine how many immigrants were allowed to enter Canada annually. 

This number would no longer be the outcome of arbitrary decisions driven by politicians, bureaucrats and special interest groups but would be determined by labour market conditions and thus better serve the needs of the economy and all Canadians.