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 former
head of Canada’s immigration service run by the federal government:
“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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