NUMBER 84 / SEPTEMBER 2005 - Fraser Institute

SOURCESPUBLIC POLICY

Immigration and theWelfare Statein Canada: Growing Conflicts,Constructive Solutions

by Herbert Grubel, Professor of Economics (Emeritus),Simon Fraser University and Senior Fellow, The Fraser Institute

ContentsAbstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5PART I: The Problem: Immigration and the Welfare State . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6PART II: Causes of Poor Average Economic Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26PART III: Towards a New Immigrant Selection System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Appendix A: Immigrant Earnings and Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Appendix B: Comparison of Australian and Canadian Immigration Policies . . . . . . . . . . . 57References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

NUMBER 84 / SEPTEMBER 2005

A FRASER INSTITUTE OCCASIONAL PAPER

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Date of issue: September 2005

Abstract

The paper1 cites official statistics showing that recentimmigrants on average have lower incomes thancomparable Canadians even after 10 years’ residencein Canada. As a result of the low income, the progres-sive income tax structure of the Canadian welfarestate and the universal availability of governmentbenefits results in substantial transfers from otherCanadians to these immigrants. A tentative estimateof these transfers to immigrants who arrived between1990 and 2002 values them at $18.3 billion in 2002.

This paper examines the causes of the decline inthe economic performance of recent immigrants andblames the immigrant selection process used by thegovernment of Canada.

The paper proposes the creation of a new immi-grant selection process that would reduce the burdenon Canadian taxpayers and reduce the hardshipsimposed on immigrants who cannot find employ-ment to which their education qualifies them.

The proposed selection process is modeled afterthat used successfully under the NAFTA treaty.Under this new system, foreigners can enter Canadaon renewable, temporary work visas only if they havea valid employment contract. These temporary workvisas eventually lead to landed immigrant status forthe workers and their families.

The Fraser Institute 3 Immigration and the Welfare State

1 I thank Martin Collacott, Gordon Gibson, and Mark Mullins for many useful suggestions that greatly improved the quality of thisstudy. Michael Walker, the Executive Director of The Fraser Institute, first suggested to me the extension of the NAFTA system foradmitting temporary workers to allow foreign workers to enter Canada from all countries, which forms the basis of the policychanges recommended here. Niels Veldhuis of The Fraser Institute has provided me with many economic data used in this study. Ialso thank the John Dobson Foundation for its financial support during the time that I worked on this paper.

Immigration and the Welfare State 4 The Fraser Institute

Executive Summary

The immigrant selection process used by the Gov-ernment of Canada is in dire need of fixing. Manyhighly educated recent immigrants cannot find jobsin their professions. Statistics Canada shows that av-erage incomes of recent immigrant cohorts are wellbelow those of Canadians with similar demographiccharacteristics, even 10 years after their date of immi-gration. These facts are important because Canadahas a pervasive welfare system and it is no longer truethat immigrants do not affect the incomes of Canadi-ans directly.

Canada’s welfare system relies on a highly pro-gressive personal income structure and provides uni-versally accessible free government benefits. Becauseof the low incomes of immigrants, this system hasresulted in substantial net transfers of taxpayers’money from Canadians to the recent immigrants.These costs are estimated to be $1.4 billion in theyear 2000 for the cohort of immigrants that arrivedin 1990. For all of the immigrants who arrived duringthe 13 years before 2003, the cost in 2002 alone isestimated to be $18.3 billion. Such costs have alsobeen noted in Europe’s Nordic states, which areknown for the pervasiveness of their state welfaresystems. Observers there note that the welfare stateis incompatible with mass immigration and policiesare enacted to curb the latter.

Government employees and academics havestudied the reasons for the low incomes of recentimmigrants in Canada. The findings of these studiesare still tentative, but point to the large numbers ofimmigrants who bypass the government screens thatare designed to allow entry only to foreigners likelyto be economically successful. Those bypassing thescreen include large numbers of family members andrefugees, many of which have low earnings capacity.

There are other causes of low average incomes ofrecent immigrants. They include the wage-depress-ing effects their numbers have on the incomes of all

workers with low skills in the country; the inability ofmany immigrants to find work for which their higheducation qualifies them; and the insensitivity ofannual immigration rates to labour market conditionsin Canada, a policy of relatively recent origin.

This paper recommends a continuation of theefforts to achieve a better use of the high skill levels ofthe recent wave of educated immigrants. However,its main recommendation involves a fundamentalreform of Canada’s immigration selection process toprevent the need for such measures and to avoidlarge costs to taxpayers in the future.

The essence of the proposal is that foreigners beallowed to enter Canada for an extended period onlyon a temporary work visa, which is issued to theholder of a valid offer for employment in specifiedoccupations in Canada (or, alternatively, at a rate ofpay above a specified minimum).

The work visa should be renewable and can leadto regular, permanent immigration status after a cer-tain length of time. Unemployed holders of tempo-rary work visas would face deportation. Private firmsin a public-private-partnership arrangement wouldcollect and maintain information needed by govern-ment to enforce the regulations. As taxpayers, theholders of temporary work visas are entitled to allgovernment benefits available to Canadians.

The proposed reform of Canada’s immigrantselection process is based on the one used success-fully under the NAFTA treaty. Its main feature is thereplacement of the judgments of governmentemployees issuing visas with the judgments of pri-vate employers about the economic value of poten-tial immigrants. The government remains involvedby determining the occupations or minimumincome requirements needed for qualifying employ-ment contracts. It also remains involved in enforcingthe proposed rules and deporting those who do notmeet specific work requirements.


Introduction

“For the average male immigrant who cameto this country in the 1970s, life was good.Within five years, his chances of being unem-ployed were lower than those of Cana-dian-born men. Within 10 years, his yearlyearnings caught up to those of the typical Ca-nadian.

“But the past two decades have seen a dra-matic reversal of fortune.

“Today, 10 years after arriving, the averageimmigrant earns just 80 percent of what aCanadian-born worker takes home. Ac-cording to 2001 census data, recent immi-grants—those living in Canada for less thanfive years—suffered an unemployment rateof 12.7 percent, considerably higher thanthe 7.4 percent rate among the Cana-dian-born.

“Even though immigrant men are arrivingwith much more education than their prede-cessors, their inflation-adjusted earnings fellan average of seven per cent between 1980and 2000. That fall was not the product of apoor economy, since the earnings of Cana-dian-born men went up seven per cent dur-ing the same time.”—Extract from Andrew Duffy, “Fears of anUnderclass” Toronto Star, September 28,2004.2

“We are in awe at the ineptitude of the Cana-dian immigrant selection process.”—Robert Birrell, Director of the Centre forPopulation and Urban Research at MonashUniversity inMelbourne,Australia (viae-mail)

The first quote aptly summarizes the basic prob-lem created by Canada’s immigrants. The secondquote explains the simple, basic cause of the problem:The current system used in the selection of immi-grants over approximately the last 25 years is severelyflawed.3

The first part of this study shows that the pooreconomic performance of these immigrants resultsin a substantial burden on Canadian taxpayersbecause of the progressivity of the personal incometax structure and the universality of access to gov-ernment benefits.

The study’s second part reviews the ongoingwork of academics and government agencies toexplain the relatively poor average economic perfor-mance of recent immigrants.

The third part proposes fundamental reforms toCanada’s immigrant selection process. The reformsproposed include continuing Canada’s traditionalwelcome to immigrants but replacing governmentagents with private sector employers as the judges ofwhich foreigners are likely to be economically suc-cessful in Canada.

2 The author of this quote is the 2003 recipient of the Atkinson Fellowship in Public Policy. The Ottawa Citizen reporter, formerly withthe Star, recently completed his year-long study of the relationship between immigration and education in Canada.

3 I have used the first quote from a popular Canadian newspaper in part because it is known for the liberal bias of its content, so its un-ease is a signal to readers that the results reported are now of concern to a wide range of the Canadian public. The statistics the articlecites come from Statistics Canada. The second quote comes from a well-known academic specializing in immigration issues. Itshows that Canada’s problem is well known abroad, even though in Canada its public discussion has long been stifled by the code ofpolitical correctness. The first quote suggests that perhaps this code is beginning to be violated. The present paper is designed tocontinue this process.


PART I—The Problem: Immigration and

the Welfare State

Chapter 1: The Economics of Immigration

and the Welfare State

Most Canadians believe that immigration is “good forCanada.” Often, at a very personal level, they supportliberal immigration policies because their parents orgrandparents were immigrants and, if these ances-tors could not have come to Canada, they would notbe here and enjoying the many benefits that the coun-try offers.

The classical model of the economic effects ofimmigration strengthens these views about the ben-efits from liberal immigration.4 The immigrantsclearly benefit, for otherwise they would not havemoved to Canada from whatever country and condi-tions they left. They do not lower the incomes ofCanadians already here since the new arrivals tendto earn incomes equal to what they contribute tooutput.5

The Canadian economy and society as a wholegain by what economists call “externalities” due toimmigration. Thus, immigrants increase opportuni-ties to trade. To some extent they foster greater spe-cialization of skills and higher productivity thatcomes with it. Immigrants also increase the size ofthe market for goods and services, which oftenresults in productivity-enhancing economies ofscale. Landowners enjoy increases in the value of

their holdings as the immigrants add to the demandfor that scarce resource. The diverse cultural back-grounds of the immigrants enrich what is oftencalled the Canadian “cultural mosaic” and overallquality of life.

In the classical model, government operates atthe minimum level necessary for the efficient opera-tion of the economy by providing free basic educa-tion, internal security, justice services, andprotection from foreign threats. In this model, thetaxation system relies mostly on revenues from tar-iffs, and property and sales taxes, so that every immi-grant pays taxes more or less in proportion to theconsumption of goods and services they buy.

The fiscal burden of liberal

immigration

These unambiguously positive results of immigra-tion have become much less so with the developmentof the welfare state, which uses progressive personalincome taxes, and capital gains and business incometaxes to equalize income distribution. Almost all newarrivals in Canada have earnings for a number ofyears that are below their eventual peak earnings. In

4 See Grubel and Scott (1966) for a more detailed exposition of this classical model of the economics of migration, which was appliedto the study of the brain drain, an issue of great concern throughout the world in the 1960s and 1970s. The model became knows asthe “internationalist model of the brain drain.”

5 This statement is based on a widely accepted economic theory known as the marginal productivity theory of wages. However,large-scale immigration of low-skilled workers tends to depress the wages of native workers with such skills. At the same time, suchimmigration raises the returns to capital and the owners of land. This income redistribution has sometimes been used to argueagainst large-scale immigration of low-skilled workers, but it appears never to have influenced Canadian immigration policies. Inthe following analysis the possible income-redistribution caused by the large-scale immigration of low-skilled workers is disre-garded since its implications involve largely non-economic and political judgments about the social costs of such income redistribu-tion and my analysis focuses on the effects of immigration on average incomes.

the case of recent immigrants, these peak earningsare below the incomes of comparable other Canadi-ans for the rest of their lives in the country. As a re-sult, under the progressive income tax system, theypay proportionately less taxes than do other Canadi-ans, on average. A very large fraction pays no per-sonal income taxes at all.

The other important aspect of the welfare state isthe pervasive program of social benefits, such as wel-fare for the indigent, free health care for the sick, andpensions for the elderly poor. Immigrants with thelowest incomes are automatically eligible for thesecostly social benefits. In addition, the welfare stateresults in much costly expenditure to produce ser-vices specifically for recent immigrants.

The low taxes paid by a large number of immi-grants and the cost of the social benefits they con-sume represent a fiscal burden on Canadiantaxpayers and lowers their living standards. As aresult, there exists a conflict between liberal immi-gration policies and the viability of the welfare state.This problem simply does not exist under theassumptions underlying the economic case for lib-eral immigration spelled out above.

Other differences with the

classical model

Immigration creates another set of difficulties for thewelfare state because immigration interferes with theattainment of several important policy objectives.

One of these objectives is the elimination of pov-erty. Immigration of individuals that end up with lowincomes has made it more difficult to lower povertyrates. In fact, as will be shown below, recently immi-gration has increased poverty rates that otherwisewould have fallen.

Some other assumptions of the classical modelno longer hold in the twenty-first century. Forinstance, there are no more benefits from scale econ-omies in production because flourishing interna-tional trade encouraged by low transportation costs

and free trade agreements allows countries to reap allavailable scale economies without needing a domes-tic market of great size. At the same time, increasingcongestion and pollution caused by the populationinflated by immigration imposes new costs on theexisting population.

The low costs of travel, communication, and thegrowing homogeneity of cultures around the worldhave decreased the benefits from cultural diversity inCanada itself. The enrichment of Canadian culturethrough more immigrants from diverse cultures maywell have low marginal benefits, given the alreadyexisting diversity.

Benefits of population

growth?

A new argument has been developed recently in sup-port of liberal immigration policies, which is notfound in the usual formulation of the classical model.This new argument is that population growth in itselfprovides positive externalities that are different fromeconomies of scale and the benefits from increasedopportunities from trade. For example, growth facili-tates adjustment as some industries decline and oth-ers grow. In a growing population, young anddynamic persons represent a larger proportion thanthe old so that the entire economy and society is moredynamic.

However, this analysis of gains from a growingpopulation is of questionable validity. It is true that agrowing population provides benefits for the existingsocial benefit system that relies on pay-as-you-gomodels of payment and under which the young paytaxes to finance the benefits for the older generation.During the transition from high to low populationgrowth, the tax burden on the young grows, and insome forecasts reaches levels so high that they arebelieved to threaten the very existence of the socialprograms.

This benefit appears to be especially strong sincethe fertility rate of native-born Canadians has been


PUBLIC POLICY SOURCES, NUMBER 84

falling since the 1960s. At its present level, the fertil-ity rate threatens to stop all population growthwithin a few decades and will then cause an absolutedecline in Canada’s population. Immigration in prin-ciple can keep population growth positive, and thusalleviate the costs associated with a stagnating ordecreasing population in Canada.

The preceding positive assessment of benefitsflowing from a growing population fed by immigra-tion is of questionable value for a number of reasons.First, it is not at all clear that a stagnant or evendeclining population causes economic problems.What counts for human welfare is the level of percapita income, which is not threatened by reducedpopulation growth. A reduced population growthmay in fact raise per capita income.

A declining population will mean an adjustmentin the mix of goods and services that the economyproduces. The demand for some occupations, suchas construction, will shrink, while the demand forother occupations, such as health care and recre-ation, will increase. But since the demographicchanges develop slowly, the adjustment problems willbe small, especially if they are foreseen properly by theprivate sector, and if governments do not interferewith them through the use of inappropriate policies.

Second, studies have shown that the mainte-nance of the present ratio of working-to-retired per-sons requires annual immigration rates equal tothree percent of the population in most advancedeconomies. Such immigration rates are likely toresult in serious problems with absorption andadjustment that are certain to encounter strongpolitical opposition. Therefore, immigration is notlikely to be a politically acceptable solution to theproblem of unfunded liabilities of Canada’s publicpension and health care systems.

Third, using immigrants to overcome the prob-lem of the aging population postpones rather thansolves the basic problem. Experience has shown thatsoon after their arrival in Canada, immigrants whocome from countries with traditionally large families

reduce their fertility to the low levels of the Cana-dian-born population.

Classical incentives

for migrating

The classical model of migration on which the viewsin favour of liberal immigration policies rest also con-siders the motives of individuals to move to anothercountry. The positive driving forces behind the mi-gration decision are expected higher incomes,greater freedom, security and social conditions, andsimilar considerations, all modified by uncertaintiesabout their level and speed of attainment. These ben-efits are reduced by the expected cost and risk oftravel, often the need to learn another language, theloss of support in case of economic and health prob-lems from families and friends, the loss of familiaritywith social and cultural customs, and so on. Onlywhen benefits exceed costs is the decision made to goahead and migrate.

During the nineteenth century and before, theestimates of benefits and costs, properly adjusted forrisk, resulted in low and relatively stable rates of emi-gration except under certain unusual conditions,when emigration rates soared. Such conditions his-torically have been economic recessions, war,domestic political instability, persecution, famineand similar developments that saw waves of emigra-tion from Ireland, Britain, Germany, Poland, andother mainly European countries. During that cen-tury, Canada received a certain share of themigrants from these countries and the result was afairly steady flow at rates that created no seriousadjustment problems, given the endogenousgrowth of the Canadian population.

On occasion, Canadian policies in pursuit of eco-nomic goals created special incentives to immi-grants. For example, in the late 1800s, the building ofthe transcontinental railroad created a demand forconstruction labour, much of it coming from Chinaand Japan. Also during that time, the prospect of free



land for settlement granted by the builders of therailroad resulted in the immigration of many settlers.People from the Ukraine and Poland dominated thiswave of immigrants. During the late 1960s and early1970s, Canada granted income tax concessions last-ing two years to professors from abroad. The policywas designed to foster the size and quality of Canadianuniversities and reduce the dependence of Canadianswho wanted to pursue graduate degrees on the UnitedStates, the United Kingdom, and France.

The new incentives

During the last half of the twentieth century and intothe present, the migration incentives changed dra-matically. Labour incomes in Canada were higherthan in the developing countries of Asia, Africa, andLatin America by a much bigger margin than had ex-isted in history when largely Europeans settled Can-ada. The cost of transportation and the risksassociated with it dropped dramatically. The estab-lishment of a wide and generous social security netand progressive income taxation further increasedthe income gains from immigration to Canada. At thesame time, the government removed the previously

existing rules that favoured immigrants from Europeand the United States on ethnic and cultural grounds.

As a result of these developments, the incentivesto migrate to Canada from Asia, Africa, and otherdeveloping countries have become stronger thanthey have ever been in the past. At the same time, thesupply of potential immigrants is virtually limitless,given the size of the population in these developingcountries, in particular India and China, relative toCanada’s and the country’s absorption capacity.

The recent over-supply of immigrants has pro-duced the need and opportunity to select only immi-grants who can be expected to make a positiveeconomic contribution and who are not likely toimpose burdens on Canadian taxpayers. The analysisbelow shows that unfortunately, the selection pro-cess that the government of Canada is using hasfailed to work properly. The average incomes ofimmigrants in recent decades have been below thoseof earlier cohorts of immigrants by so much that theyimpose a heavy burden on Canadian taxpayers.

The main objective of the following chapter is topresent statistics that document the poor economicperformance of recent immigrants.



Chapter 2: The Economic Performance of

Recent Immigrants

This chapter presents statistical evidence on the rela-tively poor economic performance of recent immi-grants, drawing mainly on the detailed analysis doneby reputable economists working in universities andfor the government of Canada, who in turn have re-lied mostly on data taken directly from publicly avail-able data produced by government statistical offices.

The most important of these data come fromcensuses, which are taken every 10 years in the firstyear of each decade. Many of the studies reviewedhere use samples of 5 percent of the population thatcontain detailed answers to questions on income andbasic demographic characteristics of individuals andfamilies. Some statistics draw on smaller censusesthat take place very 10 years in the middle of everydecade.

It is important to note that the statistics used inthis section involve averages of groups of immigrantsin comparison with averages of groups of otherCanadians. The use of such averages in drawing gen-eralizations about groups of individuals and in devel-oping policies is often criticized. A typical issueraised is that there exist persons known to the critic,possibly referring to his or her own conditions, whohave done better than the average.

Such observations, while undoubtedly true, donot invalidate the calculation of the average. Nor do

they invalidate the use of group averages in thedesign of policies. Small samples and especiallyhighly selective samples drawn from knowledge of afew individuals cannot serve as a rational basis forgovernment policies.

Earnings of recent immigrants

and other Canadians

Table 1 summarizes the most basic set of informationon the economic performance of recent immigrants.It shows the average earnings of immigrant men as apercentage of the average earnings of Canadian-bornmen in the first, fifth, and tenth year after the arrivalof the immigrants in Canada for the three years 1980,1990, and 2000.

The first important fact revealed by the data isthat the immigrants’ earnings become more equal tothose of native-born Canadians the longer the immi-grants have been in Canada. This phenomenon isexplained by the fact that the immigrants have per-fected their knowledge of English or French, becomefamiliar with labour market conditions, adaptedtheir skills to local demands, and established a recordof work and personal qualities to back their searchfor better employment.

For example, the second column of the tableshows the results from the 1980 census. In that cen-sus, the average earnings of immigrant men who hadbeen in Canada for one year were found to be 72 per-cent that of Canadian-born men. These earningsratios rose to 92 and 100 percent for immigrants inCanada 5 and 10 years respectively. The other col-umns show the same progression of immigrants’ rel-ative incomes as a function of the time they havebeen in Canada.

The second, and for the present purposes mostimportant fact revealed by the data in table 1, is thatthe percentage earnings of immigrant men relative


Table 1: Earnings of Immigrant Men

as a Percent of Earnings of

Canadian-born Men

Years sinceImmigrants’Arrival

Censusof

1980

Censusof

1990

Censusof

2000

1 72 63 63

5 92 77 77

10 100 90 80

Source: Worswick (2004), which cites Statistics Canada Census DateRelease of March 11, 2003.

to those of Canadian men for every one of the threelengths of stay in Canada have fallen through time.Consider the bottom row concerning immigrants inCanada for 10 years. In the 1980 census, their earn-ings were equal to those of Canadians. In 1990 the10-year immigrant men had reached 90 percent ofthe earnings of their Canadian counterparts. Cru-cially, by 2000, the figure had fallen to 80 percent.Gaps of 20 percent in the mean income of immigrantsmeans that numerically a large proportion of themhave incomes below the average income of the rest.

See appendix A for additional data on the eco-nomic performance of immigrants belonging to dif-ferent demographic groups. These groupings involvemen and women in different age groups and with dif-ferent levels of education, comparing 1980 with 2000census data. For example, the appendix table showsthat between 1980 and 2000 the average real incomeof Canadian men with university degrees aged 16 to64 rose 10 percent while the incomes of recent immi-grants with the same characteristics fell 13 percent.In the class of Canadian-born women with the sameeducational attainment and age, the increase was 11percent, while that of recent immigrant women roseonly 6 percent.6

Reitz (2005) adds to this information with a newcompilation of earnings of men aged 25-54 with uni-versity degrees. Table 1 of his paper shows that in theyear 2000, the 176,500 immigrants with universitydegrees who had arrived during the decade 1990-1999 had average earnings of $41,663. In that year,the 989,800 Canadian-born men of the same age andeducation earned an average of $66,520. These fig-ures imply immigrant earnings at only 63 percent of

those of the Canadian born.7 This figure is not com-parable to the 80 percent figure used extensively inchapter 3 and which focuses on earnings of immi-grants 10 years after their arrival in Canada and hav-ing adapted to the labour market.

Immigrant earnings after

ten years

An important question for the analysis of incomes ofimmigrants over time concerns the appropriatenessof limiting the income data to those who have been inCanada for 10 years. Frenette and Morissette (2003),who work for Statistics Canada, address this questionin their paper revealingly titled, Will They Ever Con-verge? Earnings of Immigrant and Canadian-bornWorkers Over the Last Two Decades. They conclude:

Our primary goal in this study has been to ex-amine what outcomes would be necessary fortoday’s recent immigrants to achieve earn-ings parity with Canadian-born workers. Ourresults suggest… their earnings will have togrow at an “abnormally” high rate in the com-ing years in order to converge with Cana-dian-born earnings. (p. 19)

The authors did not offer any guess about theprobability that such “abnormally” high rates of con-vergence are likely to occur, but the wording chosensuggests that this probability is very low. For immi-grant cohorts before the 1970s, 10 years was enoughto learn the language and otherwise adjust to Canadasufficiently to have earnings equal to or even slightlyexceeding those of Canadians. This fact suggests thatthe relatively low earnings of the recent cohorts after



6 The data also show that in a few categories, such as men aged 25-29 with a high school education or less, the recently arrived immi-grants suffered smaller real income decreases than did the Canadian-born workers. However, generally, the data in this table areconsistent with the proposition that immigrants in recent decades have been earning increasingly less relative to Canadians.

7 In his study, Reitz focuses on the loss of national income allegedly due to the under-utilization of the human capital of immigrantsand on the hardships encountered by the underemployed immigrants. He suggests a number of policy initiatives that the govern-ment of Canada should undertake to deal with this problem. He does not suggest any changes to the immigrant selection process tostop the continuation of the problem in the future.

10 years in Canada are due to factors other than theneed to learn the language and adjust to labour mar-ket conditions. The second part of this study reviewsmore evidence relevant to this issue.

Immigrants and low income

statistics

Statistics Canada defines families with incomes be-low the Low Income Cutoff point (LICO) as thosethat spend more than 58.5 percent of their income onfood, shelter, and clothing. Canadian governmentsput much effort into policies designed to reduce thenumber of individuals that have LICO incomes, andthus to increase the equality of disposable incomes inthe country.

There has been much public discussion aboutthe fact that the LICO measure does not reflect thelevel of poverty in Canada8 but that it is a reflection ofincome inequality before taxes and subsidies. Never-theless, many Canadians attach much importance tothe LICO statistics, so it is useful to consider howimmigrant families perform by this measure and incomparison with Canadian-born families.

Figure 1 presents the relevant data. The horizon-tal axis shows the census years that generated thesestatistics.9 The vertical axis shows the proportion ofimmigrants with LICO incomes divided by the pro-portion of native-born Canadians with such incomes.

To understand the meaning of the lines shown inthe graph, consider the point on the top line for theyear 2000. The basic numbers underlying the pointin the graph were as follows: 35.8 percent of theimmigrant families had incomes below LICO while14.3 percent of the Canadian-born families did.Dividing 35.8 by 14.3 equals 2.5, the number shownin the graph.

In other words, in the year 2000, immigrant fam-ilies who had been in Canada for less than 5 yearswere 2.5 times as likely to have incomes below LICOthan were Canadian families. The top line traces thisindex for immigrants who have been in Canada forless than five years over all censuses. This line hasbeen on a steady upward trend from the 1980 censusonward, with only a slight decline from the peak in1995 to the latest census of 2000.

The other lines shown in the graph are forgroups of immigrants that have been in Canada fordifferent lengths of time. Most interesting for ouranalysis is the bottom line: immigrants who havebeen in Canada for more than 20 years. These immi-grant families tabulated in the 1980 census had cometo Canada in 1960 or before. The incidence of LICOincome for these families was equal to that of Cana-dian families in 1980 but less than that in the follow-ing censuses.



Figure 1: Low Income Rates by

Immigration Status

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1980 1985 1990 1995 2000

Census years

Imm

igra

nt

Po

ver

tyR

ate

so

ver

Na

tiv

eB

orn

Po

ver

tyR

ate

s

Less than 5 years

6 to 10 years

11 to 15 years

16 to 20 years

More than 20 years

All immigrants

Source: Picot and Hou (2003), table 1, p. 23.

8 See Sarlo (1996) for a comprehensive analysis of the issue and a genuine measure of poverty.

9 The data for the 9 years between the major censuses are based on smaller samples.

The statistics in figure 1 can be used to infer thetime when the crucial relationships began to change.Consider the line tracing the immigrants in Canadabetween 16 and 20 years. As can be seen, this line isbelow one in the 1980 and 1985 censuses and equalto one in the 1990 census. This means that immi-grants with these favourable LICO conditions hadarrived in the years 1960-64 (and were measured inthe 1980 census) and arrived in the years 1965-69(and were measured in the 1990 census). Those whoarrived over the 5 years following 1969 in the 1990census had the same poverty rates as Canadians.

However, as the line in figure 1 shows, those whoarrived after 1975 had a higher incidence of povertyat the time of the 1995 and 2000 censuses.

The line tracing those who have been in Canada11 to 15 years also shows that those surveyed in the1980 census, and therefore identified as having ar-rived during the period 1965-69, have lower povertyrates than other Canadians. Those surveyed in the1985 census and who had arrived in 1970-74 had pov-erty rates equal to those of Canadians. Only arrivalsafter 1975 and surveyed in the censuses of 1990-2000had higher rates of poverty than Canadians.



Chapter 3: The Fiscal and Other Burdens

on Canadians

Akbari (1989) examined the question of whether ornot immigrants impose a fiscal burden on other Ca-nadians. He used a micro database from StatisticsCanada to measure the amount of taxes paid, andsubsidies and services received, by immigrants. Heconcluded, “The immigrants on average are a sourceof public fund transfers to non-immigrants.”DeVoretz and Pivnenko (2004) reached much thesame conclusion when they used a similar micro da-tabase but concentrated on conditions in Canada’slarge cities.

The results of these two studies are driven by aconsideration attributed to Julian Simon, thewell-known economist who successfully challengedmany popular views on population growth, the envi-ronment, and natural resource depletion. The con-sideration is that immigrants arrive in Canada at anage when they require no more government spend-ing on education. For the rest of their lives in Canada,they pay taxes and draw on government services likeother Canadians. Using this proposition, the authorsestimate that the present value of the governmentservices absorbed and taxes paid over the lifetimes byimmigrants are less than those of other Canadians.

This conclusion is based on a model ofintergenerational education financing that is basi-cally flawed. Every generation of adults pays for thecost of educating their children. Adult immigrantsbring along their children, and these children put aburden on the public education system, even thoughthe immigrants themselves do not. If these Cana-dian-educated children of immigrants were to emi-grate later in their lives, other Canadians would notlose since the emigrants take along the responsibilityof paying for their own children’s education in theirnew country of residence.

Calculations of the present value of lifetime taxespaid and services consumed by immigrants in com-parison with other Canadians depends their respec-

tive earnings profiles: the median, mean, and percen-tile distribution of incomes. The estimates presentedbelow show the existence of substantial transfersfrom other Canadians to immigrants that are due tothe fact that immigrants in recent years have hadlower incomes than other Canadians. As a result, theprogressive personal income tax system, as well asother taxes that are related to income, requires theaverage immigrant to pay fewer taxes than do otherCanadians, while both groups absorb roughly thesame value of government services.

The ModelThe simple model underlying my calculations is:

FT = (To - Tc) - (Go - Gc) (1)

where FT is the average per capita fiscal transfer,T is average per capita taxes paid,G is average per capita expenditures on pro-

grams (that is, excluding payments on the debt),c denotes the immigrant cohort, ando denotes the group “other Canadians.”

The basic calculations made in this study use tax andspending data for the year 2000 for “other Canadians”and for the cohort of immigrants who arrived in 1990and therefore had been in Canada for 10 years in2000. Their number is taken from the official websiteof the Department of Citizenship and ImmigrationCanada and includes all categories of immigrants, in-cluding refugees admitted that year.

The incomes and taxes of the group referred toas “other Canadians” are equal to the numbers of allCanadians found in published sources. For the pur-poses of the present analysis I assume that removal ofthe incomes and taxes of the immigrant cohort doesnot significantly affect these values on the groundsthat the total number of Canadians in 2000 was 31.5


million and the 1990 immigrant cohort numberedonly 216,000.

If FT > 0, the fiscal transfers on balance go fromthe other Canadians to the immigrant cohort. If FT < 0,the transfers go from the immigrants to otherCanadians.

The aggregate dollar value of the transfers attrib-uted to the immigrant cohort in the year 2000 is esti-mated by multiplying the per capita tax and spendingvalues by the number of immigrants in the 1990cohort.

In the following I calculate the amount of taxespaid and government services received by the aver-age immigrant in the 1990 cohort and compare theseaverages with the corresponding averages of otherCanadians. The next section considers the fiscaltransfers for that same cohort over its life in Canadaand speculates about the total costs for a number ofimmigrant cohorts. The chapter concludes withthe review of some studies that consider ways inwhich immigrants impose non-monetary costs onCanadians.

Records on taxation

The following analysis rests heavily on the fact docu-mented above that the mean income of immigrantmen in the 1990 cohort was 20 percent below that ofother Canadian men in the year 2000.10

Data on personal income taxes paid by Canadi-ans found in Veldhuis (2003) are available on thebasis of income deciles, showing among other infor-mation what percentage of all personal income ispaid by the bottom half of all tax filers and by those inthe top ten percent of the distribution. This informa-tion is used to estimate the taxes paid by the averageimmigrant and the average Canadian.

The median income of Canadian tax filers in2000 was $22,500. The median income of immi-grants is assumed to be only 10 percent lower thanthat, or $20,200. The assumption that the median ofthe immigrant cohort was only 10 percent ratherthan 20 percent lower—as is the case with the meansof the two groups—is based on two facts. First, allincome distributions have a lower limit of zero andno limit on the upper end (which is the reason why allincome distributions show a lower median thanmean). Second, the 1990 immigrant cohort has few,if any tax filers, in the top decile.

The latter assumption is crucial to the followinganalysis. It is based on the little-known data shown intable 2 about the top ten percent of all tax filers inCanada:

In other words, the top decile of income earnersin Canada—those that had over $66,000 of taxableincome—paid 50 percent of all taxes. Those withearnings above $100,000 paid 33.3 percent.

We know that the incomes of people in the upperend of the distribution in Canada are due to the suc-cess of individuals who have climbed career ladders



Table 2: Level and Percent of Personal

Income Taxes Paid by Top Decile of

Income Tax Filers in 2000

Income of group Percent ofall taxes paid

Over $250,000 15.8

$150-250,000 7.1

$100-150,000 9.4

$80-100,000 8.4

$66-80,000 9.3

Source: Fraser Institute Tax Facts 13 (2003).

10 Ideally, information about taxes paid by immigrants should be obtained from micro data available from Revenue Canada. Thesedata include demographic information about taxpayers’ place of birth or how long immigrants have been in Canada, along with awide range of other information. I do not have the capability or resources needed to make use of these data and invite other econo-mists to do so.

in the professions and business for a long time, andare due to the ownership of property, some of whichis inherited. Given these facts, it is very likely thatfew, if any, of the 1990 immigrant cohort whoentered Canada as skilled immigrants had incomesat that level ten years later.

This assumption needs to be examined in light ofthe fact that in that 1990 cohort were immigrantsthat were admitted as “Investors, Entrepreneurs, andSelf-employed.” In that class, the investors obtainedvisas only if they had at least $400,000 to put into theCanadian capital market. The entrepreneurs had tohave at least $300,000 to invest. The self-employeddid not have to own investible capital, but insteadhad to have a demonstrated record of successfulself-employment abroad.

The immigrants in this class were few in num-ber—only 1.3 percent of all immigrants and 5.7 per-cent of the “Skilled Workers” class. (See Chapter 8for more details.) I think it unlikely that few of them,if any, have turned their investments into taxableincomes above $66,000 in 2000.

Based on these considerations, I make the fol-lowing assumption: The immigrant cohort of 1990has no income earners in the top 10 percent of theCanadian distribution of income. Below I present abrief analysis considering the sensitivity of my keyresults to changes in this assumption.11

Income and taxes paid

The following combines the preceding assumptionsabout the median level of income of the 1990 immi-grant cohort and the absence of any of the cohort inthe top decile with Tax Facts 13, a Fraser Institutestudy on the taxes paid by Canadians across incomedeciles. Consider first the data on all Canadians:• Tax filers with an income at or below $20,200

paid 3 percent of all taxes.

• Tax filers with incomes between $20,200 andthat group’s median of $22,500 paid 4.5 percentof all taxes.

• Tax filers between the median and the ninthdecile paid 38.2 percent of all taxes.

• Tax filers in the top decile pay 50 percent of alltaxes.The taxes paid by the immigrant cohort are:

• The lower half of the distribution consisting of50 percent of all filers: 3 percent;

• The group between the immigrant and all Cana-dian medians, consisting of 10 percent of all fil-ers: 4.5 percent;

• The group between the median of all Canadiansand the top of their ninth percentile, consistingof 40 percent of all filers: 38.2 percent.The weighted average of these rates for the 3 dif-

ferent groups comes to 21.3 percent. In other words,whereas other Canadians had incomes at levels thatrequired the payment of taxes that added up to 100percent of all taxes collected, the immigrant cohorthad members with levels of incomes that requiredtax payments that would have been equal to only 21.3percent of all taxes collected if the number of immi-grants had been as large as that of the other Canadi-ans. Put yet differently, the 1990 immigrant cohort in2000 on average paid taxes at rates equal to only 21.3percent of those paid by other Canadians.

It bears repeating that the causes of this gap inaverage tax rates paid are simple and straightfor-ward. First, the immigrants have low mean andmedian incomes and under the progressive personalincome tax system used in Canada, the personalincome tax rates this group faces are very low. Thehalf of the immigrants with higher incomes are con-centrated in deciles of the distribution that are sub-ject to rates of taxation at levels that produce only38.2 percent of all tax revenues. By assumption, theimmigrants have no filers in the top decile of the dis-



11 Mark Mullins suggested this sensitivity analysis.

tribution, which pays over one half of all taxes paidby other Canadians.

How sensitive are these results are to theassumption that none of the immigrant cohort hadincomes in the top 10 percent of tax filers? Suppose 2percent of the cohort were in this decile, the percentof those in the sixth to ninth decile would be reducedto 38 percent. The weighted average taxes paid by theimmigrants under these assumptions would be 30.6percent of the average paid by Canadians.

Another analogous calculation shows that ifimmigrants count 5 percent (or half the rate enjoyedby other Canadians) of their numbers in the topdecile, the cohort pays taxes at 44.4 percent of thetaxes paid by other Canadians.

Dollar values

Table 3 shows the amount of taxes paid by all Canadi-ans in the year 2000 according to different types oftaxation. As the table shows, they paid $143.1 billionin personal income taxes.

Given Canada’s population of 31.5 million in2000, the average income taxes paid were $4,543 foreach man, woman, and child. Assuming that the pro-portion of men, women, and children was the same

among all Canadians and the immigrant cohort, theaverage immigrant paid only $968, which is 21.3 per-cent of the amount paid by other Canadians.

Personal income taxes account for only about37.2 percent of all tax revenues raised by Canadiangovernments. Table 3 shows the amount of othertaxes paid by all Canadians in the year 2000. In col-umn 5 I show what I believe to be a defensible pro-portion of the taxes paid by the immigrants relativeto those paid by other Canadians. These percentagesare justified on the following grounds:

• Sales taxes: Sales taxes paid are proportional tospending, which in turn is determined by in-come. With average immigrant incomes in therelevant cohort at 80 percent of the average ofother Canadians, it seems reasonable to assumethat the immigrants pay 80 percent of the salestaxes paid by other Canadians.

• Health and social insurance levies: These taxesalso tend to be proportional to income andtherefore the immigrants’ relative payments areassumed to be 80 percent.

• Property and related taxes: On the assumptionthat the 1990 immigrant cohort on average hasproperty much below that of the average other



Table 3: Tax Revenues in Canada, All Levels of Government, 2000

Type of taxes Billionsof dollars

Percentof total

Dollarsper capita

for allCanadians

Immigrantpayments

aspercentof other

Canadians

Dollarsper

capita forimmigrants

Personal income taxes 143.1 37.2 4,543 21.3 968

General sales taxes 55.5 14.4 1,762 80.0 1,410

Health and social insurance levies 40.3 10.5 1,279 80.0 1,023

Property and related taxes 41.1 10.7 1,305 40.0 522

Corporate income taxes 43.3 11.2 1,375 10.0 138

Other taxes 61.6 16.0 1,956 80.0 1,565

Total 384.9 100.0 12,220 n.a. 4,706

Source: Statistics Canada, supplied by Niels Veldhuis of The Fraser Institute (for columns 2

Canadians, I assume that the percentage of thetaxes paid is 40 percent.

• Corporate income taxes: I assume that on averagethese recent immigrants hold very few equitiesand thus pay only 10 percent of the taxes paid byother Canadians.

• Other taxes, consisting of natural resource royal-ties, payroll taxes, profits of government-ownedliquor distribution systems, and others: Thesetaxes are paid largely in proportion to incomeand are assumed to be 80 percent.The bottom line of column 4 shows that in 2000

other Canadians on average paid $12,220 through alltypes of taxes. The bottom line of column 5 showsthat the corresponding number for members of the1990 immigrant cohort is $4,706, or 39 percent of thesum paid by other Canadians.

It is worth remembering that this difference isdue to the known large difference in average incomesof the two groups, the assumed absence of immi-grants in the upper income classes, and their rela-tively low holdings of property.

Government spending

The Fraser Institute publication GovernmentSpending Facts (Horry and Walker, 1994) containsinformation on the value of government services re-ceived by all Canadian families by income deciles.The study is based on a micro database supplied byRevenue Canada, which covers 44,500 individualsand allows estimates to be made of the different typesof spending going to each decile. Reasonable assump-

tions were made to infer the benefits received frompublic goods like defense and the environment. Thedata are for the year 1990 and are the latest available.They are presented in table 4.

The table shows that high-income families inCanada receive more benefits from governmentprograms than do low-income families. This some-what surprising result is due to the fact thathigh-income families tend to be older and havemore children benefiting from education expendi-tures than do families with low incomes. Further,these families consume more health care services asthey have children and they live in cities wherehealth care is more readily available than in ruralareas (Horry and Walker, 1994, p.154). People withlow incomes tend to be young and without childrenand consume relatively fewer educational andhealth care benefits.

The following analysis uses the informationabout the median incomes of the 2000 cohort ofimmigrants discussed in the preceding discussion oftax payments. It also employs the assumption used inthat context that no immigrants are found in the topdecile of that distribution. Appendix B shows thedetailed calculations and assumptions used.

The bottom line is that in 2000, the immigrantcohort on average received fewer benefits from gov-ernment spending than did other Canadians. Theprecise figures for the benefits received by the twogroups are: $10,288 for the immigrant cohort and$11,508 for other Canadians. The difference infavour of other Canadians is 10.6 percent.



Table 4: Value of Government Spending on Families in 1990,

by Income Deciles (dollars)

1 2 3 4 5 6 7 8 9 10

16,405 21,786 22,466 23,546 23,422 23,937 25,380 26,868 28,390 30,761

Source: Horry and Walker.

The aggregate transfersWe now have the numbers to put into equation 1:

FT = (12,220 – 4,706) – (11,508 – 10,288) =7, 514 – 1,220 = 6,294

In words, the equation states that fiscal transfers be-tween other Canadians and the immigrant cohort percapita are:• through greater tax payments by other Canadi-

ans: $7,514• through smaller government spending on immi-

grants: - $1,220On balance, transfers from other Canadians to

the average immigrant in the 1990 cohort were$6,294 in 2000.

This basic number can be used in a number of calcu-lations designed to put the value of the transfers intouseful perspective.

First, there were 216,396 immigrants who cameto Canada in 1990. Multiplying this number by thefiscal transfers of $6,294 comes to $1.36 billion. Inother words, the fiscal transfers to all of the immi-grants in the 1990 cohort in the year 2000 were val-ued at $1.36 billion.

What follows are some speculative thoughtsabout the fiscal transfers other Canadians may beexpected to make to the 1990 cohort over the life-time of that cohort. In making these speculations, Iassume that the 80 percent gap in income remainsfor the full life of the members of the cohort on thegrounds that the average incomes of that immigrantcohort were 63 percent of those of other Canadiansin the first year after their arrival. This percentageincreased every year, reached 77 percent in the fifthyear, and 80 percent in the tenth. I assume that thegap will narrow somewhat thereafter by an amountand for a time long enough so that the gap remains at80 percent over the immigrants’ full lifetimes of 45years in Canada (i.e., assuming they were aged 30upon arrival and have a life expectancy of 75).

Abstracting from all discounting and com-pounding, growth in per capita incomes, changes ingovernment spending, etc., the transfers from otherCanadians to the average immigrant from the 1990cohort over his or her 45 years in Canada comes to$282,800 ($6,294 times 45). For the entire cohort thisadds up to a total of $61.2 billion.

Now consider the value of the transfers receivedin the year 2002 by all immigrants who had arrived inthe 13 years from 1990 to 2002. Table 5 shows theannual numbers, which total 2.9 million.

Assume that each of these immigrants received atransfer of $6,294 in 2002, which is the value of thetransfers per immigrant calculated above for the1990 cohort. Multiplication of the number of immi-grants (2.9 million) by $6,294 results in the estimatethat the total bill for the transfers was $18.3 billion.

To put this number into perspective, considerthat program spending by the federal government in2000/2001 was $116 billion. This means that the fis-cal transfers to immigrants that year



Table 5: Annual Immigration

to Canada

Year Number ofimmigrants

1990 216,396

1991 232,744

1992 254,817

1993 256,741

1994 224,364

1995 212,859

1996 226,039

1997 216,014

1998 174,159

1999 189,922

2000 227,346

2001 250,484

2002 229,091

Source: Citizenship and Immigration Canada.

• came to about 16 percent of that federal spending• were more than what the federal government

spent on health care• were almost twice as much as the federal govern-

ment spent on defenceIn the absence of these transfers to immigrants,

federal income and other taxes could have beenreduced substantially.

Biases in the calculations

There is no doubt that the calculations just pre-sented are based on a number of assumptions thatare open to question. Some of these assumptionsmay have inflated the estimate of transfers upward.Some may have caused them to be too low. Only fur-ther, more detailed research can establish the ex-tent to which these biases may have distorted mycalculations. However, this much is clear: unlesssome key assumptions are grossly out of line andhave biased upward my estimates of transfers sig-nificantly, my calculation indicates that the pres-ent policies used in selecting immigrants anddetermining annual inflows are imposing a sub-stantial cost on other Canadians.

Following is a list of assumptions that provideclear bias. While I do know the direction of the bias, Ido not know value of it.

1. The assumption used in the last calculation thatthe transfers were $6,294 per immigrant is biaseddownward since a large proportion of the 2.9million immigrants were in cohorts that had notreached incomes equal to 80 percent of other Ca-nadians and that were used to estimate the$6,294 figure.

2. The estimates of government spending used inthe calculations fail to take account of spendingaimed explicitly at immigrants since they are notfully reflected in The Fraser Institute calcula-

tions on spending. Most important are specialsocial services, the costs of which are born byprovincial governments, and aimed at helpingthem getting settled and integrated. An expen-sive part of this program of settlement aid in-volves teaching English as a second language.

To compensate the provinces for these costs,which they have to occur as a result of immigra-tion decisions reached by the federal govern-ment, in 2004 Ontario was paid $3,400 for eachof the 134,000 new immigrants who arrived inthe province, for a total of $457 million. It is notclear to what extent this payment covered the ex-tra costs imposed on Ontario, but the sum gives arough indication of the costs to Canadian tax-payers. Neither this sum, nor the funds paid toother provinces are reflected in the calculationsabove.

3. Wente (2004) and Sweetman (2004), using cen-sus data, found that low-income immigrantstend to be concentrated in several large commu-nities at the fringe of the city of Toronto. Ac-cording to these authors, some of these enclavessuffer from above average social ills such as ho-micide, gang violence, and property crime, someof which spill over into the urban areas sur-rounding the enclaves. Dealing with these socialills through law enforcement is an added cost im-posed on Canadians.12

It is worth noting that my estimates of the life-time costs of immigrants are somewhat higher thanthose made by Camarota (2001) for the UnitedStates. He found that Mexican immigrants in theUnited States, on average, have incomes much belowthose of US-born citizens.13 He then considers theextra government spending required by these immi-grants and concludes that the average Mexicanimmigrant imposes a net US$55,200 lifetime burdenon other taxpayers.



Effects on Canada’s

low-income earners

The preceding estimates of costs imposed on otherCanadians by recent immigrants are limited to tax-ation and government spending, though, there area number of other ways in which immigrants im-pose costs.

Thus, the numbers of Canadian immigrants inrecent decades has been anything but marginal, as isassumed in the classical model of immigration pre-sented in chapter 2. Instead, the number of immi-grants is so large that they have affected thedistribution of income and reduced the effectivenessof government policies to make it more equal.

Considering that most immigrants work inlow-paying jobs—at least for some years after theirarrival and in spite of nominally high educationalattainments—they depress the wages of Canadianworkers by competing with them for low-payingjobs. At the same time, they increase the income andwealth of the owners of land, factories, houses, andhighly-skilled labour. Unfortunately, there are noestimates of the magnitude of this effect of immi-grants on the distribution of income in Canada, butgiven Canadians’ concerns with the equalization ofincome, there is no doubt that immigration hasreduced the effectiveness of all efforts to achievegreater income equality.

Some relevant data exist for the United States,which allow insights into the quantitative effect ofimmigration on the distribution of income in that

country. Borjas (2004)14, a respected labour marketeconomist teaching at Harvard, produced the data.He found that in the United States

By increasing the supply of labour between1980 and 2000, immigration reduced the av-erage annual earnings of native-born men byan estimated $1,700 or roughly 4 percent.Among natives without a high school educa-tion, who roughly correspond to the pooresttenth of the workforce, the estimated impactwas even larger, reducing their wages by 7.4percent (page 1).

The wages of low-skilled workers in Canadaprobably are depressed even more than those in theUnited States through the immigration of foreignworkers with low skills because the Canadian rate ofimmigration as a percent of the labour force has beenconsiderably higher than that of the United States.On the other hand, this effect may be reduced tosome degree by the high proportion of family classimmigrants in Canada, many of which have nolabour force attachment or work for only a shorttime after their arrival. The effect may also be smallerbecause the large number of illegal immigrants fromMexico influences the United States data. Most ofthese illegal immigrants are unskilled and obviouslydid not pass the kind of system Canada uses forselecting skilled immigrants.

David and Weinstein (2005) used the basicBorjas methodology and introduced some othereffects of immigrants on prices and incomes to esti-mate the cost of US immigration on the incomes of



12 Wente argues that these data have not been given the public attention they deserve because of a climate of political correctness pre-vailing in Canada and the fear that any such publicity will cause its authors to be called racist. However, census data are reliable, ob-jective information and I believe it to be important for the design of Canada’s immigration policies that such data be put before thepublic and the implication for the welfare of Canadians and the fiscal burden they are bearing be spelled out.

13 Camarota (2001) provides detailed information about relevant differences between the US-born citizens and Mexican immigrants.For example, while 27.9 percent of US-born citizens live in or near poverty, 65.6 of all Mexican immigrants and 54.7 percent of Mexi-cans with at least 20 years residence in the United States live in such poverty. Mexicans were four times as likely as natives to be with-out health insurance and twice as likely to use major US welfare programs.

14 This article is based on the more scholarly paper Borjas (2003).

US-born workers. The two most relevant conclu-sions in the present context are:• In 2002, the net loss to US natives from immigra-

tion was $68 billion.• This $68 billion annual loss represents a $14 bil-

lion increase just since 1998. As the size of theimmigrant population has continued to increase,so has the loss.

Effects on the

“War on Poverty”

Canada’s social and taxation programs for manyyears have been aimed at reducing the proportion ofCanadians living below LICO (the low-income cut-off). The media and social activists often presentthese policy aims dramatically by referring to thenumber of children in Canada living in families withLICO incomes, who are therefore raised in whatsome groups call “child poverty.”

It is not necessary to enter here into discussionsabout the desirability of the “War on Poverty” andwhether or not it helps the poor, the merit of theLICO measure as an indicator of poverty rather thana measure of income equality, or the fact that a largeproportion of individuals move into and out of theLICO conditions every year. Relevant to the currentanalysis is that the attainment of the Canadian gov-ernment’s goal to reduce poverty has been slowed byimmigration.

Thus, using data published by Statistics Canada,Sweetman (2004) found that over the 1990s, Van-couver’s low income cut-off (LICO) amongnative-born decreased 1.7 percentage points.15 How-ever, the many immigrants with low incomes added4.7 percentage points to the LICO rate. As a result,during the 1990s Vancouver’s overall LICO rateincreased by 3.0 percentage points.

Economic theory is clear on the proposition thatwhile non-marginal immigration of labour depressesthe wage rates of labour in the receiving country, itraises the income of the owners of land and capital inthat country. The modern theory of capital distin-guishes between real capital like land, buildings andmachinery and human capital, which is embodied inthe highly educated and due to both formal school-ing and work experience. This increase in the returnto capital is caused by the greater demand for it asemployers equip the new immigrants with the sameamount of machinery used by other Canadians in therespective industries in which they work. While thiseffect on the incomes of the owners of land and capi-tal compensates for the lower incomes of labourcompeting with the immigrants in measures ofaggregate income, it further worsens incomeinequality. Since the equalization of disposableincome is a major goal of the Canadian welfare state,this effect aggravates the conflict between immigra-tion and the goals of the welfare state.

Are these taxpayers’

costs transitory?

It is well known that in the past, the children of poorimmigrants have been especially successful in mov-ing out of poverty by obtaining higher levels ofschooling and training than the children of poor, na-tive Canadians. As a result of this process, the effectof immigration on poverty rates in the past hastended to be only transitory.

Unfortunately, these beneficial outcomes appearto exist no longer. Borjas and Sueyoshi (1997) reportthe following finding for the United States:

There exist sizeable differences in the inci-dence and duration of welfare spells acrossethnic groups, and these differences tend to



15 The Borjas results suggest that this decrease would have been even larger in the absence of the wage-depressing effect of competi-tion from immigrants.

persist across generations. Using the Na-tional Longitudinal Surveys of Youth, we findthat children raised in welfare households arethemselves more likely to become welfare re-cipients for longer durations. We also showthat growing up in an ethnic environmentcharacterized by welfare dependency has asignificant effect on both the incidence andduration of welfare spells. About 80 percentof the difference in welfare participationrates between two ethnic groups in the pa-rental generation is transmitted to the chil-dren. (Abstract)

It may well be that the more pervasive social wel-fare programs and an educational system financeddifferently in Canada will prevent the developmentof the conditions found by Borjas and Sueyoshi, butsince there is no empirical evidence, this outcome ismerely a possibility.

The rate at which poverty is passed on betweengenerations also depends on the speed with which

immigrants integrate into Canadian society and theirchildren join the economic mainstream. Duffy(2004) notes a disturbing development relevant tothis issue, which was revealed by recent censuses: “...most poor families are now far more concentrated inlow-income neighborhoods… (which) tend to bedominated by immigrants and visible minorities… Itcould be that immigrants clustered in Toronto andVancouver compete against each other, limiting jobopportunities, driving down wages and inflating realestate, essentially creating an artificial barrier totheir own success” (page A.06).

I would add the following considerations toDuffy’s analysis. Canada’s social programs are also abarrier to the success of immigrants living in the en-claves because most of the social benefits available tothem there are lost when they leave the enclaves andearn higher incomes. Thus, many of today’s immi-grants face very high marginal implicit taxes on in-come, which represent disincentives to escapepoverty for themselves and their children that didnot exist before the welfare state was created.



Chapter 4: Canada is not Alone

Canada is not alone in facing serious fiscal burdens asa result of immigration and the existence of the wel-fare state. One European point of view of the problemwas expressed by Martin Paldam (2004) in the Euro-pean Journal of Political Economy.16 This editorial isof particular relevance to Canadians who have longadmired the success of the social welfare policies, theprogressive income taxation, equality of income, andgeneral tolerance of the Nordic countries: Norway,Sweden, Finland, and Denmark.

“The large wave of immigration from the poorLDCs to the rich DCs has been a profoundshock to the Nordic welfare system and to themoral self-satisfaction of the Nordic peoples.

“Peter Nannestad’s (2004)… key message isthat it is the very institutions of the Nordicwelfare state that convert the immigrant intoa long-term welfare recipient—and henceinto an extra burden… The institutions of theNordic welfare state are incompatible withmass immigration of the kind experiencedduring the last two decades.

“In addition, the institutions of the welfarestates and the traditions of protection of theweak cause adverse selection of immigrants,so that most are unskilled—some even illiter-ate—and speak no language that is under-stood by the natives of the Nordic countries.Those with strong marketable skills andknowledge of English and French prefer to goelsewhere. Adverse selection reinforces theincompatibility problem.

“It is not easy to solve these problems, espe-cially in view of the great popularity of thewelfare state. If the Nordic peoples stand firmon all the principles of their welfare states,then immigration has to be stopped, and thisappears to be the solution that is being in-creasingly implemented.

“Consequently, the hitherto tolerant andthoroughly globalized Nordic countries arebuilding higher and higher dikes at their bor-ders, not against goods and services, butagainst people from poor countries. Heavybureaucracies are being built to control im-migration. The Nordic countries are devel-oping into particularly heavy bastions inFortress Europe, protecting the wealth andthe institutions against the invasion of poorpeople.” (p. 749. Emphasis added)

The problem has also been seen in a broaderphilosophical and political context. Sandall (2004)reviews a paper by David Goodhart, “Discomfort ofStrangers,” which first appeared in the February2004 issue of the journal Prospect and has beenreprinted in The Guardian. Goodhart suggests thatthe political left faces:

“a ‘progressive dilemma,’ which says that citi-zens will accept high levels of taxation if theythink the recipients are people like them-selves. But if values become extremely di-verse in a diversified population, then it


16 The first part of the editorial presents facts about the success of the welfare state in the Nordic countries. The article also containssome references to the special problems created by immigrants of the Muslim faith, who choose to live in ghettos and pursue a life-style that is inconsistent with the values of the Nordic peoples and that prevents their integration into the economy and society.

Paldam’s views are also expressed in a paper (Paldam and Chand, 2004), which goes into some detail about the problem and possi-ble solutions. The authors deplore the fact that restrictions that have recently been placed on immigration to the Nordic countriesimpose serious costs on the economy. They recommend as the main alternative policies that limit access to social benefits of the wel-fare state to immigrants for a number of years. As will be seen below, this solution is not possible in Canada since the Supreme Courthas decided that such policy is inconsistent with the Charter of Rights and Freedoms.

becomes more difficult to sustain the legiti-macy of a universal risk-pooling welfarestate.” (p. 1)

“If welfare states demand that we pay into acommon fund on which we can all draw attimes of need, it is important that we feel thatmost people have made the same effort to beself-supporting and will not take advantage.”(p. 3)

“A generous welfare state is not compatible

with open borders and possibly not even

with US-style mass immigration.” (p. 4)

Caldwell (2005) researched conditions in Sweden:

“Sweden has suddenly become as heavilypopulated by minorities as any country in Eu-rope. Of 9 million Swedes, roughly 1,080,000are foreign-born. The percentage of for-eign-born is roughly equivalent to the high-est percentage of immigrants the UnitedStates ever had in its history…

“Modern Sweden has built its sense of iden-tity on two pillars: its generous welfare stateand its status as what Social Democrats usedto proudly call a “moral superpower.”… Indi-cations are that the latter achievement is inthe process of destroying the former.

“A review of a book by Alesina and Glaeser(2004) on social policy in Europe and theUnited States published in The Economistconcludes with sentiments that echo thosefound in the preceding quotations: “The re-cent evolution of Europe as a destination ofmass migration… will test the durability ofthe European welfare state.” (March 11,2004, p. 78).

If recent immigration trends continue in Canadaand costs keep escalating, questions of the sort raisedby the preceding quotes will become increasingly rel-evant in Canada. At that time, Canadians will be ableto take some comfort knowing that many othercountries have encountered the problems caused byimmigration into a country with generous social pro-grams. Canadians will not be alone in their attemptto deal with the dilemma of compassionate immigra-tion policies endangering the very existence of com-passionate domestic social programs.

However, the choices Canada will face may notbe as stark as those Paldam presents in the quotationabove. Canada will not have to either give up the wel-fare state or stop immigration. As an alternative, itcan adopt a policy for immigrant selection, whichwill assure that they do not become a fiscal burden.Such a policy is outlined in Part III below.



Part II: Causes of the Poor Average Economic Record

Chapter 5: The Immigrant Selection

Process Described

The first part of this study records the statistical evi-dence on the poor average economic performanceof immigrants who have entered Canada during thelast 25 years and on the fiscal burdens these immi-

grants impose on Canadian taxpayers. Given thatCanada uses a system for the selection of immi-grants that was explicitly designed to admit only in-dividuals that on average do not impose such fiscalburdens, it must be true that this system does notfunction properly.

Chapters 6 and 7 review the present state ofresearch on the reasons why the current immigrantselection process has resulted in such a poor out-come in recent years. However, before turning to thisanalysis, readers need to know some fundamentalfacts about the current selection system Canadauses, many of which the general public is not aware.This knowledge may also give some insight intocauses of the current problems, and problems withimmigration policies generally. These general prob-lems are not considered in the next two chapters thatreview more narrowly defined scholarly studies.

The basic facts

The most basic facts about Canada’s immigrant se-lection system are reflected in table 6. The last line ofthis table shows that in 2002 there were 229,000 im-migrants. This number is equivalent to about .72 per-cent of Canada’s population that year—about 32million people. This percentage figure is the highestof all Western countries.

As shown in table 6, Canada admits immi-grants in four main classes: Family class, Economicimmigrants, Refugees, and Other immigrants.Each class has a number of sub-categories. Forexample, in the family class there are the immedi-ate family and parents and grandparents. This tax-onomy is based on the different selection criteriaapplied to each class.


Table 6: Canadian Immigration by

Entry Category, 2002

Immigrant Class Level Percent

Family Class 65,277 28.5

Immediate Family 42,775 18.7

Parents and Grandparents 22,502 9.8

Economic Immigrants 138,528 60.5

Skilled Workers 123,379 53.9

Principal Applicants 53,448 23.3

Spouses and Dependants 69.931 30.5

Business Immigrants 11,041 4.8

Principle Applicants 3,047 1.3

Entrepreneurs 1,177 0.5

Investors 1,235 0.5

Self-employed 635 0.3

Spouses and Dependants 7,994 3.5

Provincial/TerritorialNominees

2,127 0.9

Live-in Caregivers 1,981 0.9

Other Immigrants1 164 0.1

Refugees 25.122 11.0

Government Sponsored 7,504 3.3

Privately Sponsored 3,055 1.3

Landed in Canada 10,544 4.6

Dependants Abroad2 4,019 1.8

Total 229,091 100.0

Source: OECD, 2003, Citizenship and Immigration Canada.Notes:1Includes post-determination refugee claimants, Deferred removalorders, and Retirees.2Dependants of a refugee landed in Canada who lives abroad.

Economic immigrants

The class of economic immigrants is the cornerstoneof the system and best reflects the intent of its design-ers, which was to allow entry into Canada only immi-grants likely to make positive contributions to theeconomy and to pay taxes commensurate with theirclaims on social benefits. Canada has a good globalreputation for this aspect of the system.

In practice, economic immigrants are chosen onthe basis of a point system. It assigns up to 25 pointsfor applicants’ educational attainment, up to 24points for their ability to speak English or French, upto 10 points for age that is favourable to a long labourforce attachment, up to 10 points for having a jobwaiting in Canada and up to 6 points for what isreferred to as adaptability.17 The maximum totalpoints obtainable are 100. Since September 2003,only 67 points are needed to obtain a visa, down from75 points needed previously.18

These points are assigned by immigration offi-cials at Canadian embassies and other missions, whowork on the basis of guidelines issued by the govern-ment and rely on hard documents like graduationcertificates and records of employment. At the sametime, as the description of the system suggests, muchpersonal judgment is also required. In addition,immigrants must pass tests administered by embassypersonnel that establish that they do not impose anunreasonable burden on Canada’s publicly financed,universal health care system19 and they do not repre-sent a threat to internal and external security.

The applicants who pass the points test arerecorded as “principal applicants.” As table 6 indi-

cates, these principal applicants make up only 23.3percent of all immigrants. Yet the same table alsoshows that economic immigrants account for 60.5percent of the total. The latter figure is often used tosuggest that Canada’s immigrant selection system issuccessful in allowing into Canada only immigrantswith characteristics considered officially to lead toeconomic success.

However, the use of this latter statistic is highlymisleading since it is based on the inclusion ofspouses and dependent children who are automati-cally allowed to accompany the principal economicimmigrants when they come to Canada. In 2002,these family members represented 30.5 percent of allimmigrants.

The official reason for including these depend-ants in the economic class is that if they were notallowed to accompany the principal applicant, thepool of potential economic immigrants would bemuch smaller and it might be difficult to attract adesirable number of immigrants with the desiredeconomic qualifications. However, this propositionhas never been tested. Meanwhile, reporting thesespouses and dependent children as economic immi-grants very much misleads Canadians who are con-cerned about the fiscal costs of existing immigrationpolicies.20

Under the class of economic immigrants we alsofind business immigrants, which in turn consist ofentrepreneurs, investors, and self-employed per-sons. Business immigrants are given immigrationvisas on the basis of the documented ownership offunds for investment in Canada and a record of pastsuccesses in entrepreneurship or self-employment.



17 The information on the point system can be found on the website of the Immigration Department in Ottawa (www.cic.gc.ca).

18 According to Worswick (2004, p. 3), the justification for this change is official concern over the fact that the higher number excludestoo many strong applicants.

19 Since January 2002 the health examination includes a test for AIDS. According to the federal immigration department, in 2003, 677foreigners who qualified for visas tested positive for the disease. Of these, 87 percent were granted immigrant visas presumably onthe judgment that they would not impose an unreasonable burden on the Canadian health care system. The information is fromFriscolanti (2004).

Table 6 shows that the principals in the businessimmigrant class in 2002 represented 1.3 percent ofall immigrants. This number is quantitatively notsignificant, but as in the case of skilled workers, thetotal in the business immigrant class is shown to be4.8 percent, with the difference explained by theinclusion of spouses and dependent children.

One other subcategory of economic immigrantsis noteworthy: “live-in caregivers.” These individualsare employed by disabled Canadians in need of per-sonal care in their home and by parents who arefinancially able to afford full-time help with care fortheir children at home. This class of immigrants rep-resented only .9 percent of all immigrants in 2002.21

However, these immigrants tend to bring to Canadaa substantial number of additional immigrantsbecause after they have been in their jobs for twoyears, they are granted status as landed immigrants.At that point, their spouses and dependent childrenmay join them as immigrants without having to passthe points tests that would qualify them as economicimmigrants. Their numbers appear in the FamilyClass of immigrants, to which we now turn.

Family class

Table 6 shows that in 2002 the family class repre-sented 28.5 percent of the total number of immi-grants, which is greater than the 23.3 percent of

principal applicants under the economic immigrantcategory.22 Two-thirds of the family immigrants arecategorized as immediate family and one third asparents and grandparents of immigrants already inCanada.

The composition of the subgroup “Parents andgrandparents” is obvious from the descriptive title.However, it is not as clear who is in the “immediatefamily” subgroup. Apparently, people in this groupare the siblings of immigrants to Canada who may ormay not be accompanied by their parents entering assponsored parents.23

The immigration of parents and grandparents issubject to the requirement that their relatives inCanada “sponsor” them for a period of 10 years. Thissponsorship involves the written pledge to look afterthe financial need of the family immigrants so thatthey do not become a burden on Canadian taxpayers.The sponsors and sponsored also have to sign anagreement confirming these conditions.

The government justifies the existence of thefamily class on humanitarian grounds. Families fromthe Indian subcontinent and other Asian countriesespecially tend to be tightly knit units, the breakup ofwhich is alleged to impose undue hardships on theirmembers. The family class may also be justified onthe practical though unproven grounds that withoutthe opportunity for family reunification in Canada,the pool of qualified potential economic immigrants



20 In this context it is interesting to note that the government is not very open about the true number of genuine economic immigrants,the principal applicants. Thus, the breakdown between principal applicants and dependants is not to be found in the main table giv-ing the numbers of immigrants in 2003 (on page 15 of the legislatively mandated Annual Report to Parliament on Immigration 2004,available at www.cic.gov.ca). Neither does it appear in any other table or part of the text. As the data are published by the OECD andare used here, the information does exist.

It is also worth noting that the practice of combining dependants and principal applicants in the single category started only in1999. Before then, the annual reports of the federal immigration department showed as categories of equal rank “Skilled work-ers—principal applicants” and “Skilled workers—dependants.”

21 The statistics for the 2003 show that the number of caregivers has risen to 1.5 percent of the total.

22 Data for 2003 show that in that year, the proportion of family class immigrants rose to 31.1 percent, while the percentage of principaleconomic immigrants fell to 20.5 percent.

23 I say apparently because in spite of strong efforts to obtain reliable information from informed individuals, I have not been able tocome up with a satisfactory explanation for this category that is backed by appropriate references to legislation or data collection.

would be smaller and might endanger the ability toselect the target annual number of economic immi-grants with desirable characteristics.

There are four main problems associated withthe selection of immigrants in the family class.24

First, most parents of economic immigrants areunlikely to become active participants in the labourforce for any length of time because of theiradvanced age and often poor ability to speak andlearn English. They did not have to pass the pointsystem and therefore are unlikely to have many ofthe characteristics of successful economic immi-grants. These parents and grandparents are unlikelyto pay few if any income taxes, yet are entitled to allof Canada’s social programs for the rest of theirlives. Given their age, many of them put high costson the health care system if their sponsoring chil-dren are unwilling or unable to meet their obliga-tions and pay for these costs privately. As discussedbelow, this reneging on sponsorship commitmentstakes place very often.

Second, while initially economic immigrantscould sponsor their parents and grandparents only ifthey were at least 65 years old, this restriction no lon-ger exists. An important consequence of this policy isthat many of the parents of economic immigrantsnow entering Canada are of an age when they stillhave relatively young children. Under the existinglaw, once the parents are in Canada, these youngchildren (as long as they are unmarried) can alsobecome immigrants without having to pass thepoints test applied to economic immigrants.

Third, Collacott (2002) notes that these children,once in Canada, can and do get married to spouses

overseas who in turn can immigrate as family classmembers. As landed immigrants or citizens in turn,these spouses can and do sponsor their parents andthe unmarried dependent children of their parentsstill abroad. Having accomplished this objective,the parents often return to their homelands. Thisprocess can involve lengthy chains. None of theimmigrants entering Canada through this systemhave passed the points test to qualify as economicimmigrants.

The existence of this system and its implicationfor the integrity of the basic immigrant selection pro-cess has been noted by the government of CanadaAuditor-General’s Report (1982), which used theterm “couriers” to describe the role played by parentsin this chain.

It should not come as a surprise that Canadianimmigrants from India, China, and other Asiancountries have strong desires to have their parentsand grandparents joining them in Canada. TheCanadian welfare and health care benefits are muchgreater than those in these developing countries andthe parents and grandparents have a correspond-ingly higher living standard in their old age in Can-ada.25 There are also the benefits parents andgrandparents bring to their young immigrant fami-lies in Canada in the form of household help, espe-cially providing care for children and passing oncultural and religious values. The latter benefit maybe the main determinant of what is often referred toas a cultural tradition of close family ties in the cul-ture of these immigrants.

Fourth, there is the problem that a substantialproportion of all sponsorship commitments go



24 Fraser Institute Senior Fellow Martin Collacott has supplied me with most of the information presented in this section. Collacottdeveloped an appreciation of the issues while working as Canadian ambassador to a number of developing countries in Asia and theMiddle East, which provided him with much practical experience.

25 These incentives to bring relatives to Canada were much weaker during the postwar years when most immigrants came to Canadafrom Europe, which had generous social security benefits for their parents left behind. Such social security benefits are eithernon-existent or very meager in Asian countries, from which most recent immigrants have come. These facts explain why familyclass immigrants have become a much greater proportion of all immigrants since the 1980s.

unfulfilled for at least a part of the time when thesponsors are committed to looking after the needs ofthe immigrants. As a result, significant numbers ofsponsored immigrants become a public burden. Thefederal government does not publish official figureson the magnitude of this problem. The provincialgovernments, which bear the costs of reneged spon-sorship commitments, have the data but do not pub-lish them.

However, there is some information on the mag-nitude of these costs to provinces. Tom Blackwell(2004) interviewed provincial government officialsin Ontario, British Columbia, and Quebec andreported the following:

Canada accepts about 71,000 family-classimmigrants a year who are sponsored by arelative already living here. In most casesthose family members must commit to sup-port the new arrivals financially for 10 years.The relationships break down in about 10percent of cases, often because spouses orfamily members have a falling out, and theimmigrants sometimes end up on social as-sistance. Ontario has 7,500 such welfare re-cipients, Ms. Pupatello said [SandraPupatello is Ontario’s Social Services Minis-ter] … Newcomers who are supposed to besupported by their family members accountfor about $70 million a year in social assis-tance payments.

British Columbia started contacting spon-sors in May to make repayments of welfaremoney that has totaled $45 million since1999, said Anne McKinnon, a spokeswomanfor the province’s Ministry of Human Re-sources. Collection efforts have so far gath-ered more than $3 million, she said.

But many of the sponsors targeted are thepoorest of immigrants, who earn minimumwage and yet have received bills that average

about $50,000, said Charan Gill of the Pro-gressive Intercultural Community ServicesSociety in Surrey, BC.

“Quebec has been going after sponsors forsocial assistance money for a few years nowand recovered $7.5 million in 2003-04,” saidClaude Morin, a spokesman for the Ministryof Employment, Social Solidarity and Family.“About $95-million is outstanding,” he said.

More generally, and in the light of the precedinganalysis, it should be noted that some of the prob-lems with family class immigrants are reflected ingovernment statistics. The family class relative to theskilled class of immigrants on average has 20 percentlower incomes and a higher incidence of unemploy-ment and need for social assistance benefits. Thesestatistics also show that the family class of immi-grants receives social assistance payments that, as apercentage of all such payments, have been increas-ing through time. 26

Refugees

The third major category of immigrants consists ofrefugees. The government of Canada, which selectsthem in refugee camps abroad, sponsors some ofthem. In 2002 this group made up 3.3 percent of allimmigrants. Private agencies also sponsored refugeesin numbers equal to 1.3 percent of the total.

Most contentious are individuals who land inCanada and are successful in claiming they are refu-gees. In 2002 they represented 4.6 percent of allimmigrants, or equal to about 20 percent of the prin-cipal economic immigrants.

Refugees represented 11 percent of all immi-grants to Canada in 2002. This figure includesdependants of refugees who live abroad, totaling asurprising 1.8 percent of all immigrants.27 There areno official statistics on the number of spouses and



26 For more details and sources see Collacott, 2002, p. 21.

children allowed to enter Canada after the refugeeshave been granted asylum and landed immigrantstatus.28

The problems associated with refugees becom-ing immigrants in Canada will not be addressed by

the proposals presented below for a reform of the im-migrant selection process. Possible reforms to theprocess of dealing with refugee claimants requires aseparate study, especially since Canada’s options arelimited by binding international conventions.29



27 It is curious that, in effect, Canada has a substantial number of permanent immigrants who live abroad and often have never set footon Canadian soil and may never do so.

28 Presumably, these spouses and children are counted in the figures for family class immigrants. This is not a logically consistent sta-tistical treatment of immediate family members of landed immigrants since in the case of skilled workers, they are counted in the to-tal of skilled workers.

29 Martin Collacott will soon publish a new study of Canada’s refugee policies through The Fraser Institute.

Chapter 6: Issues with Education and

Bypassing the Points Test

The present chapter turns explicitly to the task of re-porting what academics and government researchershave found to be the causes of the recent deteriora-tion in the economic performance of immigrants.The research into this question is still in progressand has not produced definitive answers. For thisreason, the discussion in this section reflects thecurrent state of knowledge and is more suggestivethan conclusive.

In considering the existing literature on the sub-ject, I have concluded that the following three causesare the most important and I discuss them here: thedeclining returns to educational attainment andwork experience of recent immigrants; the largenumber of immigrants that by-pass the points test;and the high rates of immigration that do not varywith labour market conditions in Canada. The lattercause is discussed in the next chapter.

Educational attainment and

work experience

Waslander (2004) used sophisticated econometricanalysis and official data to consider the reasons forthe declining earnings of recent immigrants. He setsthe stage by noting: “In 1980, a male immigrant whohad landed in Canada in 1976, 1977 or 1978—two tofour years earlier—earned $25,000 on average; by1995, a male immigrant who had landed two to fouryear earlier made only $13,000” (p. 335).

Waslander’s research used income data fromStatistics Canada related to Canada’s large cities.The explanation for the lower earnings of the morerecent immigrants is, in his words: “… the changingethnic make-up of the new immigrants had a sub-stantial negative effect on their earnings. Part of thedecline in earnings of new immigrants can be attrib-uted to a drop in the returns to foreign education andwork experience” (p. 371).

One explanation of this decline in returns to for-eign education and work experience is probablyrelated to the quality of the educational attainmentthe immigrants reach in their native countries. Thechanging geographic origin of immigrants is docu-mented in the OECD (2003) publication and repro-duced here in table 7.

The data show clearly that Europe and theUnited States have become an ever-decreasingsource of immigrants and that the rest of the world,especially Asia, have become the main source. Thischange is due to a significant decrease in the supplyof potential immigrants from Europe where peace,economic prosperity, and slow population growthhave reduced incentives to come to Canada after the1960s. In addition, Canada’s immigration policy,which had explicitly favoured Europeans for a longtime, became neutral with respect to applicants’ethnic backgrounds during the 1970s and reliedsolely on merit as measured by the point systemdescribed above.

The increased share of immigrants from Asiawas accompanied by an important change in the


Table 7: Source Countries of the

Foreign Born Population in 2001

(percent of all foreign-born)

Period of

Immigra-tion

Europeand theUnitedStates

Rest ofthe

World(ROW)

Asia(includedin ROWfigure)

Before 1961 99 1 —

1961-70 78 22 14

1971-80 43 57 33

1981-90 31 69 49

1991-2001 17 83 57

Source: OECD (2003), p. 112, which gives Statistics Canada as itssource.

educational attainment of all immigrants. In 1981,about 11 percent of recent immigrants held bache-lor’s degrees or higher. In 1996, this figure had risento about 25 percent.30 Since historically in Canadaand other market economies income is an increasingfunction of educational attainment, the observeddecrease in average earnings of immigrants with anaverage higher level of education constitutes a realand important puzzle.

The economic problems faced by recent immi-grants with high levels of education have given rise tothe stereotype of taxi drivers in Canada who are for-eign-trained science graduates, PhDs, engineers, andlawyers. This stereotype is not far off the mark.Recently, the Consul General for India in Vancouvertold me that the inability to find jobs commensuratewith their formal education is one of the main com-plaints immigrants from India have voiced with him.Promises allegedly made by Canadian officials issu-ing immigrant visas to the highly educated simply arenot being kept.31

Rigorous statistical analysis supports the morecasual evidence on the mismatch of work and skillsof highly educated immigrants. The Industry Canadastudy by Picot and Hou (2003) contains the followingchapter headings suggestive of their findings:“Among recent immigrants, having a degree did notprevent the rise in the probability of being inlow-income” (p. 13) and “The gap in the low-incomerate between Canadian born and recent immigrantsincreased most for the highly educated” (p. 13).

Perhaps most revealing, Picot and Hou found“Among engineering and applied science graduatesrecent immigrants had low-income rates 4.6 timestheir Canadian-born counterparts in 1990 but by2000 this had risen to 7.0, the highest relative rateamong any discipline” (2003, p. 14, emphasis in theoriginal).

Having established the fact that recent immi-grants with high levels of education suffered fromunexpectedly low levels of economic success, Picotand Hou turn to the questions of why this is the caseand why the ethnic composition of the immigrantsmatters. They reviewed academic studies thatattempted to answer the questions. They did notcome up with any firm conclusions but produced thefollowing partial list of suggested causes, whichtogether with the lack of supporting evidence ontheir relative significance leaves readers with muchopportunity to find support for their own hypothe-ses.1. The quality of many foreign educational institu-

tions is unknown to Canadian employers and theyare not willing or find it too costly to ascertain.

2. The nature and quality of the education at for-eign educational institutions are known but areof lower quality or different from those neededby employers in Canada.

3. The economic immigrants suffer as a result of ra-cial discrimination.

4. Professional associations of physicians, pharma-cists, engineers, lawyers, and teachers at all levelsin Canada have strict eligibility requirements,which normally exclude foreign education certif-icates and training.The problem noted in the first point is being

addressed by a study sponsored by Canadian univer-sities, which is examining the quality of foreign edu-cational attainments as criteria for admission toCanadian institutions of higher learning. These find-ings will be published and should help alleviate thepresent gap in knowledge of potential employers.

The third point induces me to make the follow-ing skeptical comment: discrimination has existedboth before and after the recent greater emphasis oneducation as an admissions criterion. Yet in earlier



30 See OECD (2003) for the definitions used in the derivation of these figures. The original source for the OECD figures is Zhao et al., 2000.

31 For this reason, he personally welcomed the proposal for reform of the process for the selection of immigrants presented above.

times, discrimination did not produce the same pooreconomic performance, in spite of the fact that lawsagainst discrimination did not exist or were muchweaker that they are now.

On the fourth point, professional licensingrequirements can be met by taking additional studiesand training in Canada. The problem is that the pro-cess tends to be costly and time-consuming andmany foreign professionals in these fields are unableor unwilling to get the necessary extra education.Studies are under way to determine whether profes-sional organizations should be forced to lower theirlicensing requirements.32

While there is no conclusive evidence on thecauses of the decline in earnings of recent immi-grants and the highly educated in particular, somestudies have reached definite conclusions of theirown and use them to make policy recommendations.Among them is Worswick (2004) who suggests thatthe emphasis on education and work experience inthe selection of economic immigrants is misplaced.This view is also expressed in the OECD (2003)report on Canadian immigration.33

While I believe that all of the factors Picot andHou give contribute somewhat to the reduced eco-nomic returns to higher education of immigrants toCanada, the most important cause in my view is their

second point in the list above: Low average quality ofcertified education, combined with a lack of infor-mation available to potential employers about thetrue quality of each institution of higher learning.

The reasons for the low quality of education isclearest in the case of India, which over the last 50years has created large numbers of universities fol-lowing the conventional wisdom of economists atthe time that “the road to development is paved withuniversities.”34 Because of the size of this often poorlyfinanced effort in India, the average quality of theeducation provided by these institutions has beenand still remains rather low.

This view of the average quality of Indian institu-tions of higher learning is consistent with the factthat many of them offer education of a quality equalto that of universities in the West. But since Cana-dian employers do not have the knowledge to distin-guish between the qualities of education offered byindividual institutions, they treat graduates from allin the same way.

In the case of immigration from China, it is use-ful to remember that institutions of higher learningin that country have long been isolated from theworld community of scholars and have been used asmuch to serve the governing regime’s purposes, asthey have to pass on education of the sort needed to



32 This is not the place to discuss this controversial issue in any detail. Suffice it to say that there has been much discussion amongeconomists about this problem with some arguing that society would be served better if professional associations were not permit-ted to issue licenses to practice. These economists argue that in the absence of such licensing the public would be protected by theneed of individual professionals to protect their reputations. Notwithstanding this argument, it is highly unlikely that Canadianswould be satisfied by legislation that removed the ability of professional organizations to set standards for certification and employ-ment. Even modification of such standards to assure an increased supply of foreign professionals is highly uncertain. What politi-cian or bureaucratic agency will want to be the target of public indignation if doctors trained abroad and admitted to practice bygovernment decree were involved in a disproportionate number of malpractice suits in the wake of the deaths or disabilities of pa-tients? Much the same argument applies to all of the other medical professions, engineers, lawyers, and even teachers at all levels.

33 The policy conclusion reached in the OECD study is that the selection process put less emphasis on education and more on the exis-tence of offers for work in Canada. This recommendation is pushed to its logical conclusion in the recommendations I made above.

34 India’s recent economic boom, which has been based largely on the use of highly educated workers, in a sense proves the validity ofthis theorem, but the country’s longer history also shows that education is a necessary but not a sufficient condition. Education canproduce high productivity and incomes only if the economic system allows its efficient and incentive-driven use. These conditionsdid not exist for most of the last half of the last century, when planning rather than markets was used to determine economic activity.

succeed in Canada. As in the case of India, there aremany universities in China that have continued withthe country’s tradition of providing students with anexcellent education of timeless value. The problemsare again that Canadian employers do not know thenames of these institutions and rationally are cau-tious about evaluating the qualities of graduates fromall Chinese universities.

Immigrants by-passing

the points test

The lower average earnings of immigrants in recentyears are also and additionally affected by the factthat in comparison with the immediate postwaryears, more immigrants have entered Canada asmembers of the family class and without having topass the country’s point system. The reasons for thisdevelopment are explained in the preceding chapter,which described and examined critically the immi-grant selection process that Canada uses.

The way in which family class immigrants lowerthe economic performance of the average of allimmigrants is quite simple and straightforward.Family class immigrants do not pass the points crite-ria designed to weed out those unlikely to succeed inthe Canadian labour market. As a result, the familyclass immigrants often have low levels of educationand relevant work experience, and importantly, donot speak one of the official languages. The parentsand grandparents of immigrants are especially proneto having such characteristics, which leads to eco-nomic underperformance because of their age andreduced adaptability in general.

Immigrants entering Canada as entrepreneursand investors are also implicated to some degree inthe deterioration of the average incomes of all recentimmigrants. These individuals are not subjected tomost of the tests that yield qualifying points. Instead,

they are admitted on the basis of an allegedly provenability and on their likelihood of starting and operat-ing new businesses and investing money in existingenterprises.

To the best of my knowledge, there are no officialaudits, follow-ups, and therefore government statis-tics on the actual activities of these immigrants.However, Francis (2002) gives many stories aboutimmigrant entrepreneurs that meet initial govern-ment criteria by buying corner groceries, operatingthem for a limited time with low wage labour fromtheir own country, and then reselling the same busi-ness to another immigrant entrepreneur.

Thereafter, the entrepreneurs can enter theCanadian labour market like other immigrants. Thefunds that they brought to Canada may help themwith the purchase of a home, but many have troublein the labour market because often they do not havethe characteristics needed to pass the points testapplied to economic immigrants. There is strongpresumption that if they could have passed that sys-tem, they would have used it instead of the entrepre-neur or investment route for obtaining theimmigrant visa.

The live-in caregivers, almost all of them womenworking as nannies, typically have low educationalachievements and their work experience does notqualify them for high paying jobs. Many remainworking as nannies and continue to earn low wageseven after their temporary work visas have been con-verted to landed immigrant visas following their twoyears’ presence in Canada. As such, they have almostcertainly contributed to the low average earnings of allimmigrants, though their overall contribution to thephenomenon is relatively small since they representedonly about .9 percent of all immigrants in 2002.35

However, once these caregivers have becomelanded immigrants, they are entitled to have theirspouses and children join them in Canada. The



35 During the years 1996-2000, caregivers made up an average of 1.6 percent of the total. In 2003 the figure was 1.5 percent.

spouses of these caregivers obviously do not have topass any points tests and are likely to have low levelsof education and work experience. It is thereforelikely that the caregiver program in its totality hashad a notable effect on the low incomes earned byrecent immigrants.36

The importance of the problems caused by thecaregiver program is increased by evidence of its usefor the systematic bypassing of the point system.

Thus, Clough (2004) reports that five clerks respon-sible for administering the program in the Vancou-ver office revealed that the applications foradmission under this program are scrutinized onlysuperficially so that some individuals in Vancouverhave been able bring into Canada as many as 10 nan-nies each within a period of two to three years. In2003 alone, 4,313 caregivers came to Canada andmade Vancouver their most popular destination.



36 Presumably, the government knows the number of these spouses and children of these caregivers and they are counted in the cate-gory of family immigrants. They should be shown as part of immigrants attributable to the caregiver criteria, to retain consistenttreatment with the spouses and children of economic immigrants.

Chapter 7: Immigrants and

Absorption Capacity

The rate at which immigrants enter Canada directlyinfluences their economic success. The higher thisrate, the lower is the speed and ease with which theycan be absorbed into the economy and the morelikely it is that the immigrants have to live in enclavesthat reduce their ability to enter the mainstream ofCanadian life, learn English or French and obtaingood jobs.

The immigration rate can be measured by con-sidering the number of immigrants as a percent ofthe population. The bars in figure 2 show this indexfor the decades from the 1950s to the 1990s, with thescale given on the left.37

As figure 2 shows, in the 1950s the averageannual inflows of immigrants represented one per-cent of the population. This heavy immigration camefrom Europe, which at the time was still recoveringfrom the damage done by the Second World War. Italso coincided with a rapid expansion of the Cana-dian economy, which was driven by consumerspending and investment that made up for the short-ages of the war years and the lack of income duringthe Great Depression. As a result, demand for labourboomed and the absorption of the new immigrantswent smoothly. If anything, since most of the newimmigrants entering the labour market were skilledcraftsmen or highly educated professionals withdegrees from European institutes of higher learningwith known reputations, they helped increase overallproductivity and further stimulated the economicexpansion.

Figure 2 also shows that the rate of immigrationfell steadily in the 1960s, ’70s and 1980s. It reachedan average low of slightly over .5 percent in the

1980s. During the four years 1983-86, it averagedonly .3 percent, when the absolute numbers of immi-grants were below 100,000 annually. This declinesuited the slower and more normal long-run eco-nomic growth of the Canadian economy and therewere no serious adjustment problems in labour mar-kets and for the immigrants.

However, as figure 2 shows, during the 1990s theaverage annual rate of immigration rose sharply toover .7 percentage points. This rise took place eventhough during that decade the Canadian economyexperienced serious problems with unemployment,government deficits, high levels of debt, and histori-cally low economic growth and productivity gains.


Figure 2: Immigration and

Population Growth

0

0.2

0.4

0.6

0.8

1

1.2

1951-60 1961-70 1971-80 1981-90 1991-2000

Av

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Imm

igra

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40

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wth

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Imm

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(Per

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ScaleScale

Source: Beaujot (2004), table 1.

37 These figures do not reflect emigration from Canada, which has been substantial during these many years. For example, in duringthe 1980s immigration was 1,381,000 and emigration 400,000, which resulted in a figure of 981,000 net immigration. During the1990s the gross figure of 2,229,000 was reduced by 407,000 emigrants, leaving a net immigration figure of 1,822,000.

The combination of high rates of immigrationduring the 1990s and slow economic growth affectednot only the immigrants who had arrived during thatperiod; it also lowered the incomes of those who hadarrived in the 1980s and who competed for much thesame jobs as the later arrivals.

These facts about the rates of immigration dur-ing the postwar years alone can explain why the eco-nomic performance of immigrants during the 1980sand 1990s was as unfavourable as the data aboveindicate. An additional factor contributes to thisphenomenon: the extraordinarily large proportionthat the immigrants represent as a percentage of theoverall growth in the labour force, which is alsoshown in figure 2.

In figure 2, the points connected through a linewith the scale on the right measure the contributionthat immigrants made to the growth in populationduring the relevant decade. As the figure shows,from the 1950s through the 1980s, immigrants madeup about 25 to 28 percent of the population growth.During the 1990s, this figure shot up to 60 percent.38

The high immigration rates during the 1990screated a large number of new ethnic enclaves, whichofficially are “census regions,” where immigrantsfrom a certain ethnic background make up morethan 30 percent of the total population. According toFeng and Picot (2004), in 1981, Canada had 6 suchenclaves. By 2001, that number had risen to 254.

Such ethnic enclaves are attractive in somerespects to recent immigrants as they facilitate lifefor those who do not speak English. They offer lowcost—if crowded—housing, private charity, a con-vivial social life and work in low wage service indus-

tries like retailing and restaurants that serve the resi-dents of the enclave.39 Some inhabitants typicallyleave the enclaves once they have learned English orFrench and are able to find well paying jobs outside.Others follow their children who, through schooling,have learned English or French, have adapted toCanadian conditions, and are comfortable and suc-cessful in the economy and society outside theenclaves.

However, a range of government policies hasslowed these processes. Strict and costly regulationsconcerning the operation of retail businesses, restau-rants, and the provision of personal services con-strain the ability of new immigrants to put to worktheir often strong entrepreneurial spirits. High mini-mum wages prevent immigrants in the enclaves withlow productivity levels from finding employment inthe normal economy, slowing the pace at which theygain work skills needed for full integration into theeconomy. At the same time, access by immigrants tobenefits under Canada’s social insurance programshas reduced incentives to find work outside theenclaves and has made more attractive work in theunderground economy that flourishes in theenclaves.

Other technological and economic trends haveaffected the rate at which new immigrants can beabsorbed. Farming, once a labour-intensive business,now uses high technology and considerably fewerworkers than in the past. Opportunities for work inretail establishments have similarly been limited bynot only the minimum wages already noted, but alsoby the spread of large retail chains that enjoy econo-mies in purchasing and distribution. These retail



38 This level had never been reached before in Canadian history. Data for earlier decades not shown in this graph indicate that the sec-ond highest contribution to population growth was in 1901-10, when it was 44.1 percent and driven by government policies thatlured European immigrants with promises of agricultural land grants in order to settle the prairies and the West. It has to be remem-bered that the fiscal burden on Canadians during these times was very much smaller than it is today, since social assistance was pro-vided almost completely by private organizations. At the same time, the granting of ownership to parcels of agricultural land did notinvolve money and taxes, but was accomplished by a transfer of titles on paper.

39 See Wente (2004) for a journalistic description of conditions in these enclaves.

chains and the low prices they charge to consumershave made it much more difficult for immigrants tocreate and operate retail stores successfully.

The government regulations and technologicaltrends just discussed suggest that the ability of theCanadian economy to absorb high inflows of immi-grants is lower than it was in the past. Therefore, it isespecially unfortunate for both the immigrants andCanadian taxpayers that the rate of immigration inthe 1990s was so high relative to that in earlier post-war decades.

Cyclical factors

The problems created by the high immigrationrates during the 1990s were aggravated by the factalready noted briefly, that during this period eco-nomic growth was slow and unemployment washigh. Both Sweetman (2004) and Green and Green(2004) address this issue. The following quote isfrom the latter:

The history of Canada’s immigration policyhas been defined by an ongoing battle be-tween proponents of using immigration forlong term (economic growth and demo-graphic) goals and proponents of using it forshort-term (current labour market) goals. Inthe past, a concern with the “absorptive ca-pacity” of the economy has affected immigra-tion levels, with alternating periods of largeinflows targeted at specific economic goalsand periods of drastic cutbacks in numbersduring economic downturns. By abandoningthe concept of absorptive capacity, as tradi-tionally defined, Canada’s current immigra-tion policy is dramatically different fromhistorical norms. This is signaled mostclearly by the failure to cut back the numberof immigrants during the labour market diffi-culties of the 1990s… (p. 102)

Sweetman (2004) reports that the governmentmade immigration insensitive to cyclical variations

in the demand for labour on the grounds that actualbusiness conditions are difficult to forecast andchanges in the immigration rates on which they arebased take place with lags sufficiently large to losemuch of the countercyclical benefits. This proposi-tion may well be correct, but the low incomes ofrecent immigrants suggest that making the immigra-tion rate insensitive to cyclical conditions has its owncosts both for the immigrants suffering from lowincomes and for Canadian taxpayers who have toprovide the social benefits to which immigrants withlow incomes are entitled.

However, the quantitative importance of the lackof cyclical variation of immigration rates is insuffi-cient to fully explain the observed lower averageincomes of recent immigrants. Picot and Hou (2003)considered the ratio of immigrants’ and Cana-dian-born workers’ incomes in years when the econ-omy was at its cyclical peak. They found that evenduring these years, the performance of recent immi-grants was below that of immigrants who had arrivedin earlier times, which points to the relevance of theother explanations advanced above, such as thepoorer quality of the immigrants’ educational attain-ment and other characteristics of immigrants fromAsian countries.

Green (2003) in the conclusion of his papernotes:

Immigrants filled the west at the turn of thelast century, filled the demographic gaps ofthe 1950s, and in the 1960s, helped the coun-try adjust quickly to a more sophisticatedeconomy. These economic rationales, Iwould suggest, have largely disappeared. Wehave no empty land, the major structuralchanges have taken place, and we now havean educational infrastructure in place thatcan meet our needs for skilled workers. Therationale for admitting immigrants in the fu-ture will be more social and humanitarianthan economic. (p. 42, emphasis mine)



Green gives a detailed account of the differenteconomic rationales that lay behind the immigrationpolicies during the periods he identified. The drivewest at the turn of the nineteenth century is part ofCanadian folklore. The demographic damage doneby the depression of the 1930s and the Second WorldWar was alleviated after the war by immigrationfrom Europe, where poor living conditions in the con-tinent devastated by war permitted the selection ofthe best and brightest wanting a better life in Canada.

In an attempt to lower the dependence of theCanadian economy and educational system on for-eign-educated university teachers, during the 1960sthe Canadian government subsidized the expansionand upgrading of universities by establishing gradu-ate programs in many fields. This program led to aninflux of many university teachers who wereattracted by initial income tax holidays and thenremained in the country.40

A comparison with Australia

A study by Richardson and Lester (2004) comparedthe labour market outcomes of immigration policiesin Australia and Canada. They found that the deteri-oration in the economic performance of recent im-migrants in Canada did not take place in Australia.They reviewed Australian and Canadian research onlabour market outcomes for immigrants to find anexplanation for this phenomenon. The main find-ings of their study are reproduced entirely as Ap-pendix B below.

The explanations for the differences in the eco-nomic performance of recent Australian and Cana-dian immigrants are not due to differences in overalleconomic conditions, as might be expected. Eco-nomic growth in the two countries has been verysimilar over the relevant time period.

The differences in the economic performance ofimmigrants in the two countries are instead due todifferences in the criteria used in assessing potentialmigrants and in the standards used in this assess-ment. Australian rules require potential immigrantsto document their economic prospects before theyeven apply for immigration papers. They must bemore proficient than Canadian candidates in speak-ing English and they have to be younger, especially ifthey apply as members of immigrants’ families.Access to social security benefits is much morerestrictive in Australia than Canada, which reducesthe number of immigrants requiring them and thuspulling down average incomes.

The report constitutes a powerful indictment ofCanadian policies and readers are encouraged toread Appendix B. Interestingly, the immigrationauthorities in Canada have not made nor promoted astudy like Richardson and Lester’s, though such astudy would seem desirable given the similar historyof the two countries—especially their historic reli-ance on immigration for development, but alsobecause the Canadian system has produced suchinferior outcomes. In the same vein, Canadian aca-demics also have failed to take up the issue.

Richardson and Lester’s study may be inter-preted to imply that the problem of the poor averageeconomic performance of recent Canadian immi-grants can be solved by some adjustments of admis-sions criteria and the use of tougher administrativeprocedures. This approach to reducing the cost onCanadian taxpayers is certainly preferable over doingnothing. It could be applied with relative ease requir-ing only changes in administrative procedures fullywithin the discretion of existing legislation. No divi-sive new legislation would be required.

The disadvantage of this approach is that it putstoo much reliance on the discretion of civil servants



40 I took advantage of this offer, leaving a tenured position at the Wharton School at the University of Pennsylvania to teach at SimonFraser University in 1972, where I have remained ever since.

and on the instructions they receive from their polit-ical masters. As discussed above, these instructionswould more often than not serve the interests of thegoverning party than the broad general interest of allCanadians. For this reason, the more fundamentalreforms proposed below are preferable because theyput much more reliance on market forces and reducethe influence of civil servants and politicians on theimmigrant selection process.

In sum

As noted at the beginning of the present part of thisstudy, the reasons for the lower incomes of recent im-migrant cohorts in Canada are not fully understood.They continue to be investigated by scholars with thehelp of new data as they are made available by Statis-tics Canada.

The information available in the literature in2004 leads me to believe that eventually consensuswill be reached that all of the influences discussedabove—the increased reliance on education of lowand uncertain value, the large number of immigrants

in the family class, the high annual inflow rates ofimmigrants, and the lack of responsiveness to cycli-cal conditions—are responsible for most of theobserved problems.

The great advantage of the reforms to the immi-grant selection system proposed in the next part isthat all of these sources of problems will beaddressed through one, sweeping change. Thosewho hold employment contracts for work in Canadain selected occupations or at specified minimumrates of pay will be selected completely without anycivil servant having to know the quality of their edu-cational certificates, their knowledge of English orFrench, or any other qualities of immigrants thatdetermine economic success. Applicants with demo-graphic characteristics that are highly correlatedwith poor economic performance will not be able toenter Canada as immigrants. The number of immi-grants will not tax the absorptive capacity of thelabour market or aggravate unemployment duringperiods of slow economic growth. It is time that thegovernment of Canada gives serious consideration tothe proposed reform.



PART III: Towards a New Immigrant Selection System

Chapter 8: The Basic Proposal

The system for selecting immigrants to Canada pro-posed below closely resembles that used success-fully under the NAFTA treaty signed by Canada,Mexico, and the United States. Under this system,foreigners who possess specified skills and have avalid offer for employment are allowed to take upresidence in the country through a temporary workvisa. This work visa can be renewed a number oftimes and eventually qualifies the individual and hisor her dependants to become immigrants in the tra-ditional sense and ultimately acquire citizenship.Holders of temporary work visas that become andremain unemployed for a specified time are re-quired to leave the country.41

The following specific proposals contain timelines and other discrete criteria that in most cases aremade provisionally and need to be discussed widelybefore they are ready to be embodied in legislation.Readers should keep this fact in mind and focus onthe merit of the general objectives of and principlesunderlying the proposed policies.1. Entry into Canada for settlement is granted only

to foreigners who have a valid offer for employ-ment in Canada in occupations specified in a listcreated by the federal government with the assis-tance of private sector employers. All thegrounds for granting immigrant visas presentlyin place are to be discontinued, except those ap-plicable to refugee claimants, which are largelyset by international treaty obligations and willnot be discussed here.

2. Applicants with valid job offers will receive tem-porary work visas for themselves and visitors’ vi-sas for their dependants. The work visas will bevalid for two years or as long as the foreigners re-main employed and they can be extended for twomore years. The loss of employment is cause fordeportation after a grace period of three monthsto find a new job.

3. After the end of four years, the foreigners canbecome landed immigrants with all the rightsand obligations accorded this type of visa pres-ently. Landed immigrants become eligible toapply for full citizenship two years after theyachieve this status.

The role of government

The government’s role in the operation of the pro-posed temporary work visa system is limited to:1. Specifying occupations for which temporary

work visas are issued.2. Excluding applicants likely to become a burden

on the public health care system and a threat tonational security.

3. Setting up and supervising a privately-run sys-tem for the collection of information about theresidence and work status of holders of tempo-rary work visas.

4. Ensuring that those holding work visas followthe prescribed rules and enforcing rules for de-portation.


41 My proposal is also consistent with recommendations made by Sweetman (2004) and in the OECD (2003) report on Canada’s immi-gration system: “Canadian immigration policy could make greater use of temporary work permits…”(p. 123). Since this report waswritten with much input from the government of Canada, it probably reflects the fact that influential civil servants and politiciansshare the view.

Proposals in detail

The following set of recommendations fleshes outthe basic ideas just presented. Of course, the “devilsare in the details,” and many additional details needto be worked out in actual legislation.

Work visas1. The issuance of temporary work visas (WVs) for

entry into Canada requires documentation prov-ing that the applicant has a legitimate job offerfrom an employer in Canada and that the offer isfor work specified in a list compiled and keptcurrent by the government.

2. WVs will be issued by a Canadian embassyabroad for citizens of all countries other than theUnited States, who can obtain the visa at borderpoints of entry.

3. The work visa is valid for two years. It can be re-newed for an unlimited number of times, for twoyears each time, upon the presentation of evi-dence of continued employment.

4. After four years in Canada and continued em-ployment, the holders of WVs can obtain perma-nent immigrant visas. Landed immigrants will beeligible for citizenship two years later.

5. The spouses and dependents of the holders ofWVs may enter Canada under a program of fam-ily work visas (FWVs), which allow them to ac-cept employment.

6. The holders of WVs who lose their jobs mustfind new employment within three months orleave Canada, unless the spouse is employed un-der the FWV provision.

7. Investors and entrepreneurs who can documentthat they own at least $1 million42 that they wantto invest in Canada are eligible for investor workvisas (IWVs) valid for two years, renewable bian-nually and allowing conversion into immigrant

visas after four years. Renewal of the IWVs re-quires documentation that investments worth atleast $1 million have been made in Canada andthat the investor has filed Canadian income taxreturns. Failure to provide evidence of an in-vestment means that the investor is required toleave Canada within three months of the deter-mination.

The proposed temporary employment visa pro-gram is designed to eliminate the existing need forgovernment employees to make judgments aboutthe eligibility of applicants for immigrant visas thatare based on documents of questionable value thatthe applicants submit. It also eliminates the need forgovernment employees to make judgments aboutwhether an applicant has the personal characteristicsto succeed economically in Canada.

Instead, Canadian employers make these judg-ments before they issue employment contracts, hav-ing properly evaluated the suitability of theimmigrants’ education, work experience, and lan-guage skills for success in the job. These employersare motivated by their own self-interest to make theright decisions. Wrong decisions lead to financiallosses and endanger the very existence of theemployers’ enterprises.

Some issuesSome discussion is needed around the specific pa-rameters of my proposal before it is enacted. For ex-ample, is the requirement that the loss of a job andfailure to find a new one leads to repatriation afteronly three months too harsh and does it need to belonger? Will the high cost of travel make it difficult tohave personal interviews with prospective employersand will potential foreign workers be able to use theinformal labour market on which Canadian citizensrely considerably to find most of their jobs?



42 This figure needs to be indexed to inflation to assure that the real value of the investment continues to serve its purpose.

Discussion of these issues will undoubtedly bringup the fact that private enterprise already has aneffective global network for tapping into the interna-tional market for highly skilled and professionalworkers. There are conventions, informal contactsthrough professional associations, and old schoolties. Under the proposed system, firms in specificindustries facing shortages of workers with requiredskills can band together in hiring headhunters to findand evaluate potential candidates abroad. Immi-grants already in Canada represent an importantinformal link to job candidates abroad and will beused increasingly. The large numbers of foreignerswho study in Canada’s institutions of higher learningare ready candidates for WV permits.

The experience with temporary work visas underthe NAFTA treaty shows that labour markets func-tion reasonably well across borders.43 The main criti-cism of the system is that it is administeredsomewhat inconsistently, mainly because it gives toomuch discretion to US border officials to verify theemployment contracts and qualifications of theapplicant for the specific occupations and profes-sions on the government list. My proposal eliminatesmost of these problems not only since the WVs are tobe issued by Canadian embassies abroad, but by theprovision that specialized private agents must beinvolved in verifying the validity of job offers andoccupational qualifications.

There is more evidence that the proposedsystem can operate successfully. For instance,the United States issues TN visas under theNAFTA treaty but in addition has in place a sys-

tem for admitting foreigners under temporarywork visas living in non-NAFTA countries. Sta-tistics published by Globerman (1999, tables 2and 4) show that in 1996 about 25,000 such tem-porary work visas were issued under a number ofdifferent programs: 4,192 H1-B; 7,037 intra-com-pany transfers; 11,471 temporary business visi-tors; 2,620 treaty traders and investors. In thesame year—1996—26,987 TN visas were issuedto Canadians under the NAFTA treaty. Thesefacts suggest that foreigners residing outside ofCanada and Mexico have been able to find jobsin the United States through whatever mecha-nisms are available to them. We may expectthese same mechanisms to serve potentialemployees seeking work contracts in Canada.

The proposed system has one other importantadvantage over the present system. The annualinflow of immigrants will rise and fall with overalleconomic conditions during recessions and boomsrather than allowing immigrants to enter Canada atannual rates insensitive to economic conditions, as isthe practice now.

Investor and family class immigrantsImmigrants admitted to Canada under the inves-tor-immigrant program have a poor record of meet-ing the objectives of the program, as is documentedby Collacott (2002) and Francis (2002). There isstrong evidence that the immigrants rarely spendtheir funds on projects providing employment forCanadians and that some have based their applica-



43 After a short period in existence, Globerman (1999) described the system and evaluated it. Since its publication, Globerman has ob-tained much information about the operational difficulties associated with the process. Suffice it to note that lawyers now offer theirservices to individuals who have job offers but are rejected by civil servants at the border for a variety of reasons, including inade-quate documentation proving that the applicant has the educational and occupational qualifications to fill the job.

DeVoretz (2003) has shown that the rate of approval of applications differs greatly among different US points of entry and throughtime. These differences are attributed to the relatively loose criteria for determining whether a job offer is valid and educationalqualifications acceptable, which leaves much discretion to individual staff at the border.

tions on claims to funds which they in fact borrowedfor that purpose from Canadian sources.

My proposals would eliminate these and othershortcomings by requiring that the renewals ofIWVs would be conditional upon the submission ofdocuments showing how the money has beeninvested and that the owner has filed personal andbusiness income tax returns. More than almost anyother part of my policy proposals, the details of theconditions for investors need to be fleshed out withthe help of experts and input from past foreigninvestors who entered Canada under the presentprovisions.

One of the most controversial implications of myproposal is that Canada would no longer admitimmigrants that under the present system wouldqualify as family class immigrants. I justify this newpolicy on the grounds laid out in considerable detailearlier in this study—the demographic characteris-tics of these immigrants make them unlikely to beeconomically successful in Canada, yet make themlikely to make heavy use of the country’s social pro-gram benefits. Canada’s social, health care, and pub-lic pension systems are in financial trouble andcannot afford additional burdens through inappro-priate immigration policies.

Under my proposal, people who come to Can-ada with temporary WVs will have done so with thefull knowledge that they cannot sponsor for immi-gration relatives other than their spouses anddependent children. If family ties are critical for

these people, they have the choice of not coming toCanada on a temporary WV. The lack of the oppor-tunity to sponsor family members does not preventthose same family members from coming to Canadafor temporary visits. It only precludes them fromautomatically qualifying for social benefits aftertheir arrival, just as is the case with other temporaryvisitors from abroad.44

Neither does the rule prevent immigrants inCanada from sending financial support to needy rel-atives abroad45 nor from encouraging and helpingproperly qualified relatives to find employment inCanada. Below I discuss a possible modification ofmy proposal concerning elderly parents and grand-parents of immigrants under which their offspringsettled in Canada would be required to buy an annu-ity for them, which would ensure that their parentswould receive an adequate flow of financial resourcesover their expected lifetimes.

A further justification for my proposed policy isthat ironically, it can help maintain the coherence oftraditional families abroad since it would help pre-vent parents and grandparents from leaving behindother members of their extended families, especiallylarge numbers of children and grandchildren, to joinone or a few of their offspring in Canada. This hasbeen the rationale used by Australia, under whosepolicy the parents and grandparents of economicimmigrants are admitted only if at least half of theirchildren are in Australia (or at least more are in Aus-tralia than in any other country). This requirement



44 I believe that such a set of regulations would not interfere with the judgment reached in the of the Supreme Court’s Singh decision,which specified that all Canadian residents are automatically entitled to social program benefits, since not doing so would violate thenon-discrimination clause of the Charter of Rights and Freedoms. The decision can be found at www.lexum.umontreal.ca/cac-scc/en/pub/1985/vol1/html/1985scr1_0177.html. The relevant text is found on page 3 “... the Charter guarantees everyone…the right to life, liberty, security of the person… The term “everyone” includes everyone physically present in Canada… The term“security of the person” encompasses freedom from… suffering.” Suffering can be the consequence of being deprived on the benefitsof social security.

45 It should be noted that in many countries, the amount of goods and services that can be purchased with a Canadian dollar is worthmuch more than what such a dollar would buy for needy family members in Canada, so that in effect, the limited financial resourcesof Canadian immigrant families are likely to do more good for their extended families if the funds are sent abroad rather than used inCanada.

has been combined with the need to put into escrowa substantial sum to meet the financial needs of theparents and grandparents.

The status of the dependants of those holdingtemporary WVs in Canada needs to be set out clearlyand include a wide range of contingencies, as in caseswhen the holder of the temporary work visa dies, isdivorced, or is jailed for crimes or terrorist activities.There are issues surrounding the status of childrenwhen they reach the age of maturity. I will notattempt in this report to develop specific policies forthese contingencies, but I am certain that they can bemade equitable and consistent with the basic princi-ples that underlie my proposals.

Taxation and eligibility forsocial benefitsOne important set of special issues surrounding theholders of temporary WVs that requires more de-tailed analysis involves taxation and eligibility for so-cial program benefits. Here is a sample of the mostimportant issues and recommendations based onconsiderations of taxation fairness.1. Holders of WVs and IWVs pay all personal in-

come, GST, and sales taxes and social insurancepremiums as Canadian citizens do.

2. Because of these tax payments, the holders ofthese visas are rightfully and automatically enti-tled to receive the same public health care andgeneral welfare benefits that are available to Ca-nadian taxpayers. Specifically, they are entitled to• employment insurance• provincial welfare• health care• pensions

3. Given the temporary status of the visas held bypotential claimants and the existing regulationunder which failure to remain employed results

in deportation after 3 months, the eligibility foremployment, welfare, and health care benefits islimited to 3 months.46

4. The holders of WVs or FWVs contribute to theCanada Pension Plan (CPP and OAS) and ac-quire corresponding entitlements upon retire-ment in Canada or abroad.

Explanation of recommendationsThe principles underlying my proposals are thatholders of WVs and IWVs are treated like Canadiansand that on average, contributors to social insuranceprograms should receive benefits equal to the averagevalue of their contributions. The temporary visaholders pay taxes and therefore are entitled to re-ceive, according to their needs, public education,health care, welfare, employment insurance benefits,and pensions for themselves and their dependants.

Enforcing the rules of

the system

I propose that private firms carry out the certifica-tion, surveillance, and enforcement rules under a sys-tem that is often described as a public-private-partnership. The government would set out preciselythe responsibilities and work to be carried out by theprivate firms and specify the amount of money itwould pay for this work. Firms would be selectedthrough a competitive process whereby they wouldoffer payment to the government for the right to dothe work under the specified conditions for outputand compensation.

Private firms would be paid specified fees for cer-tifying that employment contracts submitted toCanadian embassies are valid, economically sound,and offer work in specified occupations and profes-sions. The government would recover the money



46 Special rules have to be worked out to deal with situations where the spouse of a person in Canada under a temporary WV holds a joband pays taxes while employed under the FWV provisions. This and many other contingencies cannot be discussed here.

paid to the private firms by imposing charges onapplicants for temporary visas and their employers.The level of fees paid and charges made would bedetermined through the competition process theprivate firms would undertake to secure the work.For example, if the pay offered for the specified workwere too low, no private firms would bid for it. Thegovernment would then raise the pay (and the feeson the immigrants and firms hiring them), until inequilibrium when the fees paid to the private firmswould result in small positive bids for the right tocarry on the operations required by the government.

Under this process in equilibrium, fees imposedon the visa applicants and their Canadian employerswould be efficient and fair since they would cover thecost of the services they receive. The private firmsproducing the services would have to remain effi-cient since the right to carry out the business wouldbe reaffirmed periodically through open bidding incompetition with other private firms interested inthe business.

One aspect of the work these private firms woulddo would be to inform law enforcement authoritieswhen individuals and employers had violated therules under which they hold WVs and employ for-eigners. The extra workload imposed on the lawenforcement agencies to enforce the new immigra-tion system would require extra financial resourcesfrom the government. The government would pro-vide the funds from general revenues, as is the casewith the work of all law enforcement agencies.

Explanation of recommendationsThe proposed private-public-partnership arrange-ments for the delivery of traditional government ser-vices have worked well where they have been put into

place and where the government has spelled outclearly what the private firms are expected to do in re-turn for the payments they receive. Competitionamong firms wanting such contracts provides incen-tives on the operating firms to meet all service re-quirements, especially since competitors not in thesystem have strong incentives to watch over the ful-fillment of the government-imposed obligations.47

The conditions imposed on the private firms bythe government will specify the degree of diligencerequired to establish the genuineness of employmentcontracts, the maximum length allowed for the issueof such certificates, how current the information onresidence and employment status of temporary visaholders has to be, and many other aspects of the ser-vices needed to make the proposed system work.Penalties would be imposed on the private firms ifthey do not meet the specified requirements on thebasis of scales agreed upon in the contract with thegovernment.

Policing the system

I propose including the following rules in the legisla-tion regulating the system of temporary work visas.These rules are aimed at reducing what is almost cer-tainly going to be the most important and difficultproblem: the disappearance into the underground ofthose holding temporary WVs if they quit or losetheir jobs and cannot find new ones within the stipu-lated three months.

• Within one month after arriving in Canada,the holders of WVs must register with theproposed enforcement agencies, providinginformation about their place of residenceand ways to contact them. This information



47 Mark Mullins pointed out to me that in practice, most private-public-partnerships do not result in such bidding and an iterativeprocess that leads to the elimination of economic rents. In response I note that the threat of competitive bidding for the businessprovides a strong incentive to operate efficiently. The idea of potential entry has been used to develop the modern theory of indus-trial organization and monopoly policy. Potential entry in this analysis is seen as providing strong restraints on the ability of firmswith monopoly and oligopoly power to exploit consumers.

must be kept current. Fines would be imposedon the enforcement agencies if clerical errorsor any other forms of negligence lead tonon-compliance with the government rules.Those deliberately flaunting the rules wouldbe deported.

• Employers of temporary foreign workers mustnotify the authorities immediately when any oftheir workers is laid off, or within one week if anyworker has failed to show up for work. Substan-tial fines would be payable for non-compliance.

• Those holding temporary WVs who are foundin violation have no right to apply for status asrefugees, use the courts to launch appealsagainst the enforcement agency’s decision, ordelay deportation.The proposed institutions and law enforcement

provisions are likely to receive much criticism fromhuman rights advocates on moral grounds and fromimmigration lawyers claiming that the laws areunfair and should not apply to their clients. Myresponse to such criticism is that the government ofCanada has the right to set and enforce rules govern-ing immigration. When applicants accept the visasallowing them entry into Canada, they also acceptsimultaneously the obligations and consequences ofthis status. The candidates enter into this contractvoluntarily and they therefore are not entitled mor-ally or on any other grounds to question the deci-

sions made by the agencies charged with enforcingthe system’s rules.

The proposed system and its enforcement mech-anism may reduce not only the poor average eco-nomic performance of recent immigrants and thehigh burden on taxpayers outlined above, but wouldalso be useful in improving diplomatic relations withthe United States.

As is well known, our neighbor to the south isvery concerned with reducing the threat of terrorattacks from abroad. Canada’s current immigrationpolicy and visitor tracking system is considered inad-equate in the fight against terrorism, especially giventhe relative ease with which people and goods moveinto the United States through official border check-points and across the otherwise unguarded border.

The United States is currently implementing asystem for screening and tracking holders of allnon-permanent visas who enter its territory fromCanada. My proposed system can readily be inte-grated into that of the United States at relatively lowcost and respond in part to that country’s expecta-tions of Canadian help in fighting terrorism. Theproposed system and cooperation with US borderauthorities can help to alleviate American concernsand help to avoid drastic measures that have beenproposed by some US politicians and security ex-perts, including imposing stricter controls on Cana-dian visitors and imports.



Chapter 9: Modifications of the

Proposed System

The proposed new system for selecting immigrantsto Canada presented in the preceding chapter willevoke opposition from Canadians who think that thelevel of government involvement should be greaterthan it is under my proposal. In the following I antici-pate some of the concerns that will give rise to the de-mand for greater government involvement. I willexamine their validity and outline how the govern-ment can deal with the concerns while minimizingthe loss of the benefits from the system I propose.

Problems with the list of

occupations

The preparation of the list of occupations and profes-sions that are eligible for temporary work visas is sub-ject to several potential problems.

The list may be made to serve the interests ofcertain industries and occupations rather than thepublic. This outcome can arise through lobbyingand political influence peddling by the affectedinterests. We could easily have a situation where agovernment agency is captured by those who areregulated and made to serve their interests throughdecisions that restrict competition and protectother economic benefits.

More generally, it has proven to be very difficultto identify pending shortages of skills and occupa-tions in the longer run and to use governmentincentives to alleviate them. By the time workers areinduced to learn skills in short supply and haveactually acquired them, the shortages often havedisappeared.

In fact, past government policies have oftenaggravated temporary skills shortages and surpluses.For example, not so long ago, skills related to theoperation of computers were expected to be in shortsupply. The expected shortages never materialized.Instead, there is now a glut of workers with such

skills. In the 1980s, Canadian medical schoolenrolments were reduced significantly in an effort tocut the cost of the public health care system. Twentyyears later there is a serious shortage of physicians.

Even with the best of intentions and intelli-gence, the following problems are likely to arisefrom the proposed selection process run by a gov-ernment agency:

• Cyclically sensitive industries like constructionand natural resource extraction can have lowerdemands for labour and the foreign workers areno longer needed by the time they have arrivedin Canada.

• Administrative lags in the preparation of the listand actions based on it at embassies abroad leavestrong demand for skilled workers unfilled forsome time to the detriment of the economy.

• The overall immigration rate expressed as apercent of the population or growth in the la-bour force can become too low, given the gov-ernment’s targets for population growth andother criteria.

Replacing the list by a minimumrate of payTo deal with the problems associated with the cre-ation and use of the list of occupations and skills, con-sideration should be given to the use, instead, of therequirement that the applicants for temporary workvisas have employment contracts paying a specifiedminimum annual wage. One such minimum levelcould be equal to the average income from workearned by all Canadians (about $28,000 in 2003).Since the level increases every year and is different foreach province, it may desirable to build such factorsinto the legislation specifying the level.

This minimum pay approach continues toachieve the main goals of the reforms proposed in


the preceding chapter. It retains the protection oflow-income earners that Canadian social policies aredesigned to help. It also protects taxpayers becauseworkers with the stipulated income pay taxes highenough, and demand few enough social services onaverage, that they do not impose a fiscal burden onCanadians.

The minimum pay approach has an importantadvantage over the system using lists of approvedoccupations and professions. If, at the given rate ofpay, the number of immigrants is too few in the lightof labour market developments or the desire to reacha specified level of immigration for the achievementof other economic or social goals, the level can beadjusted downward to increase the number and viceversa if the number of immigrants is too large.

However, the minimum pay system also has itsdisadvantages and risks. For one, setting the rate ofpay is subject to political influence, which opens thedoor to special interest groups influencing it for theirown benefit. But this problem is not as great as is theselection of occupations and professions for the listbecause it involves only one parameter. This factmakes the process easy to understand and likely toattract the critical scrutiny of the media and public.

Moreover, it may be possible to legislate the set-ting of the minimum pay by making it a specified per-centage of the average income of Canadians andmodifications prompted by the deviation of actualimmigration levels from a set target. To protect thesefunctions from the risk of being manipulated forshort-run political gains, it is possible to require thatall changes can be made only after approval by a 75percent majority vote in Parliament.

Problem with seasonal and

cyclical industries

In the context of my basic proposal presented in thepreceding chapter, the issue has been raised that inmany seasonal and cyclical industries, such as con-struction, forestry, and mining, the demand for la-

bour fluctuates greatly. Under my proposal, manyforeign workers would come to Canada during theboom phase of a cycle. What will happen to themwhen the boom turns into a recession? Will they be-come a burden on our social programs?

First, while the mandated departure may provedifficult for some of the migrants, the prospect of thishappening would be known when they acceptedemployment in Canada. These workers will receivetreatment similar to migrant agricultural labourersfrom Mexico, who work in Canada bringing in har-vests and who return to Mexico when the work ends.Through their very actions they reveal that they vol-untarily prefer such conditions to remaining in Mex-ico where they might be unemployed or earningmuch less than they do in Canada.

It may not be fair to compare the employmentconditions of seasonal Mexican workers with thoseof people coming from far-away Europe, India, orChina. However, remember that those holding tem-porary work visas are entitled to employment insur-ance benefits and to stay in Canada for three months(or possibly more, depending on the length of timeput into the legislation) before having to return totheir native countries. During this period, they haveample opportunity to find new jobs, especially if theyreally want to remain in Canada. They may beexpected to show very high levels of wage flexibility,regional mobility, and willingness to learn new skills.Their eagerness to work should enable them to jointhe 20 percent of the Canadian labour forces thatfinds new jobs every year.

Family class immigrants

One of the most emotional issues in Canadian immi-gration policy has always involved immigrants in thefamily class. Those who fall under the laws guiding ad-mission in this class are the siblings, parents, andgrandparents of people who have come to Canada asso-called economic immigrants and their spouses. In2002, family-class immigrants made up 28.5 percent of



all immigrants who entered Canada that year. Thosewho were selected on the basis of their occupationalskills and other characteristics contributing to theireconomic success accounted for only 23.3 percent.

The argument in favour of allowing large num-bers of family members to join their relatives in Can-ada is basically humanitarian. The cultivation offamily ties and providing parents with financial sup-port is an important part of the culture for manyimmigrants, especially those who in recent yearshave increasingly come from Asia. The departure ofsome of the family’s members with the best eco-nomic prospects in their home countries leavesthose remaining behind worse off and often sufferingfrom poverty and poor social services.

There is also an economic argument, which sug-gests that unless Canada allows the immigration ofthese family members, the pool of economic immi-grants will be significantly reduced. As a result, lessstringent economic criteria will have to be applied toattract the desired number of all immigrants, so theiraverage economic success will be lowered.

The case against admitting family class immigrantsis quite simple. The siblings often do not possess thequalities needed to become economic immigrantsand are thus likely to become a burden on Canadiantaxpayers. Otherwise, they could have entered Can-ada as economic immigrants on their own merit.

Parents and grandparents of necessity oftenbecome a burden on Canadian taxpayers. These peo-ple normally have only few years left to work and paytaxes before they leave the labour force and consumethe large amounts of health care and other social ser-vices that Canada provides for the elderly. TheSupreme Court of Canada’s Singh decision hasensured these immigrants receive these benefits asentitlements based on the Charter of Rights andFreedoms.

In the light of the economic arguments againstand the humanitarian argument in favour of familyclass immigrants, the official data on immigrationshow that the humanitarian argument has won.

Using family status to select immigrants has becomea cornerstone of Canada’s policy. The proposed newsystem for selecting immigrants eliminates this pol-icy. It is easy to predict that many political battles willbe fought over the merit of this aspect of the pro-posed new system, should the government ever con-sider it seriously.

Families and other financial

arrangements

If the elimination of the family class of immigrantsimplicit in my basic reform proposals presented inthe preceding chapter is politically impossible, I offerthe following two alternative methods for reducingthe taxpayers’ burden.

The first of these is used in Australia, whereimmigrants must post a bond with a financial institu-tion. The money in this fund can be used if andwhen the parents of immigrants in Australia requirefinancial assistance, which otherwise the country’ssocial programs would provide. Unfortunately, thissystem has built-in perverse incentives: if themoney is spent early and generously and runs out,the immigrants can rely on the existing social pro-grams to support them.

A second method would require immigrants inCanada to purchase annuities, possibly with the helpof funds provided by their parents and grandparents.These annuities would pay out annual benefits suffi-cient to take care of the normal needs of the parentsover their expected lifetimes. The governmentwould have to specify annual levels of payments tomatch normal needs. Private insurance companieswill set the price of the annuities on the basis of actu-arial estimates of life expectancies. As in the case ofall such life annuities, savings to the insurance com-panies arising from deaths before the average lifeexpectancy are matched by the extra costs of benefi-ciaries that live longer than the expected time.

While the use of annuities to pay for the needs ofsponsored parents and grandparents has not been



tried anywhere, it addresses the basic problem directlyand effectively. It certainly warrants further study.

I am uncertain about the outcome of the politicalcalculus, but it might help if the discussion of theissues considered the following facts:

• The proposed policies are not retroactive. Immi-grants who already have their parents and grand-parents in Canada will not be affected.

• Future immigrants can meet their traditionalfamily obligations by transferring funds to their

families remaining behind. Such funds tend toprovide their families with the ability to buymore goods and services than they could obtainif the same money was given to them and spentin Canada.

• Future immigrants can meet some of their tradi-tional obligations towards their parents by hav-ing them come to Canada as temporary visitors.

• Future immigrants can travel to their nativecountries to cultivate traditional family ties.



Chapter 10: Obstacles to Reform of

Immigration Policy

Several years ago, academics and government re-searchers discovered and published the facts pre-sented in Part I about the relatively poor performanceof immigrants who arrived in Canada over the last 25years and who have imposed significant burdens ontaxpayers. In spite of the existence of this basic andimportant knowledge, it has not penetrated the pub-lic consciousness. The media have ignored it and pol-iticians are disinterested.

What underlies this lack of interest and publicdebate? One explanation involves the history ofimmigration policy in Canada since the 1970s, whichGreen and Green (2004) describe. The legislation onwhich Canada’s current immigration policy is basedhas an unusual property. The Minister of Immigra-tion can make changes to it without consulting withParliament—simply by issuing new regulations. As aresult, many of the important changes that havetaken place in immigration policy over the last threedecades have done so without new laws being passedor debated by Parliament. As a result, there has beennone of the media attention and public educationthat such legislation would have brought.

How did it transpire that Canada’s immigrationpolicies are being decided with virtually no inputfrom Parliament? The enabling legislation giving somuch discretion to civil servants and politicians waspassed at a time when Canada was engaged in apolitical process designed to define the country’scultural identity, with the professed goal of PrimeMinister Elliot Trudeau and his government beingto make Canada’s culture different from that of theUnited States.

Official multiculturalism

In the field of immigration policies, the Trudeau gov-ernment made the decision that Canada should be amulticultural country and not the “melting pot” that

the United States is. This policy also was motivatedby the need and demands of Quebec, which has al-ways been concerned with preserving its French lan-guage and culture. To ensure this policy’s success, theCanadian government provides financial aid to orga-nizations dedicated to preserving immigrants’ cul-tures whereas in the United States there are no suchsubsidies. Immigrants in that country must use theirown resources in efforts to preserve their culturalidentities. The only requirement is that children inthe United States must be taught school in English.This policy is the same as that in Canada, except thatFrench is used in Quebec.

At the outset, the new multicultural policy wasnot very popular and the government launched aprogram of indoctrination that was unprecedentedin peacetime history. Much money was spent onmassive public relations programs that explained itsethical and moral superiority over the Americanmelting pot model, even though for a long time themelting pot model also had dominated public think-ing in Canada. Until the 1970s immigrants wereexpected to become Canadians, even if in their pri-vate lives they continued to remain proud of theirnative countries and cultivated past ties with them.

The multicultural program also included publicfinancing of self-appointed watchdogs, which wereto call public attention to any individuals or organi-zations that criticized multicultural and immigrationpolicies. The standard approach these watchdogsused has been and remains to suggest that anyonecriticizing immigration policy must be motivated byracist sentiments since any reduction in immigrationwould affect visible minorities from Asia, Africa andSouth America. The media tends to report suchcriticism widely and acts as if it subscribes to the“zero tolerance” strategy against the expression ofracist sentiments: anyone accused of it of necessityis guilty.


The government policy aimed at entrenchingmulti-culturalism in Canada has been very success-ful and has kept discussions about immigration pol-icy in the realm of the politically incorrect. This factserves well the interest of parties in power, whateverpolitical stripe they are. They can continue to changeimmigration policies without public scrutiny by sim-ple Orders in Council in ways that appeal to immi-grants and induce them to vote for the party. Theycan also choose to disregard any efforts by analysts tobring about changes in policies that would reducetaxpayers’ costs but that are not liked by immigrants.

Public choice theory

The reasons for this state of affairs is clear from pub-lic choice theory, which is associated with the namesof Nobel-laureate James Buchanan and GordonTullock (1962), William Niskanen (1971) andMancur Olson (1965; 1982). Milton Friedman onceasserted that the existence of the public choice phe-nomenon is the Achilles heel of democracy.48

Public choice theory may be summarized as fol-lows in the context of immigration policies: The cur-rent policies were designed to benefit recentimmigrants who desire to have friends and familyjoin them in Canada. The party that provides theimmigrants with these benefits is rewarded withelectoral and financial support. That same partyfaces few if any costs since by and large, thenon-immigrant community either does not knowabout the cost of these policies, or they have beenindoctrinated into believing that the costs are smallrelative to the humanitarian and cultural benefits ofmulticulturalism. The costs are small for each indi-vidual and accumulate slowly so that voters ratio-nally ignore them in their voting decisions.

This public choice model is especially relevantfor immigration policies since immigrants tend tobe concentrated in some important electoral dis-tricts in Canada’s major cities: Toronto, Montreal,and Vancouver. The theory is supported empiri-cally by the fact that immigrant voters in nearly allof these districts in all elections since 1993 reliablydelivered Liberal MPs to Ottawa with comfortablemajorities, even when adjacent urban ridings voteddifferently.

At the same time, the cost and other problemsassociated with immigration policy are not an issuein the small towns and rural areas of Canada wherecontacts with immigrants are rare and they have noeffect on the demand for social services. Canadiansin these parts of Canada have been especially recep-tive targets of the government’s campaign advertis-ing the merits of multiculturalism and the creation ofa society free of racism.

In addition, many rural areas of Canada that havefew immigrants face declining populations; they seelarge-scale immigration as a possible solution to thisproblem, in spite of the fact that immigrants veryrarely settle outside the large cities. As a result ofthese conditions, policy issues other than immigra-tion determine the voting results in Canada’s smalltowns and rural areas, which altogether send a largenumber of MPs to Ottawa.

Other opposition to change

The immigration policies bring votes and finan-cial support to the government not only from theimmigrants, and their families and friends. Thereare other groups in Canadian society that benefitfrom immigration and reward politicians corre-spondingly.



48 Not everyone holds this view. Some economists argue, for example, that competition among special interest groups tends to protectthe public and creates an optimum outcome in the marketplace for votes in favour of collective policies. See Wittman (1996), whichcontains more references to publications taking this point if view, the implication of which are considered below.

1. There are the bureaucrats who enjoy income andprestige that are greater the higher are the levelsof immigration and their responsibilities forgranting visas and related work in Ottawa andforeign embassies.

2. There is the entire, so-called “immigration in-dustry” that consists of lawyers (often paid outof legal aid funds provided by the government),and political appointees to quasi-judicialboards that deal with refugee claims and simi-lar issues, whose incomes and careers prospermore, the larger is the number of immigrantsthey serve.

3. Non-governmental agencies (NGOs), often con-sidered part of the immigration industry, receivepublic funding to assist in settling immigrants,and providing language and other services. They,too, have a vested interest in maintaining largeand growing levels of immigration.

4. Industries that depend heavily on the employ-ment of low-skilled workers favour high levels ofimmigration because it increases the supply ofsuch workers and keeps down their wages.

5. An important group of supporters of high immi-gration levels is made up of individuals and firmsthat profit from the immigrants’ needs for hous-ing and infrastructure. These beneficiaries in-clude landowners, who enjoy the increasedscarcity value of real estate, and developers andbuilders of housing and infrastructure and theiremployees, who benefit from the increased de-mand for their products and services.

In conclusion

The proposed changes to Canada’s immigration poli-cies are fully consistent with basic Canadian valuesand are thus likely to encounter less opposition than

they would otherwise. The most important aspect ofthe proposed policies in this respect is that they arefree from racial or ethnic biases. The market forcesthat result in employment contracts to foreigners willbe driven by the famous bottom line: “What will hir-ing this person do for our profits?”

Employers who discriminate on racial or ethnicgrounds will lose out to competitors who selectemployees only on the basis of their skills and whatthey contribute to the bottom line. In the recentpast, almost all examples of massive discriminationon racial grounds (as in South Africa, the US south,and Germany) were initiated and maintained bygovernments. Competition in the labour marketand among employers is one of the most effectiveways to assure non-discrimination and the prosper-ity of visible minorities.49

The objective of my proposed policy changes issimple and clear. It is to eliminate the current, highcosts to taxpayers incurred as a result of the immi-grant selection process. The proposed policies willwelcome all who qualify by holding valid job-offersfor approved occupations or pay regardless of ethnicor racial backgrounds.

The history of the Canada-US Free Trade Agree-ment and the North American Free Trade Agree-ment gives some hope that the political power ofbeneficiaries from an existing system can be over-come by a coalition of interests that benefits from itschange. Essential to the political success of thesetreaties was the education of enough Canadians thatfree trade would benefit them personally. Perhaps itwill also be possible to educate Canadians that mov-ing to a market-oriented immigrant selection pro-cess will benefit them personally and in theircapacity as taxpayers while preserving the most basicCanadian values they cherish.



49 One of the most articulate proponents of this position on the role of free markets in preventing discrimination is Thomas Sowell(1993). His book Is Reality Optional? is a collection of essays written for the general public, which are backed by his pathbreakingempirical studies found in more scholarly publications.


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Appendix B

The following are the main conclusions exactly asprinted on pages 2-3 of the following study:

A Comparison of Australian

and Canadian Immigration

Policies and Labour Market

Outcomes

Report to the Department of Immigration and Multi-cultural and Indigenous Affairs, Prepared by The Na-tional Institute of Labour Studies, FlindersUniversity—September 2004, authored by ProfessorSue Richardson and Laurence Lester

The Role of Economic ConditionsComparison of recent data suggests there is little evi-dence that the explanation for the better labour mar-ket performance of migrants to Australia incomparison to Canada was stronger economicgrowth in Australia. In fact, the data indicates that al-though Australia’s economic growth was strongerthan Canada’s growth in the early 1990s this did notcontinue beyond the mid-1990s—growth sinceabout 1996 has been equally strong in both countries.

Policy EnvironmentAustralia and Canada have a similar rationale for en-couraging or ‘discouraging’ particular migrants. Bothcountries aim to improve their economic prospectsby encouraging the inflow of human capital (increas-ing the proportion of skilled migrants) and at thesame time support a moderate level of family re-union.

One distinct difference arises because of the gov-ernment level at which the responsibility for immi-gration rests. In Canada, federal and provincialgovernments share responsibility for immigration.In contrast, migration to Australia is a federalresponsibility. One consequence of this is that the

process for recognition of migrant qualifications inCanada is more cumbersome than in Australia.

Selection Criteria and MigrantCharacteristicsAn evaluation of the complex systems by which Aus-tralia and Canada assess applications to migrate sug-gests that potential migrants to Australia must fulfilla more demanding set of requirements than those in-tending to migrate to Canada. This is particularly sofor skilled migrants. All else being equal, it followsthat migrants who fulfill more stringent require-ments with regard to age, qualifications, past employ-ment, or language ability are more likely to besuccessful in gaining employment.

Differences in migrant characteristics or attrib-utes, particularly due to differences in the points testapplied to skilled migrants, appear to provide animportant part of the explanation for the superioremployment outcomes of migrants to Australia. Thefollowing summary of influential migrant character-istics and attributes suggests that these factors arelikely to continue, at least in the near future.

Assessment of Qualifications—There is a majordifference in the processes for assessing qualifica-tions of potential skilled migrants between Australiaand Canada. This has increasing importance as theemphasis of migration policy has changed toward at-tracting a larger number and proportion of skilledmigrants. It is an area in which Australia is deliveringsuperior outcomes.

Whereas skilled migrants to Australia must havetheir qualifications formally assessed before theyapply to migrate, this is not the case for Canada.Although Canada has an early assessment process, itis advisory only. Moreover, in Australia the assess-ment has force in all states and territories in contrastto Canada where formal acceptance of a qualificationin one province does not necessarily mean acceptance


in another and multiple acceptances must be sought ifthe migrant intends to move within Canada.

Access to Social Security—The possible self-selec-tion of migrants due to differing access to social secu-rity (including unemployment) benefits maycontribute to differing labour market outcomes be-tween Canada and Australia.

As well as deterring those potential migrantswho are uncertain about their ability to find workquickly, the two year wait period for non-Humani-tarian migrants to Australia to access social securityprobably also results in greater effort being made bythose who do come to obtain employment. This is incontrast to Canada, where migrants generally haveimmediate access to social security benefits.

Official Language Proficiency—Migrants to Aus-tralia tend to have greater official language profi-ciency, partly because of its mandatory Englishlanguage requirement for skill stream migrants.

This is often combined with greater culturalfamiliarity due to the pattern of country of origin.Australia still has strong inflows of migrants fromEnglish speaking countries—the United Kingdomand South Africa are the first and fourth largestsource countries for Australia’s Migration Program.

India, a nation with a very strong English lan-guage heritage is the second largest source country.The prominence of the UK as a working holiday des-tination for many young Australians (and visa-versa)may be one reason why the spouse component of thefamily stream also contains a significant number ofyoung people from the UK.

Prime Age—Because Australia has an upper agelimit for skilled migrants, a larger proportion of mi-grants to Australia are in the prime working age of

25-44. There is also a lower proportion of older peo-ple among Family migrants.

Non-Visaed Inflow—The data indicate that the netinflow of non-permanent workers to Canada adds agreater proportion to the labour force than non-per-manent workers to Australia. This suggests that per-manent offshore-visaed migrants to Canada facemore competition in the labour market from ‘otherarrivals’ than do migrants to Australia, perhaps con-tributing to the less successful employment out-comes of visaed migrants to Canada. This may becounterbalanced to some extent by the relativelylarge proportion of permanent arrivals to Australiafrom New Zealand.

Two factors do favour Canada but they are notsufficient to offset Australia’s advantages:

A Higher Labour Force Participation Rate—A higher migrant participation rate could suggest ahigher employment rate, but in Canada’s case thehigher migrant participation rate is associated with ahigher unemployment rate.

A Higher Proportion of Skilled Migrants (or“economic migrants” as they are known in Canada)—All other things equal, the higher proportion ofskilled migrants to Canada would suggest a higherrate of labour market success relative to Australia.But the higher proportion of dependents in this classmay reduce that tendency.

Request for the right to reprint this excerpt fromthe study by Richardson and Lester (2004) hasbeen submitted to the authors and the CopyrightServices of the Government of Australia.—Herbert Grubel



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About the Author

Herbert Grubel is Professor of Economics (Emeri-tus) at Simon Fraser University and Senior Fellow,The Fraser Institute. He has a B.A. from Rutgers Uni-versity and a Ph.D. in economics from Yale Univer-sity. He has taught full-time at Stanford University,the University of Chicago, and the University ofPennsylvania; he has had temporary appointments atuniversities in Berlin, Singapore, Cape Town, Nai-

robi, Oxford, and Canberra. Herbert Grubel was theReform Party Member of Parl iament forCapliano-Howe Sound from 1993 to 1997, serving asthe Finance Critic from 1995 to 1997. He has pub-lished 27 books and monographs and over 150 pro-fessional articles on economics dealing withinternational trade and finance and a wide range ofeconomic policy issues.

Documents

NUMBER 84 / SEPTEMBER 2005 - Fraser Institute