How can immigration improve our standard of living?
November 1, 2016
By Munir Sheikh, Globe and Mail |
Canada has faced low and declining economic growth and stagnant living standards over many years and it does not seem that things are going to get better any time soon. The two driving forces for long-term economic growth, population and productivity, are not doing well: population growth, due to declines in fertility rates, and productivity, for still unexplained reasons. In the not-too-distant future, the only growth in our labour force will come from immigration.
These facts, combined with Canada’s good fortune in being a vast country with many resources and a relatively small population, can quickly drive one to conclude that our living standards would improve with a lot more people. The government’s Advisory Council on Economic Growth has recommended that immigration should rise to around the 450,000 level. On Monday, Immigration Minister John McCallum announced a target of 300,000 newcomers for 2017. Some dream of a “Big Canada,” with large increases in immigration.
But does evidence on the performance of economic immigrants to Canada confirm this hope, and the potential theoretical result, that more immigrants have meant better living standards?
The simple answer is no. No doubt, immigrants have contributed immensely to the Canadian economy, in general, and many more would do so in the future. But we also find that average earnings of an economic immigrant are considerably less than that of a comparable Canadian worker at the start of their working career and, even after many years of work, do not catch up, although the gap does shrink. Worse, this disadvantage has been growing over time, and the story is the same for men and women workers.
This comparison is between the average Canadian worker and the very best Canada hopes to select for economic immigration, which makes the comparison look even worse. So how can immigration improve our living standards?
The dichotomy raises a number of questions in the context of the advisory council’s recommendation.
First, immigrant outcomes depend on a variety of factors that include, among others, how economic immigrants are selected (immigration policy), how long it takes to bring them to Canada (policy execution), the support they receive in Canada to prepare them for the labour market (complementary policies) and the match between their qualifications and the kinds of jobs they end up getting (labour market mismatch). Immigrants’ past performance suggests that there is something wrong in some or all of these critical success factors.
Second, the advisory council’s focus is on economic growth. Is this the right objective for immigration? Or should it be to increase our living standards? While increased immigration can contribute to increased economic growth, it does not necessarily contribute to increasing living standards, as our past performance suggests. The divergence between outcomes for economic growth and living standards results from the fact that more growth resulting from more workers does not mean that an average worker is economically better off. The advisory council has made a number of suggestions for speeding up the entry process and the types of immigrants Canada should concentrate on. But we need evidence that the suggested changes would work.
Third, the advisory council has suggested an increase in immigration to the 450,000 level and provided estimates of how much this would improve the age dependency ratio. However, the estimates presented are for the short term. Over the long term, a level increase in immigration would neither increase labour force growth (and economic growth, for that matter) or the age dependency ratio. Indeed, mathematically, over the long run, this ratio, after increasing for a while with an increased level of immigration, would begin to decline as the population base expands faster with immigration than the number of workers. Does the advisory council feel that for increasing economic growth, we should set a target growth rate for immigration?
Finally, what is magical about the 450,000 target? Why is it any better than Mr. McCallum’s 300,000, or someone else’s even larger numbers?
The bottom line is that while higher levels of immigration should help improve Canadian living standards, we need to understand why economic immigrants’ average performance has been poor in the past. We must evaluate our immigration policy, its execution, the role of complementary policies and labour market mismatch, considering immigration’s role in Canada’s future prosperity.
The Liberal government has emphasized the use of evidence in policy development. So let’s find it here, and use it to design appropriate policies.