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ANALYSIS: Canada’s economic immigration economically irrational

If Canadians replaced each and every one of their lawmakers with expert and apolitical economists, they would soon fail to recognize their country’s immigration system.

As it happens now, after consulting with their partners and trying to assess the needs of Canada’s economy, the bigwigs who man the offices at Citizenship and Immigration Canada determine the mix of economic immigrants they think will best suit the demands of the Canadian labour market. For roughly the past 50 years officials have tasked a point system, whose criteria range from educational attainment to language proficiency, with picking the winners from the losers among a pool of would-be immigrants.

But, if the economics are all that matter, then policymakers have it all wrong. As a few rather prominent economists have told it, point systems and immigration restrictions hurt more than they help and the economic literature on immigration doesn’t imply that they’re necessary at all.

“It is extremely difficult for anybody sitting in capital city to determine what’s going to be on the point system to assess in real-time what all of the different fine-grained industries of the country are demanding,” said Centre for Global Development economist Michael Clemens, who penned an article about the costs of putting restrictions on migration for the Journal of Economic Perspectives in 2011.

For the same reason that economists wouldn’t advise the government to micromanage the flows of capital in and out of the country, many economists fail to see the merit in micromanaging the flows of labour in and out of the country. Economists prefer to leave that sort of activity to the market precisely because of what they cannot know: who exactly is seeking to hire whom?

“Even me, as an economist, I’m not going to be good at telling you how many nurses the U.S. or Canada needs,” said Giovanni Peri, a University of California, Davis professor who’s done a lot of work to cast a light on the economics of immigration. “The point system, in effect, assumes that the government can really attribute relative values to the characteristics of individuals.”

Along with some of his colleagues, Peri greets the premise that officials have the know-how to calculate these “relative values” and then determine what makes for the best labour-market outcome with a potent dose of skepticism. More convincingly, perhaps, it seems that some of the Canadian data do as well.

As Statistics Canada documented, immigrants saw a decline in their earnings upon entering Canada and finding work over the 1980s and early 1990s, which means that their labour market outcomes weren’t keeping policymakers happy. But the later changes in policy didn’t put any smiles on any faces.

“In the 90s, they drastically increased the point requirements for post secondary education, and that led to a large increase in the intake of immigrants with university degrees,” said Carleton University economist Christopher Worswick, who, along with his co-authors, was nominated for a prize valued at $50,000 in 2012 for his work on immigration. “What’s surprising is that the immigrants didn’t do better.”

In light of what economists have known for decades, these outcomes need not surprise anybody. As the late economist Friedrich Hayek wrote in what the American Economic Association called one the most influential essays it ever published, lawmakers don’t wield the knowledge they need to make policy in order to realize particular economic outcomes. What economists have known for decades also suggests that immigration-caps have equally shaky legs on which to stand.

“It’s a very standard view that more immigration would be better,” said George Mason University economist Bryan Caplan. “The fact that it would be better to have an immigrant research scientist than an immigrant high-school dropout doesn’t mean that it wouldn’t be even better to have both.”

As was calculated in a study led by University of Manitoba professor Tony Fang, if the Canadian government admitted an additional 100,000 immigrants into the country every year, it would pave the way to greater GDP figures and higher tax revenues. Still, as Caplan — who recently debated a motion about immigration for Intelligence Squared — pointed out, policymakers don’t have to be so selective as to exclusively admit either research scientists or high-school dropouts to benefit from these gains.

The labour market’s ability to absorb enormous quantities of labour without causing harm to the overall economy, regardless of the skill category into which the labour falls, is not a controversial matter among economists.

Whenever a low-skilled or high-skilled immigrant lands a job, he produces for his employer and consequently receives a wage, which he then spends on goods and services to accommodate his needs and demands. Drawing from the economist’s lexicon, any immigrant’s arrival ultimately causes the supply of labour and the demand for labour to increase together.

Yet, according to economists, the economics are not reflected in the policies.

“The economics of immigration almost has nothing to do with immigration policy,” said University of California, Berkeley economist David Card before he chuckled. Card, who specializes in labour economics and to whom the American Economic Association awarded the John Bates Clark Medal in 1995, added, “The economics of immigration is just like the economics of free trade, and, from an economic point of view, it’s almost always advantageous to have free trade.”

According to a survey of economists at the American Economic Association, roughly nine out of every 10 economists support free trade, which incentivizes people to produce the goods and services only they are best suited to do. Likewise, freer labour mobility, which is the result of freer immigration systems, causes people to take the jobs for which only they are the best suited. In each case, the result is greater productivity, which is probably why so many economists support it.

Peri, whom Card praised for doing the “most innovative” research on immigration at the time, makes this observation in some of his academic work.

The immigrant inflow to the United States isn’t as handpicked as is that to Canada, said Peri, and chiefly consists of workers situated at the polar ends of the skill spectrum. In 2009, according to data from the U.S. Census and the American Community Survey and calculations by Peri, nearly 70 per cent of the foreign-born population in the United States consisted of immigrants either without formal educations or with Ph.D.s, the balance of which tipped ever so slightly toward the former.

Peri found in his data that the low-skilled immigrants generally do take the jobs for which they are the best suited, allowing native-born Americans who fall into the same skill category to do the jobs for which they are the best suited. Despite that both workers fall into the same skill category, they aren’t identical in the eyes of their employers. In a paper of his, Peri wrote,

In manufacturing, construction and agriculture, for instance, they [i.e., immigrants who have less education] work as farm laborers, construction workers, roofers, drivers and so on. In services they work in food preparation, house services, child and elderly care. In contrast, similarly educated natives work in jobs which use more intensively communication and interaction skills such as cooks, construction supervisors, farm coordinators, or clerks.

More generally, here’s what he found: immigrant workers at the low end of the skill spectrum aren’t perfectly substitutable for equally skilled native workers, and so immigrants complement — rather than compete with — American labour; complementarity incentivizes each worker to capitalize on his comparative advantage, making the economy altogether more productive.

In a paper of theirs, once Peri and his co-author accounted for the varying skill-mix of workers, the positive changes in investment due to immigration, and immigration’s tendency to jumpstart the further specialization of labour, they found that immigration in the U.S. from 1990 to 2006 actually had a small yet upward effect on American wages in the aggregate.

Though there is a rich history of literature empirically showing that immigration doesn’t pose any meaningful economic harm to the receiving country, there does exist some academic work that seeks to bring to the discourse the cons of immigration. But many of these cons are less economic than they are philosophical or political.

Harvard economist George Borjas, probably the most academically credible critic of more immigration, has shown in his work that low skilled immigrants put a damper on the labour market outcomes of low skilled Americans. Thanks to some number crunching and economic modeling — and, according to Peri, an unrealistic assumption about substitutability that isn’t borne out by the data — Borjas has in previous work shown that immigrants lower the wages of the least skilled Americans by just less than 5 per cent in the long run.

In addition to the likes of Peri and Card disputing his findings, however, the methodology with which Borjas approaches the question of immigration is not consistent with the current paradigm in welfare economics, said Clemens.

“Even if emigrants modestly depress wages when they arrive at the destination, this does not justify restricting movement by the standard welfare economics analysis,” he wrote in his article for the Journal of Economic Perspectives. “Focusing on national welfare is a grand old tradition in economics — older, indeed, than the work of Adam Smith, who prominently inserted ‘the wealth of nations’ into the title of his great book.”

Invoking the Borjas findings against the thought of increasing immigration levels is tantamount to focusing solely on the national welfare, discounting the welfare of everybody who wasn’t born on the right side of the national fence. Caplan rather pointedly equated this approach to pretending that immigrants aren’t people.

Though at least one researcher has shown that immigrants have a modest effect on the labour-market outcomes of the least well-off in the receiving-country, and though the most visible beneficiaries of more immigration are the immigrants themselves, no one denies that immigrants still contribute massively to the welfare of the world altogether.

“Researchers have built models of the world economy to estimate the gains from eliminating various barriers to trade, capital flows, and migration,” wrote Clemens. “Even without delving into the details of these studies, the overall pattern is unmistakable and remarkable: The gains from eliminating migration barriers dwarf — by an order of a magnitude or two — the gains from eliminating other types of barriers.”

More specifically, by removing barriers to emigration, experts have estimated that the gains to world GDP amount to a rise of somewhere between 50 to 150 per cent.

“For the large majority of its history, the U.S. had no immigration cap at all,” said Clemens. “I don’t see any sign of economic evidence that suggests that having a lot more Canadians of all kinds, from all cultures and at all portions of the skill spectrum, just wouldn’t be tremendously economically beneficial to Canada.”

 

To contact this story’s author, email Alex Vronces.