Professor of Economics (Emeritus), Simon Fraser University
This is a draft of a paper to be presented at the conference: Canadian Immigration Policy: Reassessing the Economic, Demographic and Social Impact on Canada, to be held on June 4 - 5, 2008 in Montreal, Quebec.
The paper reflects the personal views of the author and should not be quoted without his permission.
Draft of May 25, 2008
“Mass immigration and the welfare state are incompatible”
Milton Friedman, in an interview with Peter Brimelow
“There is a conflict between mass immigration and the welfare state, but we should build walls around the welfare state, not countries.”
William Niskanen, in personal conversation
This paper explains why mass immigration and the welfare state are incompatible as Friedman asserted and attempts to quantify the fiscal implications of this incompatibility for Canada. The paper also addresses the issue raised by Niskanen and recommends policies to deal with it.
These efforts will involve only economic issues and will not deal with the social and cultural implications of mass immigration. While important, the non-economic issues are covered by other papers at this conference.
It is important at the outset to make it clear that the analysis focuses on the effects immigrants have on the average income of persons residing in Canada at the time of their arrival, not on Canada’s aggregate national income.1 Per capita income reflects the economic well-being of Canadians and therefore is the proper focus of this paper. The first part of the paper briefly summarizes the standard economic model that underlies the traditional views that immigration maximizes world output and raises the average incomes of Canadian residents. This model and its assumptions permit the clear identification of the ways in which it fails to consider conditions in the real world that lead to Friedman’s conclusion.
The core of the paper analyses the consequences of immigration that stem from the existence of the welfare state. The final parts of the paper briefly deal with other alleged benefits from immigration like creating economies of scale for large investment projects, filling jobs unwanted by Canadians and the use of their tax payments to cover unfunded liabilities of Canada’s social programs.
The Traditional Economics of Immigration
Free immigration maximizes world output as a result of the fact that migrants move from countries where their productivity and wages are lower than they are in the countries to which they move. When a worker earning $5,000 a year in one country move to another, where she earns $20,000, world output increases by $15,000.
As more and more workers move, wages in the receiving country fall and rise in the country of origin. Once wages in all countries are equalized, incentives for migration disappear and world output is maximized.2 This conclusion provides the powerful economic case for free migration around the world.3 However, the implications of the model for conditions are not so unambiguously positive for the country receiving the immigrants. Thus, while non-marginal immigration raises the average income of workers and capital combined in the receiving country, it also lowers the wages of workers, which is often considered socially undesirable and explains the opposition of labour organizations to mass immigration.
The traditional model just presented can be modified and made more realistic in many ways. One of these involves the assumption that the receiving country is relatively small and that the higher returns to capital accompanying immigration lead to capital inflows from the rest of the world, which in turn raises labour productivity and prevents the fall of the wage rate.
There is also an extension of the model, which assumes that immigrants bring along human capital that supplements the domestic stock of real and human capital. If the human capital embodied in immigrants is large enough, the returns to labour can remain unchanged or even increased.
However, to the extent that foreigners own this new capital in the receiving country, the beneficial effects for the owners of capital in the receiving country due to the immigration are reduced correspondingly. In the extreme case where foreigners own all new capital or the human capital per immigrant is equal to the average capital endowment per worker in the receiving country, the income of the native owners of capital and average incomes of the native population are not raised by the immigration.
The Basic Model and the Characteristics of Immigrants
The model just developed uses the abstract concept of labour, which misses some aspects of immigration that are important for the following analysis.
First, Canadian government policies for the selection of immigrants is based on the principle of admitting only those who have a high likelihood of economic success after arrival. For this purpose, immigrants are selected on the basis of their levels of educational attainment, language proficiency, age, work experience, pre-arranged employment, and adaptability.4 This immigrant selection program is renowned internationally5 for its alleged success in bringing into Canada only persons that have a high probability of finding gainful employment. However, a close examination of the actual performance of Canada’s immigrant selection process shows a different picture. Heads of households meeting the economic selection criteria tend to be accompanied by their spouses and under-age children. After settling in Canada, many of the economic immigrants arrange for their parents and grandparents to join them under the so-called family reunification program.
As a result, in 2006 only 17.6percent of immigrants had been selected under the economic success criteria, the rest were family members or refugees that did not pass the test.6 Important for the analysis below is the fact that these family members of the economic immigrants tend to have only limited labour force attachment. Most spouses and all under-age children have none. Parents and grandparents have low language proficiency, education and relevant work experience and often are over age for normal employment, which means that only few of them end up working and paying taxes.
A second aspect of Canadian immigration missed by the basic economic model is that the present selection process places heavy emphasis on the immigrants’ educational attainment, giving maximum weight to those who have completed four years of university study. This emphasis on education was introduced in the expectation that it would allow the immigrants to adapt readily to labour market demands that in recent decades have involved rapidly changing skill requirements.
Unfortunately, the emphasis on educational attainment has had some detrimental effects on the incomes of highly educated Canadians, as Ayedmir-Borjas (2006) have shown. According to this study, the real level of wages earned by resident Canadians with post-graduate degrees has fallen by seven percent over the period 1990-2006 when the real incomes of persons with less schooling rose significantly. Third, of particular importance for the analysis below, recent immigrants have had a poor earnings record on average. According to 2001 census data compiled by Statistics Canada, immigrants who arrived in 1990 had average earnings lower than those of resident Canadians of the same age, gender and level of educational attainment: 65 percent during the first year, 77 percent five years and 80 percent ten years after their arrival. Compilations based on later data suggest that there is no further improvement in this relationship after 10 years.
These data were supplemented recently by a report issued by Statistics Canada (2008), which compares median earnings of all recent immigrant earners in the core working age (age group 25 to 54) to those of their Canadian-born counterparts, using information gathered from censuses over the period 1980 - 2006. The main findings relevant to this study are:
“During the past quarter century, the earnings gap…widened significantly. In 1980, recent immigrant men who had some employment income earned 85 cents for each dollar received by Canadian-born men. By 2005, the ratio had dropped to 63 cents. The corresponding numbers for recent immigrant women were 85 cents and 56 cents, respectively. The gap widened even though the educational attainment of recent immigrant earners rose much faster than that of their Canadian-born counterparts, during this 25-year period.” (page 21) .7
The Role of the Welfare State
Turning now to the study of the fiscal implication of the economic performance of recent immigrants in Canada’s welfare state, it must be remembered that the welfare state is designed to make more equal the after tax incomes of all Canadians and to provide them with protection from the financial burdens that accompany illness, unemployment and retirement.
For this purpose the governments of Canada use two basic instruments. It operates tax systems that raise more money from high than low-income earners. Financial risks are dealt with through spending on social programs like health care, unemployment benefits and pensions. In the present context it is important to note that these programs are deliberately designed to be universal and therefore accessible to all residents of the country, including recent immigrants.
The following represents a tentative, first estimate of the effects these welfare state provisions have on the allocation of resources between immigrants and other Canadians. The calculation focuses on finding values for the variables in the following equation:
FT = (To – Ti) – (Go – Gi)
where FT is the average fiscal transfer, T is the average taxes paid and G is the average government spending on programs, the subscript o refers to other Canadians and i refers to immigrants.
Taxation Canada’s taxation system is characterized by a progressive schedule that has the top 10 percent of all filers of income tax returns pay about 50 percent of all taxes, the bottom 50 percent pay about 5 percent and the 6th through 8th decile pay the rest, of 45 percent.8 On the basis of the information that in 2000 the average income of immigrants was only 80 percent of the average of other Canadians, I assume that the average immigrant pays 21 percent of the amount paid by the average other Canadian since very few of the immigrants are in the top 10 percent and most are in the bottom 50 percent of all tax filers. As Table 1 shows, the average personal income tax paid by other Canadians was $4,543. As a result of the assumption immigrants pay only the $968 shown in the table.
The remaining rows in Table 1 reflect similar assumptions about the relative amount of other taxes paid by the two groups. The 80 percent figure is used for sales, social and “other“ taxes on the grounds that these taxes are proportional income. The relative amount of taxes paid is assumed to be 40 percent for property taxes and 10 percent for corporation income taxes on the grounds that the 1990 cohort of immigrants is almost certain to have low holdings of taxable property and corporations.
The last row of the table shows the results of adding up the different taxes paid by the two groups, which represent To = 12,220 and Ti = 4,706 in the above equation.
Government Spending Benefits In the year 2000 the governments of Canada spent $11,508 (Bo) per capita on the provision of general government and social services. The figure excludes debt service and payments under Canada Pension Plan that are determined by contributions to the system made by individuals.
Tax Payments by Immigrants and other Canadians in the year 2000
Average paid by Canadian in 2000
Immigr. Tax paymts as % of Canadian paymts
$ value of immigrants tax payments
Source: Tax revenues are from Statistics Canada. The percentages are based on own considerations explained in the text and Grubel (2005).
The bulk of these services were universal in the sense that everyone was eligible to receive them, regardless of income or citizenship status.9 Spending on higher education represents an important part of the overall spending on education and benefits earners of high incomes more those with low incomes. Using information on the magnitude of this effect compiled by Horry and Walker (1994, p 154) and the fact that immigrant families on average have low incomes and do not send their children to institutions of higher learning, lead to the assumption that the average immigrant receives $1,220 less in government benefits than other Canadians. The benefits absorbed by the average immigrant therefore are $10,288 (Bi).
Putting together these figures produces the following estimate of the value of the net transfer (FT) between the average other Canadian and o the average immigrant:
FT = (12,220 - 4,706) – (11,508 - 10,288)
= 7,514 – 1,220 = 6,294.
This net transfer of $6,294 is for one year and for the average immigrant in the 1990 cohort. Its magnitude implies that:
In 1990, 216,396 immigrants arrived in Canada. The cost of transfers to this cohort in 2000 was $1.36 billion in that year.
Assuming that this cohort lives for 45 years, the total cost to Canadians for that cohort comes to $62.1 billion.
In the year 2002 there were 2.9 immigrants who had arrived in the preceding 12 years. The transfers to that group of immigrants in 2002 were $18.3 billion.
The $18.3 billion represents 16 percent of total federal program spending in the fiscal year 2000/2001, which is more than the federal government spent on health care and twice what it spent on defence.
It is important to note that these costs do not constitute a social investment for Canada that eventually will be repaid by the immigrants and their offspring, even if in later years on average they earn as much as other Canadians.
At that point in time, their impact will be as suggested by basic economic theory of wages: Their pay will equal the value of their contribution to the nation’s output and when they spend their pay, they simply claim what they have produced, leaving unchanged the income of other Canadians.
In addition, they will pay taxes on average equal to the value of the social benefits they consume, again leaving the average other Canadian without net gains.
In conclusion of this section, it should be noted that the calculations presented are based on a substantial number of assumptions, spelled out and sometimes implicit. Only further work can establish the extent to which the results were influenced by unrealistic assumptions.10 In assessing the merit of these results it is also useful to know that calculations of the costs of immigration in the United States have yielded results that are quite similar, in spite of a number of important differences in social programs and the characteristics of the immigrants studied.11 IV Traditional and Popular Arguments in Favour of Immigration In the past and in popular discussions about immigration, three arguments feature prominently, the merit of which will be discussed in turn.
Immigrants are needed to fill jobs that Canadians do not want to occupy or do not have the skills to do. Because of the resultant vacancies, much profitable investment is not made.
During times of economic prosperity like the one experienced in Canada in the early part of the 21st century, there were many signs in stores and restaurants advertising that they want to hire help. These signs were up for long periods of time because they were for “jobs that no one wants”. More important, firms in the booming energy and mining industries have unfilled vacancies for skilled crafts – jobs for which Canadians are not trained in sufficient numbers.
It is a simple and widely accepted proposition in economics that free markets tend to eliminate excess demand for milk, steel or cars by creating higher prices for these goods. At the higher prices, demand shrinks and supply increases until the problem is eliminated.
In the absence of immigration, excess demand for labour of different skills in free markets similarly can be eliminated by higher wages paid to workers. Supply is increased through migration of workers within Canada. When such internal migration is inadequate and shortages persist, through time the higher wages induce more Canadians to train for the relevant occupations. Employers develop and deploy labour saving technology. Firms use their own training programs to fill jobs by equipping the workers with just the right skills needed. Such training and new technology take time to become effective, but so usually does the development of shortages.
Demand for labour at the persistent high wage is reduced by employers’ investments in labour saving capital and technology. The producers of such capital in turn are encouraged to develop such technology.
Of course, profit-maximizing employers prefer not to pay higher wages and train workers but hire skilled immigrants and pay lower wages. But such behaviour and the resultant higher profits for employers do not mean that solving labour shortages through immigration necessarily is in the public interest.
As noted above, immigration lowers the income of labour and in the case of immigrants with low skills and wages, it leads to higher rates of poverty among competing Canadian workers. The reduced incentives for employers to substitute capital for labour in the longer run reduce the growth in labour productivity and overall national income. Finally, in Canada’s welfare state, for reasons discussed above, taxpayers’ burdens are increased.
There is another, somewhat ironic potential problem arising from the policy of filling vacant jobs in Canada with immigrants. The immigrants add to the existing demand for private sector housing and consumer goods and services. In the public sector they contribute to crowding of schools, educational facilities and the transportation sector. To meet this additional demand from immigrants, new investments have to be made, which leads to increased demand for labour. This higher demand for labour will offset a large part of the expected reduction in the excess. It is even possible in principle that the overall labour shortages will increase.
Economic theory is clear on how to deal with excess demand for labour in ways that serve best the interest of Canadians. If the excess demand occurs in specific skills, let the private market adjust through the incentives created by the resultant higher wages. If the excess demand is general and affects all skills, the government needs to reduce aggregate demand through the proper monetary and fiscal policies.
In sum, the idea that immigrants are needed for meeting the needs of the labour market in Canada are not valid. Labour shortages can be eliminated by wage increases and the use of labour saving capital. Using immigrants to deal with labour shortages serves the interest of employers tends not to be in the public interest.
Immigrants are needed to maintain the financial viability of Canada’s social programs.
Canada’s major social programs providing universal health care and retirement benefits have been designed on the pay-as-you-go basis, which involves the collection of taxes from the persons active in the labour force and using the funds to pay for the cost of health care for all and pensions for those in retirement.
While the rationale for this method for financing social services made sense when it was first designed, it has turned out to be financially unsustainable because the number of persons working did not increase as expected due to low fertility rates. At the same time, the number dependent on the government’s social spending will soon increase as the large numbers of Canadians born after the end of the Second World War reach retirement age.
Because of these demographic developments, Canada’s social programs face very large unfunded liabilities. In principle immigrants can be admitted in large enough numbers to compensate for the low fertility rates among Canadians. The taxes they pay can eliminate these unfunded liabilities.
However, closer examination of this proposed solution shows that it is not practical for the simple reasons that immigrants also age and need health care and pensions in retirement. At the same time, experience has shown that they and their offspring tend have the same low fertility rates as Canadians after they have settled in Canada.
Guillimette and Robson (2006) have studied the potential use of immigrants to deal with Canada’s unfunded liabilities of the social programs. They used forecasts of future fertility and death rates made by Statistics Canada to estimate the number of immigrants that would be needed to solve the problem.
They did so through the use of the concept of the dependency ratio, which is defined as the number of Canadians of retirement age (older than 65) over the number of workers in the labour force (between the ages of 18 and 64).
In 2006 this dependence ratio was .20, which means that there were 20 retired Canadians for every 100 taxpaying workers. At this ratio tax revenues have been roughly equal to payments and if the ratio would be maintained in the future, the unfunded liabilities would disappear.
Using the middle of a range of forecasts by Statistics Canada on fertility and death rates, they discovered that in the absence of immigration, the dependency ratio would rise sharply from .20 in 2006 to .46 in 2050 with some fluctuations in the intervening years.
What would have to be the number of immigrants to prevent such increases in the dependency ratio? Making this calculation Guillimette and Robson assumed that immigrants have the same age profile in the future as they have had in recent years and which has made them on average somewhat younger than Canadians.
Their crucial finding is that immigration levels would have to rise sharply after 2006 from the present .7 percent of the population to 4.8 percent in 2012 and remain there for about a decade. Thereafter, the levels could fall to a low of 2.0 percent of the population because of the large number of children born to Canada’s baby boomers that will be in the labour force at that time. After 2038 the level would rise again sharply to about 4.3 percent of the population.
The implications of these rates immigration for the absolute numbers of immigrants needed are staggering. To keep the dependency ratio at the present .20, in 2050 immigrants would have to be above 7 million in that year alone. Due to past high levels of required immigration, Canada’s total population that year would be 165.4, or more than five times the current.
The authors also considered the implications of restricting immigrants to persons aged between 20 and 24. They found that this strategy would lower only slightly the number of immigrants needed to maintain the current dependence ratio and the corresponding absolute level of the population and annual immigrants.
The estimates produced by Guillimette and Robson imply clearly that immigration cannot be used to solve Canada’s problem of unfunded liabilities of its social programs.
The number of immigrants needed annually would be so large that it would be difficult to find enough with the qualities desired under the present selection system. If selection criteria were changed and the immigrants’ expected economic success lowered, the conflict with the welfare state discussed above would become even more serious. In addition, there are risks that the supply of immigrants in the future will shrink as some traditional source countries encounter the consequences of low fertility rates and others experience rapid economic growth and opportunities for their own population.
In sum, it is an illusion that immigration is the solution to Canada’s problem of unfunded liabilities of its social programs due to low fertility rates, rising dependency ratios and low economic growth. Rates of immigration and the resultant levels of population required to solve these problems are too high and are associated with too many risks and uncertainties.
Immigration results in economies of scale and thus raises productivity and incomes.
During the 19th and part of the 20th century immigration lowered the average costs of large infrastructure projects like the transcontinental railroad, super highways and at the local level, utilities supplying water, sanitation and electricity. During these times immigrants also increased the size of the market for domestic industries and allowed the reaping of economies of scale.
At the beginning of the 21st century, immigrants no longer bring such economies of scale. The railroads, highways and utilities are used to capacity. The enlargement of such facilities requires considerably higher costs than were needed to construct the earlier ones because the required land is scarcer and the best locations are occupied by other users. Since charges to consumers of many of these facilities are a blend of the average cost of old and new facilities, Canadians face higher costs for the use of their infrastructure facilities.
In the manufacturing sector, the global lowering of protection and transportation costs makes it possible for optimally sized plants to operate profitably through the export of their output and without reliance on the domestic market.
In place of gains from economies of scale, immigration now results in welfare losses due to environmental degradation and the crowding and congestion of transportation and recreation facilities. Efforts to remedy these problems are costly and, given the lags in the enactment of these remedies due to the nature of the political approval process, the problems may well be permanent if high rates of immigration persist.
It can be argued that these problems with the environment and high costs of extra infrastructure will drive some Canadians and immigrants to settle some of Canada’s vast empty lands. This idea also is flawed.
The experience of recent decades with the choices made by Canadians and recent immigrants suggests that almost all settle in the large urban areas where these problems of congestion and pollution exist. All prefer the amenities of urban living, which they choose in spite of higher living costs and the environmental problems, over the conditions in remote and rural areas. Immigrants have the additional pull of living close to related groups of immigrants in cities.
In sum, presently and in the future, immigrants will not bring economic benefits to Canadians through the lowering of the average cost of infrastructure facilities and private production. Instead, they add increasingly to the problems of pollution, congestion and crowding of highways, recreational facilities and other amenities of life.
V. Proposed Remedy to the Economic Costs of Immigrants in the Welfare State Canadians have the right to ask their government to change the existing immigrant selection process that results in the economic costs presented above and that they end up bearing through a lower standard of living.
A new policy that would achieve this goal is based on the principle that the selection process should be driven by the private sector. Instead of having civil servants and politicians determine the quality and quantity of immigrants, these agents of government should play a subsidiary role of assisting the private selection process and screening potential immigrants to limit risks to public health and security.
In rough outline, under the proposed selection procedure, temporary work visas will be issued to applicants who can prove that they have an offer for employment in Canada. Once in Canada, the temporary work visas are renewable if the applicants remain employed. After one or two such renewals, the workers are eligible for permanent resident status and ultimately citizenship. If they cannot find work after a reasonable time, the holders of the temporary work visas will be required to leave Canada.
This is not the place to discuss the many details that have to be worked out to put such a scheme into effect. However, three important details are crucial and worth discussing briefly here.12 First, the issuance of temporary work permits must be limited to the existence of employment contracts that stipulate the payment of wages at least equal to the average wages earned in the private sector in the region of planned employment. This rider is necessary to prevent the inflow of immigrants with low earnings and expected tax payments, which are at the heart of the fiscal burdens discussed above.
Second, immigrants holding the temporary work visas may be accompanied by their spouses and children under the age of 18. Other relatives may not accompany them but after the immigrants have attained landed immigrant status, they can have their parents and grandparents join them in Canada. Before they are granted permission to do so, they must post a bond to cover the future costs these relatives will impose on the social programs.
Third, the process used in the issuance of the temporary work visas must be simple and quick to meet the needs of both employers and immigrants. For this reason, the government must apply the required resources to check promptly on the health and security conditions of the applicants.
All bureaucratic procedures must be streamlined, which undoubtedly will raise the incidence of allowing unsuitable persons to enter Canada. However, the consequences of such mistakes are minimized by the fact that such individuals will be weeded out through the process of renewing the temporary work visas.
It remains to be seen what under the proposed system the actual level of immigration would be. However, this level should not be of particular concern since the proposed system will bring immigrants in numbers that during times of prosperity reflect the absorptive capacity of the private sector. During less prosperous times, some of holders of temporary work visas will not find work so that they will be required to leave the country. As a result, immigration will reduce cyclical fluctuations in labour markets and assure that the supply of immigrants does not exceed the economy’s absorptive capacity.
The preceding discussion involves many rules and regulations that need to be enforced by governments. Such enforcement will be successful only with the cooperation of the private sector, which can be achieved in turn by the proper structure of incentives and financial obligations, which can be built into the overall design of the proposed new system for the selection of immigrants.
Aydemir, Abdurrahman and George J. Borjas (2007), “A Comparative Analysis of Labour Market Impact of International Migration: Canada, Mexico and the United States”, NBER Working Paper No. 12327 Issued in June 2006 found on http://papers.nber.org/papers/w12327 Picot, Arnett and Feng Hou (2003). “The Rise in Low-income Rates Among Immigrants in Canada.” Found at www.statcan.ca/english/freepub/11-015-XIE/income/rise.htm Green, Andrew (2008), “Devastating demolition of the case for immigration”, Daily Mail, March 31, 2008
Grubel, Herbert (1994), “The Economics of International Labor and Capital Flows”, in Herbert Giersch, editor, (1994), Economic Aspects of International Migration, Berlin: Springer Verlag
Grubel, Herbert (2005), Immigration and the Welfare State in Canada: Growing Conflicts, Constructive Solutions, Public Policy Sources, Vancouver, BC: The Fraser
Institute, 84, (September)
Guillimette, Yvan and William Robson (2006), No Elixir of Youth: Immigration Cannot Keep Canada Young, Toronto: CD Howe Institute Backgrounder 96, (September)
Rector, Robert E. (2007), "The Fiscal Cost of Low-Skill Immigrants to State and Local Taxpayers," Statement Before the Subcommittee on Immigration of the Committee on the Judiciary of the United States House of Representatives, May 17, found at
Statistics Canada (2008), Earnings and Incomes of Canadians over the Past Quarter Century”, Census Year 2006, Catalogue no. 97-563-X found at http://www.statcan.ca/bsolc/english/bsolc?catno=97-563-X
1 As Sir Andrew Green (2008) points out, one of the criticisms made in the Report of the House of Lords Economics Committee on Britain’s recent immigration policies. “Most pertinently, the Government's key claim that immigration increases Britain's overall gross domestic product (GDP) is dismissed as ‘irrelevant and misleading’… the real issue is whether immigration has boosted income per head of population.”
2 For a more rigorous analysis using this model and graphics, see Grubel (1994).
3 Free migration is also desirable on the grounds that it increases freedom. Benefits from increased competition and the opportunity for private market exchange may be assumed to be leading to higher income.
4 See the website of the Department of Citizenship and Immigration Canada for a description of this selection system.
5 This is so especially among Europeans, whose governments do not have deliberate policies for the admission of immigrants. All of their immigrants arrive as refugees (knows in Europe as asylum seekers), illegally, to reunite with families already in the country, or using their citizenship acquired in post-colonial times, as do Algerians in France.
6 If investors, entrepreneurs and caregivers are included in the count, all economic immigrants in 2006 came to 20.2 percent of the total of 251,511 admitted that year. Source: Statistics Canada publication found at http://www.cic.gc.ca/english/resources/statistics/facts2006/facts2006_category.asp
7Research is going on to determine the reasons for this relatively poor record of recent immigrants. Of the reasons given in the preliminary study by Picot and Hou (2003) the most promising are that Canadian employers have virtually no reliable information about the real occupational skills of graduates from universities in Asia unknown to them and that actual experience in hiring them has often shown that their skills are not sufficiently suitable for conditions in Canada.
The 2008 study of Statistics Canada suggests that the lower earnings of the immigrants with higher education may be due to their preponderant specialization in information and communications technology, which has experienced a relative downturn in growth since the hi-tech bust in 2001-2.
8 These figures are approximate and vary slightly through time. Of course, the figures also reflect large differences in before-tax incomes, but his fact is irrelevant for the present analysis since proportionately few recent immigrants have incomes high enough to be in the top ten percent of tax filers.
9 An argument can be made that marginal rather than average costs should be used to estimate the fiscal impact of immigrants. Indeed, at any given time, the marginal cost of having one more immigrant use a bridge, sewer system or school is near zero. However, in all cases involving large fixed investment, in the longer run capacity limitations develop and new facilities have to be built. In the longer run relevant for the analysis of the cost of immigration generally, therefore, it is average costs including fixed investments that have to be used in the calculation of the cost of services absorbed by immigrants. In the case of entitlement spending like welfare and pensions, the marginal costs are near average costs because the expenditures on overhead of these programs is small relative to the amounts paid out.
10 In this context it is interesting to note that after the original publication of these figures in 2005 they were discussed widely in the media but there were no serious challenges to these results by government agencies or organized and often government-subsidized groups defending immigrants’ interests.
11 Rector (2007) found that there were around 4.5 million low-skill immigrant households in the United States containing 15.9 million persons. The average low-skill immigrant household received $30,160 in direct benefits, means-tested benefits, education and population-based services from all levels of government; by contrast, low-skill immigrant households paid only $10,573 in taxes. The average low-skill household had a fiscal burden (the cost of benefits and services received minus taxes paid) of $19,588.
At the state and local level, the average low-skill immigrant household received $14,145 in benefits and services and paid only $5,309 in taxes, or a net fiscal burden on state and local governments of $8,836 per year. The annual fiscal deficit for all 4.54 million low skill immigrant households at the state and local level in 2004 was $49.1 billion.
12 For such detailed discussion see Grubel (2005).