Is “the Economy” a Good Reason for Immigration?

More on the immigration question from The Trouble With Canada …Still! (2010)

Many argue that because we have an aging society, a changing ratio of retirees to workers, and falling fertility rates, we need lots of immigrants or the economy will eventually go into a tailspin. This argument seems plausible – at first- because without sufficient bodies who will buy the food, rent the offices and retail spaces, buy the diapers, and so on? The prospect of a rapidly falling population is scary, and the looming demographic winter seems real. Canada’s own Annual Report on Immigration notes that immigration will be “a key source of workforce growth in the future.” But bad thinking has produced what looks like a false assumption.

Canada’s first serious study of this question was carried out in 1985 by The Macdonald Royal Commission on “The Economic Union and Development Prospects for Canada.” Its conclusion was that “immigration did not contribute to economic growth, but in fact caused a decline in per capita income and real wages in Canada.”[1]

In July of 2009, the C.D. Howe Institute warned: “for Canadians to expect more, younger immigrants to counteract the effects of low past fertility on workforce growth and aging would be a serious mistake.”[2] The Institute’s sophisticated projections told us that “only improbably huge increases” in “net” immigration rates (after subtracting all those who return home) of “more than 2.5 times” recent rates (600-700,000 new immigrants per year) have any chance to “offset” the consequences of lower past fertility.

Even when “age filters” favouring much younger immigrants were plugged into the projections, they showed the need for a future Canadian population ranging between 60 and 200 million people before the current aging and falling fertility factors were neutralized. Projections relying on immigration flows to improve the economy tended “to produce explosive population growth, with ludicrous terminal numbers….” In the year 2050 Canada would need 7 million immigrants.

The conclusion of that study was that better and faster results could be achieved by raising the age of retirement from 65 to 70, boosting natural fertility rates from the current 1.5 children per women to 2.1, and increasing productivity (real output per worker) by 1 per cent. The authors also cited a major 2004 study of the European situation by the RAND corporation. It concluded that “immigration could do little to mitigate the challenges created by low fertility in the European Union” because, as in the numerous Canadian studies cited, “the momentum of the resident population largely overwhelms immigration’s influence.” More sobering: the United Nations Population Division has concluded that for Europe to rebalance its own demographic mixture to avoid eventual collapse it would require over 700 million immigrants by 2050 – more than the present population of the whole of Europe! [3]

In his survey of Canadian immigration research, Martin Collacott has pointed out that “the government’s own research” indicates that immigration plays a minor role in boosting the economy. “Overall economic performance of newcomers … has fallen below that of earlier immigrants and people born in Canada. A major reason for this is the priority given to family-class immigrants,” none of whom is required to bring any marketable skills to Canada, nor to speak either official language.[4] Underlining the problem of immigrant illiteracy, Frank McKenna of the TD Bank Financial Group said that the immigrant illiteracy issue is “sort of like boiling a frog, it’s not … something that would alarm people, because it’s not all that evident; we just gradually become poorer as a nation as a result of this loss of potential.”[5] Adding to the complexity is the fact that immigrants to Canada increasingly are coming from areas such as Asia where English and French are not native tongues (up to 40% of Canada’s new immigrants speak neither English nor French). The concern is that the economic wellbeing of newcomers has been deteriorating over the past twenty-five years, with unemployment and poverty levels significantly higher among immigrants than among Canadian-born citizens.

In sum, too many immigrants arrive with no skills, no common language with which to engage with their host country, and immediately demand free social, medical, dental, and unemployment benefits. This phenomenon is all but international now and is causing some panic in many established welfare States because, as European analyst Martin Paldam found, “the traditions of protection of the weak cause adverse selection of immigrants, so that most are unskilled.” However, welfare States, he warns, only survive if they stand on an implicit compact: we all give, in order, if necessary, to receive. People will accept high levels of taxation if they believe recipients of welfare are like themselves: if they “have made the same effort to be self-supporting and will not take advantage.” However, “if values become extremely diverse in a diversified population, then it becomes difficult to sustain the legitimacy of a risk-pooling welfare State.”[6] In plainer words, if you set your country up to attract freeloaders – they will come.

George Borjas of Harvard University (himself an immigrant) and perhaps the world’s most acknowledged authority on this question, echoes the findings of other major studies done since the mid-1980s by mainstream economists in Canada, the USA, Australia, and the UK: the only significant economic impact of immigration is to reduce the wages of native workers.[7]

In 2007 a Statistics Canada study, “Chronic Low Income, and Low Income Dynamics Among Recent Immigrants” revealed that notwithstanding the emphasis on education in the “skilled worker” category of immigrants, “their earnings in relation to native Canadians were significantly lower and continue to deteriorate.”[8] Professor Alan Green of Queen’s University has stated categorically that “the current political posture of using immigrants to solve economic problems is no longer valid.”[9]

To conclude: a recent study by economist Herbert Grubel of Simon Fraser University revealed that the 2.5 million immigrants who came to Canada between 1990 and 2002 received $18.3 billion more in government services and benefits in the year 2002 alone than they paid in taxes for that year! Grubel stated that this amount was more than the federal government contributed to health care in 2000-2001, and more than twice what it spent on defence.

And finally – let us bash the “Bigger is Better” myth. A bigger economy is not necessarily a stronger one. China, for example, has a huge economy because it has more than a billion people. But in per capita earnings it is around 100th in the world – whereas Canada is in the top ten. As long as a strong economy of any size continues to produce sufficient numbers of babies to maintain viable age-to-dependency ratios (ratio of born to dying, and workers to retirees), a country will remain stable. Small but strong stable economies such as those of Switzerland, Finland, the Netherlands, Austria, Singapore, and Hong Kong, do not have to be big. Neither does Canada.

[1] From an article by James Bissett, former Ambassador and Executive Director of the Canadian Immigration Service, “The Current State of Canadian Immigration Policy,” p.6, 2008

[2] Robin Banerjee and William B.P. Robson, “Faster, Younger, Richer?: The Fond Hope and Sobering Reality of Immigration’s Impact on Canada’s Demographic and Economic Future,” C.D. Howe Institute Commentary, no. 291, July, 2009.

[3] See Christopher Caldwell, Reflection on the Revolution in Europe: Immigration, Islam, and the West (New York: Doubleday, 2009), p.47.

[4] Martin Collacott, “Canada’s Immigration Policy: The Need for Major Reform,” in Public Policy Sources, The Fraser Institute, No. 64, 2003.

[5]He is referring to the story of how if you drop a frog into a pan of boiling water, it will immediately leap out. But if you start with cold water and gradually raise the temperature, the frog will sit until it dies (National Post, Sept. 28, 2009).

[6] Martin Paldam, cited in Herbert Grubel, “Immigration and the Welfare State in Canada: Growing Conflicts, Constructive Solutions” Public Policy Sources No. 84 (Vancouver: The Fraser Institute, September 2005), p.24ff.

[7] See George Borjas, Heaven’s Gate: Immigration Policy and the American Economy (Princeton University Press, paperback, 2001).

[8] James Bissett, “The Current State of Canadian Immigration Policy,” p.7, 2008. From Statistics Canada Catalogue No. 11F009MIE – 2007198.

[9] Cited in Herbert Grubel, ed., The Effects of Mass Immigration on Canadian Living Standards and Society (Vancouver: The Fraser Institute, 2009), p. 9.

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