Transcript Document

The other economic question:
Immigration's impact on the economy
by
Arthur Sweetman
for
Metropolis – CSPS webinar
Dec. 2008
Immigration, Labour Market Outcomes &
Economic Impacts
1
Structure of the talk
Background
1.
1.
2.
3.
The economic impact of immigration on the
domestic economy
2.
1.
2.
3.
Dramatic decline in labour market outcomes
Arrivals and departures
Intergenerational and “conditional” earnings
Traditional Canadian conclusions
Several key concepts (& a few controversial
results)
Conclusions
Immigration, Labour Market Outcomes &
Economic Impacts
2
PART 1: BACKGROUND
1.1 Dramatic Decline in Labour Market Outcomes


There has been a decline in labour market
earnings for recent arrival cohorts
There is a substantial rate of economic
integration, but the time required to “catchup” with the Canadian born is increasing


Close to, or beyond, retirement for many
Even if catch-up occurs, life-time earnings
difference is substantial
Immigration, Labour Market Outcomes &
Economic Impacts
3
-.8
-.6
-.4
-.2
0
Difference in log earnings of females age 25-59
0
1-5
6-10
11-15
16-20
years since migration
21-25
26-30
31-35
Cohort
c6670
c8690
c7175
c9195
c7680
c9600
c8185
Immigration, Labour Market Outcomes &
Source: Canadian Censuses 1981 through
2001
Economic
Impacts
Warman and Worswick (2004)
4
-.8
-.6
-.4
-.2
0
Difference in log earnings of males age 25-59
0
1-5
6-10
11-15
16-20
years since migration
21-25
26-30
31-35
Cohort
c6670
c8690
c7175
c9195
c7680
c9600
c8185
Immigration, Labour Market Outcomes &
Source: Canadian Censuses 1981 through
2001Impacts
Economic
Warman and Worswick (2004)
5
Having incomes below the low income cut-off
(LICO) is increasingly common for immigrants
Percent
Pre-tax, Post-transfer Low-Income (LICO) Rates
26
24
22
20
18
16
14
12
10
Business Cycle Peaks
in 1980, 1990 & 2000
Not Cdn-Born
Cdn Born
1980
1985
Source: Statistics Canada
Picot & Hou (2003)
1990
1995
2000
Year
Immigration, Labour Market Outcomes &
Economic Impacts
6
Post 2000? Did Outcomes Improve?

Most analysis uses 2000 census

We had hoped that labour market outcomes
would improve
But, they did not


Arguably, the decline continued & then a
return to 2000 levels
Immigration, Labour Market Outcomes &
Economic Impacts
7
60
50
Immigrants in Canada 1 f ull year
40
30
Immigrants in Cda <= 10
20
2000 = census year
20
04
19
98
19
96
19
94
0
20
00
Co mpariso n
20
02
10
19
92
Low - income rate
Low -incom e rate s , 1992-2004:
Re ce nt im m igrants and
com paris on group age d 20+ (Note
Scale )
Note: Comparison group: Canadian born plus immigrants more than 10 years
Source: Statistics Canada, Picot, Hou and Coulombe, 2007
Immigration, Labour Market Outcomes &
Economic Impacts
8
1.2 Related background issues

Arrivals
Departures
Generational look at who is in Canada

Earnings in a more complex framework




By generation
With and without adjusting for observable
characteristics
Immigration, Labour Market Outcomes &
Economic Impacts
9
Arrivals
Count: Permanent Residents by Immigration Class
180,000
160,000
Family class
Economic immigrants
140,000
Refugees
Number of People
Other immigrants
120,000
100,000
80,000
60,000
40,000
20,000
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0
Source: CIC, Facts &
Immigration, Labour Market
YearOutcomes &
Figures
Economic Impacts
10
Departures (Are immigrants staying?)
Retention rates for males age 25-35 at landing
Source: Statistics Canada, Aydemir and Robinson, 2006
Immigration, Labour Market Outcomes &
Economic Impacts
11
1.3 Generational Population Shares (%)



Immig
2nd
Gen
3rd
Gen
NonVismin
3rd
Gen
Vismin
plus
N
US
14.6
6.0
63.7
15.7
304,165
Cda
22.6
14.3
60.1
3.0
814,054
Sample is aged 25-65, Cdn 2001 census, US 1998-04 CPS
“3rd Generation Vismin plus” includes those who self identify as visible
minorities, aboriginals and citizens at birth born outside of Canada
Source: Aydemir and Sweetman (2008)
Immigration, Labour Market Outcomes &
Economic Impacts
12
(Log) Earnings differences, Males (Females are similar)
Canada
5
6
7
imm<=11
imm>=12
Gen2 Vars
Years of School
2 Marital Status vars
4 Ethnicity vars
4 or 5 Urban vars
State/Prov Indicators
0.184*** 0.088*** 0.027
[0.022]
[0.021]
[0.022]
-0.356*** -0.449*** -0.491***
[0.014]
[0.014]
[0.017]
Yes
Yes
Yes
0.096***
--[0.001]
No
No
Yes
No
No
Yes
No
No
Yes
No
No
Yes
8
-0.018
[0.022]
-0.517***
[0.017]
Yes
0.086***
[0.001]
Yes
Yes
Yes
Yes
Age controls in all regressions. Source: Aydemir and Sweetman (2008)
Immigration, Labour Market Outcomes &
Economic Impacts
13
(Log) Earnings differences, Males (Females are similar)
Canada
7
6
5
Gen2-Mom
Gen2-Dad
Gen2_Both
0.133***
[0.024]
0.077***
[0.022]
0.189***
[0.017]
Years of School
Immig Vars
2 Marital Status vars
4 Ethnicity vars
4 or 5 Urban vars
State/Prov Indicators
Yes
No
No
No
No
0.059**
[0.024]
0.009
[0.022]
0.087***
[0.016]
0.096***
[0.001]
Yes
No
No
No
No
0.001
[0.024]
-0.042*
[0.022]
-0.001
[0.017]
--Yes
Yes
Yes
Yes
Yes
8
-0.045*
[0.024]
-0.082***
[0.022]
-0.055***
[0.017]
0.086***
[0.001]
Yes
Yes
Yes
Yes
Yes
Age controls in all regressions. Source: Aydemir and Sweetman (2008)
Immigration, Labour Market Outcomes &
Economic Impacts
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Overall

The big policy story is that there has been a
remarkable decline in the labour market earnings of
recent immigrant arrival cohorts




The “entry effect” has increased dramatically
The “integration rate” appears to have increased, but the
“catch-up” time is much longer than previously
This has lead to a substantial increase in poverty for new
immigrants
The decline appears to be larger when control for
the observable characteristics of the immigrants
(esp., age, education)
Immigration, Labour Market Outcomes &
Economic Impacts
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PART 2:
Immigration’s economic impact
on the domestic economy


Little research on this for Canada
Some US and other work


Some international lessons, but, not possible to
simply apply other country’s results to Canada
SUMMARY: Most analysts suggest that
immigration’s impact on GDP/capita is
probably positive, but quite small
(and some say potentially negative)
Immigration, Labour Market Outcomes &
Economic Impacts
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2.1 Two traditional views – differ on direction, but
agree that any impact is small in magnitude

Macdonald Commission research overview
said:

“The broad consensus is that high levels of
immigration will increase aggregate variables
such as labour force, investment and real
gross expenditure, but cause … real income
per capita and real wages to decline” [Marr
and Percy, 1985, p 77]
Immigration, Labour Market Outcomes &
Economic Impacts
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The Economic Council of Canada (Swan et al.
1991) was more positive on some dimensions and
concludes:

“In contrast to previous investigators in
Canada and Australia, we do find that
immigration enhances economic efficiency
within the host community. The effect flows
almost exclusively from the greater size of
the population that immigration brings.… the
gross efficiency gains are positive but very
small”
Immigration, Labour Market Outcomes &
Economic Impacts
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What is at issue in economic context?

Traditionally, economic “impacts” have been
viewed as the value to those already in the
country (Canadian born and previous
immigrants) of new immigration

Alternatively, (though not taken up here)
could look at impact of immigration on new
immigrants, or on subset of the population
Immigration, Labour Market Outcomes &
Economic Impacts
19
2.2 Some key ideas
1) Economic vs. social costs/benefits
2) Aggregate (e.g., GDP) vs. individual (e.g., GDP/capita)
costs/benefits
3) Economies of scale in production
4) Complementarities vs. substitutes in production
1) beneficial spillovers vs. displacement
5)
6)
7)
8)
Demographics (baby boom aging)
Fiscal/tax implications
Product market implications
International trade implications
1) Also other issues (e.g.,)
1) Supply of physical capital
2) Geographic distribution
Immigration, Labour Market Outcomes &
Economic Impacts
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2.2.1 Economic vs. Social/Cultural Impacts

Note that an impact is a change from what
would otherwise have been the case





E.g., How much more are people earning because
of new immigration?
Distinct question from “how much are people
earning?”
Very difficult question to answer
The focus today is on economic issues
BUT, could alternatively look at, for example,
social and/or cultural impacts
Immigration, Labour Market Outcomes &
Economic Impacts
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2.2.2 Absolute versus per person (or per capita)


Confusion between the impact of immigration on the aggregate
size of the economy, in contrast to the impact per capita
Consider GDP (not ideal measure, but …)
 Immigration clearly has an impact on the total size of the
Canadian economy


GDP increases as more people are economically active
However, most people care about GDP/capita


That is, the standard of living of Canadians
Future immigration’s impact on the standard of living of those already
in the country is not well understood



Probably small effect
Economic impact is more than labour market earnings (eg price of goods)
Distribution of different impacts across the population
 Individuals experience very different economic impacts
Immigration, Labour Market Outcomes &
Economic Impacts
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2.2.3 Economies of scale in production
(key traditional economic benefit of immigration)

IDEA: Holding the structure of the economy
constant, what happens when its size is increased?


Most observers think constant returns to scale
(CRS) is most reasonable today




Immigration is, of course, never a “pure” scale effect
No benefit or harm from modest changes in size
Increased global trade decreases need for local markets
Personally: perhaps still small benefits from scale for
Canada
Implies no (or little) economic benefit from “pure”
scale increases
Immigration, Labour Market Outcomes &
Economic Impacts
23
2.2.4 Benefits from Compositional Changes


Most observers think that any economic benefits
derive from beneficially altering the composition of
economic factors of production
Want complementarities (as opposed to substitutes)
in production (e.g.,)


DIFFERENT Age distribution
Different skill distribution (filling holes when/where
shortages)




Education, trade expertise, entrepreneurship
But, stopped (now restarted) occupational targeting
Physical/financial capital
Want (net) positive externalities
Immigration, Labour Market Outcomes &
Economic Impacts
24
If structure of new immigrant flows too similar to
existing stocks (esp. where no shortages), then
general equilibrium effects imply some
displacement of existing resources may occur

Some concern about new factors of
production reducing the value of existing
factors, or changing their relative value

A large inflow of skilled workers might require a
large amount of complementary physical capital to
be productive – if physical capital not fast enough
in adjusting, could alter short run capital/labour
ratio and increase economic return to owners of
physical capital relative to human capital (Beaudry
and Green)
Immigration, Labour Market Outcomes &
Economic Impacts
25
Displacement in the labour market



Methodologically difficult question to address
In-country geographic mobility may undo “local”
effects so that immigration has national wage
impacts
Controversial Canada-US-Mexico study finds a 1%
increase in the immigrant population depresses
wages 0.3 to 0.4% (Aydemir & Borjas)

But, uneven across skill groups


E.g., New high skilled workers likely mostly
substitute for existing high skilled workers (may
complement low skilled workers) – wage effects
follow
New domestic entrants into the labour market are, on
average, also highly skilled
Immigration, Labour Market Outcomes &
Economic Impacts
26
2.2.5 DEMOGRAPHICS - Immigration’s effect
on the demographic structure is very modest




Immigration can, clearly, be quite effective at
increasing the size of the population/ labour force
Less effective at changing the composition/structure
Even doubling current immigration rate would have
relatively small impacts on the age distribution over
long periods
However, (though neither has major impact)

As the Canadian population ages impact might grow


But, new immigrant average age is also increasing
Could alter policy to focus toward younger immigrants
Immigration, Labour Market Outcomes &
Economic Impacts
27
0
.01
.02
.03
Age densities for Permanent residents, 2001
0
20
40
age
Immigrants
Recently landed immigrants, 1991-2001
60
80
Non-immigrants
Source: Author’s calculation from the 2001 Canadian Census PUMF.
2.2.6 Fiscal/Tax issues

Very little is known (Good area for future research)

New immigrants inherit share of outstanding flow of
costs (e.g., existing government debt), and also
share of benefits (e.g., natural resource endowment)


Not clear how this balances on the margin
Taxes and transfers


Lower immigrant earnings imply lower taxes and greater
social transfers (Devoretz & Pivnenko)
May be unexpected redistributional effects
 US taxpayers in states with high fractions of immigrants
do not benefit, whereas those in states with few
immigrants do (costs local; benefits national)
Immigration, Labour Market Outcomes &
Economic Impacts
29
2.2.6 Product Market Effects


Even less is known than on fiscal side
Some arguments that were it not for
immigration:


Entire industries would not exist (or would be
dramatically smaller)
Product market prices would be a lot higher for
some goods

But, unclear how this interacts with international trade
Immigration, Labour Market Outcomes &
Economic Impacts
30
2.2.7 International Trade

Again, very little is known

Head and Ries (1998) find that a 10% increase in
immigration is associated with a 1% increase in
source country exports, and a 3% increase in
imports
Various discussions about international
competitiveness go in opposite directions
Not clear how flows of workers and good
counterbalance each other


Immigration, Labour Market Outcomes &
Economic Impacts
31
3. Conclusion

Immigration is part of the fabric of Canadian
society


Clear social/cultural benefits
But, labour market outcomes for new
immigrants have declined substantially over a
few decades

Useful to distinguish between, for example,
earnings, and earnings conditional on
characteristics
Immigration, Labour Market Outcomes &
Economic Impacts
32

Despite popular beliefs in the economic and
demographic benefits (or, some argue, costs) of
immigration, the evidence does not currently appear
to support there being either large economic
benefits or costs




However, there is scant evidence on impacts and it is
controversial
Small total economic benefits is probably the best summary
at the moment
There is likely a broad distribution of effects with different
sets of individuals experiencing different impacts
Given, for example, issues of complementarities and
substitution, the details of immigration policy and the
management of the immigration system likely have
important ramifications for the economic impact on subpopulations and the nation as a whole
Immigration, Labour Market Outcomes &
Economic Impacts
33
Suggestions for further reading (mostly overviews)
















Aydemir, Abdurrahman and George J. Borjas. 2006. “A comparative analysis of the labor market impact of international migration:
Canada, Mexico, and the United States.” NBER Working Paper Series No. 12327.
Aydemir, Abdurrahman and Chris Robinson. 2006. “Return and Onward Migration among Working Age Men.” Analytical Studies
Research Paper Series, No. 273. Catalogue no.11F0019. Ottawa: Statistics Canada.
Aydemir, Abdurrahman and Arthur Sweetman. 2008. “First and Second Generation Immigrant Educational Attainment and Labor Market
Outcomes: A Comparison of the United States and Canada.” Research in Labor Economics, 27: 215-70.
Beaujot, Roderic. 2003. “Effect of Immigration on Demographic Structure.” Canadian Immigration Policy for the 21st Century, eds.
Charles Beach, Alan Green and Jeffrey Reitz. Kingston, Ontario: McGill-Queen’s U. Press, 49-91.
Borjas, George J. 1999. “The Economic Impact of Immigration.” Handbook of Labor Economics, Vol. 3A, eds. O. Ashenfelter and D. Card.
Amsterdam: North-Holland, 1697-1760.
Dustmann, Christian, Francesca Fabbri, Ian Preston, Jonathan Wadsworth. 2006. “The local labour market effects of immigration in the
UK.” Home Office Online Report, 06/03.
Lowenstein, Roger. 2006, July 9. “The Immigration Equation.” The New York Times Magazine: 36-43 & 69-71.
Marr, William L., and Michael B. Percy. 1985. “Immigration policy and Canadian economic growth.” in John Walley, ed., Domestic Policies
and the International Economic Environment, Studies of the Royal Commission on the Economic Union and Development Prospects for
Canada, vol. 12 (Toronto: University of Toronto Press).
“Introduction to Economic and Urban Issues in Canadian Immigration Policy” by Hugh Grant & Arthur Sweetman, Canadian Journal of
Urban Research, 13(1):1-24.
“The Deteriorating Economic Welfare of Immigrants and Possible Causes: Update 2005" by Garnet Picot & Arthur Sweetman, Statistics
Canada Analytical Studies Branch research paper series, No. 262.
“Chronic Low Income and Low-income Dynamics Among Recent Immigrants” by Garnett Picot, Feng Hou and Simon Coulombe,
Statistics Canada Analytical Studies Branch research paper series, No. 294.
Smith, James P. and Barry Edmonston. 1997. The New Americans: Economic, Demographic, and Fiscal Effects of Immigration,
Washington, D.C.: National Academy Press.
Swan, Neil, et al. 1991. Economic and social impacts of immigration: a research report. Ottawa: Economic Council of Canada (Supply and
Services Canada).
Sweetman, Arthur. 2005. “Canada: Immigration as a Labour Market Strategy” (broad overview)
http://www.migpolgroup.com/infopages/2548.html
(UK) HOUSE OF LORDS, Select Committee on Economic Affairs, 1st Report of Session 2007–08, 2008. The Economic Impact of
Immigration.
Warman, Casey and Christopher Worswick. 2004. “Immigrant Earnings Performance in Canadian Cities: 1981 through 2001” Canadian
Journal of Urban Research 13(1): 62-84.
Immigration, Labour Market Outcomes &
Economic Impacts
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