Skilled immigrants and earnings

In a paper published by Statistics Canada, Garnett Picot, Feng Hou, and Simon Coulombe suggest that Canada’s policy on points-based immigrant selection and higher educational standards has not lowered the probability that an immigrant will enter a low income bracket; however, it has changed the composition of immigrants in chronic low income.

Basically, the authors show that many skilled immigrants are not able to secure high-paying jobs before their arrival. They saw that once skilled workers entered low income, they only had a slightly higher chance of exiting it than high school educated immigrants, but their relative advantage of exiting low income increased marginally over the period observed.

Excerpts from StatsCan:

For the purposes of this report, "chronic" low income was defined as being in low income at least four of the first five years in Canada. The report found that nearly one in five (18.5%) of recent immigrants who arrived between 1992 and 2000 were in low income at least four years during their first five years in Canada. This was more than twice the corresponding rate of around 8% among Canadian-born people.
For the group that arrived in 1993, the five-year chronic low-income rate was 20.5%. For those who arrived in 2000, it had declined to 16.2% as the economy improved.
There were two possible reasons for the decline: the more favorable labour market-related characteristics of immigrants entering in the late 1990s, and improving economic conditions (business cycle). The report found immigrant characteristics accounted for virtually none of the improvement; improving economic conditions accounted for the majority.
Overall, the large rise in educational attainment of entering immigrants and the shift to the skilled class immigrant had only a very small effect on poverty outcomes as measured by the probability of entry, exit and chronic rates.
This is because by the early 2000s, skilled class entering immigrants were actually more likely to enter low income and be in chronic low income than their family class counterparts.
In addition, the small advantage that the university educated entering immigrants had over, say, the high school educated in the early 1990s had largely disappeared by 2000, as the number of highly educated immigrants rose.
Changes in entering immigrant characteristics did alter the composition of the immigrants in chronic low income.
Among those who arrived in 2000, 52% of those in chronic low income were skilled economic immigrants. About 41% had university degrees, up from 13% in the 1993 cohort.

And from the report: (pdf warning)

… With respect to immigrant class, immigrants in the skilled economic class were more likely to enter low income than their family class counterparts, possibly because the family class immigrants often entered an already economically established family. This relative disadvantage observed for the skilled class increased significantly over the 1992 to 2004 period, when the number of skilled class immigrants rose. However, this should not necessarily be interpreted as meaning that individuals in the economic class do worse in the labour market (i.e., in term of individual earnings) than their family class counterparts. The opposite has historically been the case.

This is an interesting report because it’s acting as fuel for debates from all sides. On one hand, it can be seen as a call for more friendly policies towards skilled immigrants. (As long as labour regulations create barriers to immigrants, to what extent can we really expect the contributions of skilled immigrants to be greater than lesser-skilled immigrants?) Martin Collacott, on the other hand, has used the report to further his anti-immigration argument (which I don’t buy).

The influence of values vs. remittance

From "Migrant Power," The Economist, Jan. 16

As migration changes, shorter-term movements will bring migrants home with wealth accumulated abroad and human capital in the form of knowledge and new institutional norms that can improve domestic life. The American experience suggests that, for all the fears that Mexican culture is overwhelming the domestic variety, the influence is more likely to go the other way. Tyler Cowen, an economist who does field work in Mexico, points out that American influences—whether consumer tastes, a greater inclination to give to charity or more enthusiasm for democracy—are stronger there than anywhere else in Latin America. The spread of values, in other words, may be just as influential as the remittance of cash.

Emphasis is my own. This is an interesting way to look at temporary labourers. I've never perceived them as being potential ambassadors of American goods and values.

FYI: did you know that if you use an RSS to access The Economist, you're a click away from free content -- including the premium content that isn't accessible to non-subscribers on the magazine's Web page? Perhaps this is a temporary glitch.

Canada's generous passport policy

Canadian policy-makers will soon be reviewing the subject of taxes on non-residents and citizenship options. Unlike in many countries, in Canada non-residents do not pay taxes, and yet they have the option to benefit from a number of social programs.

The CD Howe Institute recently published a paper by John Chant, a professor of economics at Simon Fraser University, titled The Passport Package. The passport package, says Chant, is the package of benefit options that non-residents receive. These include easy qualification to healthcare benefits, free entry and exit, resident tuition fees, financial assistance when enroled in postsecondary institutions, and more.

Chant suggests that all non-residents pay a flat passport renewal fee. He compares the "passport package" to financial options.

The theory of financial options provides guidance with respect to setting the level of the passport fee. The value to the holders of the passport package over any period equals the sum of the values of each option in the package. In turn, each option has a value equal to the probability it will be exercised in the period, times the value the holder gains from its exercise. Different holders of the passport package would attach different values to each element. A law abiding citizen who values avoiding a year in a foreign jail at $60,000 would be willing to pay $6 a year for the privilege of repatriation if they have a 1/100 percent chance of spending a year in a foreign jail. Someone more criminally inclined may be willing to pay much more.

Like financial options, the options in the passport package are exercised when they are "in the money"; that is, when the value of the object optioned exceeds the strike price at which the option can be exercised. In the same way, passport options are exercised only when their holders perceive that the benefits from exercising exceed the costs.

Often this will be dictated by events. The benefits from higher education become attractive when a student wants to come to Canada to study; the prisoner exchange becomes valuable to someone facing jail in a foreign land; and the option of evacuation and assured entry to Canada will be exercised in times of war and domestic upheaval. The parallel with financial options goes further: if people fail to renew their passport, the option expires out of the money. To make the package self-supporting, the fees would have to cover the cost of underwriting the exercise of the options. The revenues of the package would depend on the reaction of non-resident citizens. Some would judge that the value of the package exceeds the fee and opt to pay, while others would let their passports lapse and lose the benefits. If 20 percent of current non-resident citizens opted not to pay the fee, a $500 fee for five-year renewals would raise roughly $200 million per year.

This seems reasonable. If non-residents don’t find that the "passport package" is worthy of the price tag, they don’t need to renew their passport. It also seems simple. It’s far less complex than actually taxing non-residents.

Chant adds:

John F. Kennedy’s appeal, "ask not what your country can do for you — ask what you can do for your country" was a high mark for the rhetoric inspired by citizenship. Its message, however, is at odds with reality. People do weigh the benefits and costs of citizenship in deciding which and how many passports they carry. Some become and remain citizens of countries where they never intend to live.

Unions embracing foreign workers

As we know, an increased supply of workers will tend to put downward pressure on wages, all else being equal. Because of this, there was a time when a certain labour union in B.C., The Construction and Specialized Workers' Union, fought to keep foreigners from competing for jobs held by the domestic workers they represent.

Despite the union's concerns, foreign workers were brought in by SELI Canada Inc. and issued long-term contracts. Soon after their arrival the 42 Latin Americans issued a human rights complaint with the B.C. Human Rights Tribunal. Their complaint is that they're receiving a lower wage for the relatively riskier work they're doing on the Canada Line rapid-transit tunnel. In response, the union has done an about-face and decided to help the foreigners state their claim.

"This is all nonsense,” said the firm's lawyer. “The union didn't want these people coming in in the first place. It's part of this campaign to keep out foreign workers.” He added that the human rights complaint “is part of a political campaign” for the union.

Perhaps the campaign to keep out foreign workers is still going strong, yet in a less obvious way.

First, it could be the case that the union is truly concerned for the welfare of the foreign workers. Further, the foreigners have already arrived, so there's a possibility that the union wants to prove its credibility and perhaps increase union membership (thereby increasing its collection of membership dues).

A second possibility is that the union is protecting the jobs of high-paid union members. If the union can bargain for better wages for foreigners, the relative costs to employers will increase. If the cost of hiring foreigners increases, SELI will be less likely to use them as substitutes for domestic workers.

SELI claims that it hired the foreigners for their unique skills ("they know how to handle the company's special tunnel-boring equipment"). In other words, the firm is hiring them for their productivity. If it is able to pay less for labour by hiring foreigners, all else being equal, productivity growth could be in excess of wage growth, putting downward pressure on prices.

The union could feel that it has the slack to increase SELI's costs, which would cause the company to think twice about substituting foreigners for domestic workers again.

If the union were successful, the foreigners may win in the short-run (gain higher wages) but lose in the long-run (lose future work contracts). Then again, if they have no interest in working for the company again, SELI may have a payroll full of happy workers (much to their chagrin).

Media sources are providing inconsistent details on the foreigner's earnings and labour conditions, but the anecdotes are everywhere. One foreigner was quoted in the media complaining that he couldn't afford to buy a pop in Canada. He was apparently told that his employer would send him to Ethiopia -- “that way I could save money." In sum, they are not happy.

Mark Thoma recently pointed to an article in the WSJ which says that unions in the US are not only embracing foreign workers, they're embracing illegal foreign workers, too.

On a related note, it seems that high profits in the metal industry are being met with union strikes all over the world. The Globe and Mail has a good article on this subject and a list of recent stoppages.

Alberta's new labour strategy in action

Tyson Foods is the first company to take advantage of Alberta's new 10-year plan dubbed “Building and Educating Tomorrow's Workforce” to attract foreign workers. The international component of Alberta's strategy isn't getting much ink (actually, the entire thing seems to be getting overshadowed). It stresses recruitment, education and training, retention, and public information-sharing of labour force trends. Apparently it means relaxed requirements for immigrants seeking a short-term work visa . It was announced July 25th.

Addendum: Given that Tyson Foods is first up to plate to take advantage of Alberta's looser recruitment regulations, some people might be amused (?) to learn about Tyson Foods' controversial history.

Doug Cameron in today's Financial Times (also printed in The National Post):

Tyson Foods, the world's largest meat processor by sales, is recruiting workers from China and the Philippines in an effort to solve a labour shortage at its Canadian operation.
The US group is also targeting the Ukraine and El Salvador to fill gaps in its plants in the province of Alberta, where the boom in oil-sands exploration has driven economic growth to 6.6 per cent - twice the national average - and cut unemployment to 3.7 per cent.
The skills squeeze is causing energy groups such as Royal Dutch Shell to re-evaluate the economics of their oil-sands exploration, and led the province last week to announce a 10-year plan to attract more overseas workers.
Tyson is the first company to launch a recruitment drive under the plan, which would allow sponsored overseas workers to work in Canada for a year. The staff shortage has reduced productivity at its Alberta plants and worsened the problems caused by the strength of the Canadian dollar.

Giving immigrants `the business'

There was a nice article by Nicholas Keung in the Toronto Star yesterday highlighting the climate of business-class immigration in Canada. The article cites two reasons for the 50% drop (since 1993) in entrepreneurial types entering Canada: long wait times and stricter requirements for immigrants wishing to gain a business license in the post 9/11 environment. No real shocker, I guess. But the article gives a sense of magnitude.

Here's an excerpt:

The number of business-class immigrants coming to Canada has dropped by a whopping 50 per cent since 1993, prompting fears of the demise of what was once a bread-and-butter immigration class that pumped billions of dollars into the country's economy.
At the peak of the influx in 1993, a total of 7,217 entrepreneurs and investors — led by people from Hong Kong, Taiwan, South Korea, China, Egypt and Saudi Arabia — landed in Canada, compared with last year's 3,341.
The drop comes as little surprise to immigration lawyers, who say the average time it takes to process applications by immigrants looking to park their assets in Canada has grown to five years. A decade ago, it took as little as eight months. It's now easier to get a sponsorship for Grandma through the red tape — just 37 months on average.
"This particular group of immigrants likes to do business in a business way. They are not going to put their money and business plans on hold for five years to wait for a decision," explains Bay Street immigration lawyer Mendel Green, who has seen his
business-immigrant files shrink 90 per cent over the past decade.
Several of his clients — with a net worth of $55 million — have been waiting to see their files processed for almost four years, a few of them since 2001. Some, tired of
the delay, have abandoned their applications altogether.
"The economies of China, India and Russia are booming and, all of a sudden, we are seeing a new crop of instant millionaires," Green says. "Things are changing around the world so quickly and Canada can't afford to be smug any more."
It's not all bad news. The number of applicants in the wealthier investor category has actually risen significantly, from 1,607 to 2,590, over the past decade. But the
entrepreneurial class — people who come here to set up small businesses and thus
create jobs directly — has taken a huge dive, from 3,208 to a meagre 751 in 2005.
The impact of long processing times is obvious: Business-class applications have declined steadily from 5,378 in 2001 to fewer than 3,000 in 2005. In the first five months of this year, fewer than 900 applications were filed.
The drop means a significant loss of investment. Between 1986 and 1999, immigrant investors brought $2.7 billion into Canada as part of their obligations under the program. Even in the declining years, between 2000 and 2004, immigrant investors dropped $720 million into provincial economies.

Labour shortages & the Keith Richards effect

Like other countries, Canada is receiving an inflow of evacuees from Lebanon. We also have massive labour shortages for skilled and unskilled workers in Western Canada. If we were to add to the picture an improved integration system and the proper infrastructure (too many jobs, yet no place to live?) the situation would appear to be opportunistic for many. Consider that there are 40,000 to 50,000 Canadians living in Lebanon.
Now here's my complaint: the media is too busy concentrating on negative protests and sob tails of labour shortages in Bootown, Alberta to concentrate on the labour solutions on the table (never mind the ones not on the table). Case in point: I challenge someone to find a single Canadian-based news item on the current labour negotiations between B.C. and Fijian authorities. Supposedly the two are discussing improvements in labour regulations to encourage worker mobility.
Global Insight (19 July 2006: sorry no link) has this to say:

As reported by Radio Australia today....

That's right. Australia. Good job, friends.

.... the Canadian province of British Columbia has expressed interest in hiring Fijian citizens in the local tourism industry to ease labour shortages. The employment opportunities, which resulted from Fiji's high commissioner's, Jesoni Vitusagavulu, visit to the region last June, includes positions as cooks, house maids, hotel and restaurant waiting staff, as well as farm work, including berry and fruit picking. The two countries are currently in talks negotiating conditions, which make it financially feasible for Fijian citizens to seek employment in Canada. This is especially viable, given that current opportunities are only up to three months, with maximum wages of US$10 an hour, which are hardly able to offset the high air fares between the two countries.Significance: Fiji's negotiations with Canada are an example of the current structural shift the country is undergoing.
As traditional sectors such as sugar and garments decline, the country is forced to seek alternative foreign exchange earners to sustain import capacity and external balances. Aside from tourism, workers' remittances have become an important source of such and are expected to gain increased importance.

And, according to the Pacific News Agency, “Australia, which is the main beneficiary of the Fijian brain drain and trade has shut its doors on its Pacific Island neighbour.”
B.C. isn't alone in wanting to attract immigrants to fill empty jobs. Alberta too has been thinking strategically about labour solutions, but it has yet to outline a definitive plan. Unless that one got by the media, too.
Maybe I should lay off the Canadian media. Perhaps it's not the case that they're too obsessed with juicy bits of drama to be informative. Perhaps we simply don't care enough about Fiji. Yeah, that's it. Back in May a letter to the editor of The Globe and Mail had this to say:

Keith Richards's fall from a tree at an exclusive resort in Fiji has, inadvertently, brought that country to the attention of the North American news media. It's curious what stories the media have ignored: the election in Fiji that begins this Saturday; last month's visit to Fiji by the Chinese Premier; the success of Fijian rugby players on the world stage.

Perhaps we'd be more introspective if Keith Richards were tossed from a Canadian pine by a Fijian immigrant...?