Nick Noorani Website

A team of B.C. economists has cut a conservative think-tank’s estimate of the cost of immigration down to size.

Two months after the Fraser Institute estimated that each immigrant on average costs the Canadian government $6,051 per year – a total cost of as much as $23 billion – Mohsen Javdani and Krishna Pendakur of Metropolis British Columbia took another look at their numbers.

Using a wider sample size of immigrants, correcting calculation errors, and using data where it was available rather than estimates, the pair found a far lower annual cost of about $450 per immigrant, or about $2 billion per year.

“We find that there’s a significant fiscal effect of immigration,” Javdani said. “But we do not conclude that immigrants are a burden to the Canadian economy.”

Javdani added Canada needs to find programs that benefit new arrivals to improve immigrants’ labour market potential and performance, which would inject money into the Canadian economy.

The authors are both economists at Simon Fraser University.

Taxes vs. benefits

Both studies attempted to figure out whether immigrants fully pay for in taxes the public services that they use, like health care or education.

The Fraser Institute’s study was an attempt to gauge whether our system should move to select for would-be immigrants who already have job offers, according to co-author Patrick Grady.

“Canada has to develop a much better system of assessing immigrants coming in,” Grady told CTV News in a phone interview. “They can’t seem to tell if a person is going to be able to find a job at a good salary or if they’ll find employment at their profession and skill.”

The Fraser Institute study looked at immigrants arriving after 1987 – about 4 million people – and compared them to average Canadians in the same time frame. The result was a report sharply critical of immigration.

It recommended that Canada only allow immigrants with employment lined up, and keep citizenship only if the immigrants hang onto their jobs.

The Metropolis study, which was given to CTV News before it is to be publicly released, at first set out to correct calculation errors in the Fraser Institute report, which it said were “apparently typographic in origin.” Corrected calculations reduced the difference to $5,473.

Where the Fraser Institute estimated property taxes paid by immigrants – 72 per cent of the Canadian average — the Metropolis team dug up data on immigrant households to find they actually pay about 96 per cent of the Canadian average.

“We prefer data to guesses,” the report noted dryly.

The pair also widened their sample size, going back to 1970, which would capture more immigrants in their prime earning years.

“If you look at the longer term, these immigrants are going to contribute through earning higher incomes and paying higher taxes,” said author Javdani.

That change reduced the estimated cost to $2,470 per immigrant, the report said.

Instead of comparing the immigrants to the average Canadian – which would include immigrants as well – the Metropolis study compared the immigrants to the Canadian-born, and found immigrants took $554 less in benefits.

They also ignored “public good” government expenditures that are less directly related to the size of the population, such as national defence – a difference of $,1692 per immigrant.

The end result was a much lower annual total cost of $450 per immigrant – about seven per cent of the Fraser Institute figure, and a very different conclusion, said Javdani.

Immigrants tend to be poorer

Javdani said the lesson is that immigrants tend to be poorer than Canadians, and that means we need programs that can help them succeed.

Kanako Heinrichs runs Queensberry Flower Company located in Granville SkyTrain Station. She said when she came from Japan in 2007 with her new Canadian husband, it was difficult to get a job.

“Most immigrants can relate to that,” she said, adding that the hardest part was bouncing around through low-paying, dead-end jobs. “It’s tough.”

She contacted immigrant services agency SUCCESS, and they helped her develop an idea of bringing a Tokyo-style flower shop into a subway station. The project has been a huge success, to the point that she is opening another shop in the Yaletown subway station, which will employ more people.

“Everybody has a different background. In my case, I brought what I know very well over here,” she said. “That’s what immigrants can do. Brand new ideas, brand new products, new concepts that make the city more exciting.”

Javdani said her story is a good example of how difficult it is to filter immigrants. “If you limit settlement in Canada to the people who have a job offer, you limit opportunities that immigration may bring,” he said.

SUCCESS CEO Thomas Tam said the $450 per immigrant is an investment that pays off in the connections that immigrants make with the world, and the ideas and opportunities they bring Canada.

“We see thousands of immigrants, they settle down, they find a job, some create jobs for other people,” he said.

Grady of the Fraser Institute said the institute stands by its report, with some corrections that he said don’t dramatically change the final cost.

He rejected the Metropolis team’s choice to go farther back than 1987, because immigrants from before that time largely came from developed countries. Since then, a court decision has required the government to accept applications from all over the world.

“Canadian taxpayers are going to be subsidizing future generations of immigrants if they keep coming at the rate they’re coming. It’s going to exacerbate the problems that we’re going to get with respect to the aging of the population, and it’s not going to solve the problem,” Grady said.

By: Jon Woodward, ctvbc.ca

Date: Tuesday Jul. 26, 2011 9:49 AM PT

–Unique demographic profile an issue for policy makers, investors

–Baby boomer retirements seen as ‘more material’ for Canada than other countries

–Higher productivity and immigration needed to lower impact on economic growth

By Monica Gutschi
Of DOW JONES NEWSWIRES

TORONTO (Dow Jones)–Canada has a unique demographic profile that makes the looming issue of an aging population a critical one for policy makers and investors, a new study argues.

The country had a larger baby boom than other developed countries, and had a larger baby ‘bust’ as well, making it ‘atypical,’ study author Virginie Maisonneuve said in an interview.

Indeed, the study produced for Schroder Investment Management where Maisonneuve is head of global equities, argues that baby boomer retirements will be far more ‘material’ for Canada than other countries. It noted the ‘dependency ratio’–or number of retirees to workers–will rise by 8% over the next 20 years compared to 4.5% in the U.S.

According to the latest actuarial report on Canada’s Old Age Security, the ratio of people aged 20 to 64 to those over 65 is expected to fall to 2.2 in 2050 from about 4.4 now. The number of beneficiaries of the basic OAS is expected to double to 9.3 million by 2030 from 4.7 million now, while those who will receive the Guaranteed Income Supplement and other benefits will grow to 3.3 million from 1.7 million.

The unusually large boom and bust seen in Canada is also likely to have an impact on economic growth, Maisonneuve’s study argues, unless there is a major increase in immigration, labor productivity or participation rates by older workers.

As well, the study says the composition of Gross Domestic Product will change, with the healthcare and financial sectors increasing their share, while the contributions from education, manufacturing, construction and retail will fall. National savings are also expected to decline as retirees live off their investments, potentially leading to wider trade surpluses and a greater need for capital inflows.

But the study also finds that Canada has done a relatively good job of preparing for the demographic change ahead, with its public-pension system expected to remain solvent until 2050. That stands in marked contrast to the U.S., which faces a permanent shortfall beginning in 2016 and could run out of funds by 2039.

While health care costs are also expected to rise with an aging population, Maisonneuve’s study says Canada is also in good shape on that front, with a solid record of keeping healthcare spending under control.

Canada will also be helped by its strong fiscal position, the study says.

Also, the resource-based country will be supported by another global theme Maisonneuve has identified: the rise of emerging economies and their ongoing demand for commodities such as oil, wheat, and iron ore.

“Those two things put together create a profile for Canada that is very very special,” Maisonneuve says.

Canada’s fertility rate–or number of births per female–soared as high as 3.9 in the years following World War II, compared to 3.7 in the U.S. and below 3.0 in western Europe, she notes. Moreover, the country accepted a wave of young immigrants in that time period. The boom went on for longer than in the U.S. due to slower uptake of the contraceptive pill and lower female employment.

The baby ‘bust’ was also greater than in the U.S. or Europe, Maisonneuve’s study finds, with fertility rates falling to under 1.6 and remaining there. A country’s fertility rate needs to be at least 2.1 to maintain a stable population.

-By Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com

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