GLOBAL ECONOMICS
Herbert Grubel and Patrick Grady
Why Matthew Lau is Wrong About Immigration
September 15, 2019
Matthew Lau, "Why immigrants are good for the economy after all: Even if the fiscal effect of immigration is negative, the net economic effects on current Canadian residents may well be positive," Financial Post, August 27, 2019.
Matthew Lau takes issue with our article in the Financial Post that claims recent immigrants impose a large fiscal cost on the economy. In contrast, he argues in the above-noted article in the same newspaper that immigrants are good for the economy for two main reasons he contends were neglected in our study of the fiscal burden they impose on Canadians.
First, he incorrectly argues that the average incomes of immigrants relative to those of non-immigrants used in our study overlooks the fact that immigrants’ incomes rise with the length of their stay in Canada. Not so, this increase in incomes is actually captured in the Census and National Household Survey data for 2010 which is utilized in our study. We combine the averages of the incomes of various cohorts of recent immigrants, fully reflecting the increases in their income the longer they are in Canada.
Mr. Lau is also wrong when he characterizes our estimate as a "snapshot of the current time period." In fact, we have done and published estimates of the incomes of recent immigrants for the years 2005 and 2010 and we have reported on the 2016 Census data, all of which shows a persistent tendency over a ten-year period for recent immigrants to earn significantly less than other Canadians. The corollary to this is that recent immigrants pay substantially less taxes than other Canadians, while receiving essentially the same goods and services from Canadian governments resulting in the net fiscal burden that we have estimated in our studies.
The second fact Mr. Lau alleges should have been incorporated in our study is that immigrants increase the national markets for goods and services, which leads to productivity-increasing economies of scale.
This argument is highly questionable and, in any event, irrelevant to any calculation of net fiscal cost. Canadian manufacturers can sell in world markets and don’t need local demand to reach economies of scale. The sales of Canadian-owned shops and restaurants are not necessarily increased as the immigrants’ added demand often is satisfied by new facilities created by immigrants.
Finally, Mr. Lau puts forward the naive proposal that any net fiscal costs of immigration could be covered by charging immigrants a "price of, say $20,000 per person." This would add up to a prohibitive amount for most immigrant families and not be very popular with either immigrants or other Canadians.