Immigration: costs and benefits

Russil Wvong

An article I posted to can.politics in April 1997.

On the Canadian newsgroups, where the range of opinions is much wider than in the regular media, there's a number of vocal individuals who think that immigration has huge costs and no benefits. They're not necessarily bad people, racists, or whatever; they just think that immigration is a Bad Thing.

I think they're wrong. Immigration has benefits as well as costs; the question is whether the costs outweigh the benefits.

Benefits of immigration:

  1. Immigrants contribute to the economy in the same way as the rest of us, through work: i.e. by contributing value to some product or service, which can then be sold locally or exported. In this way, they contribute to Canada's GNP, the total size of the economy.

    Okay, but how do the rest of us benefit?

    When someone works, they add value to products or services -- assembling a car, developing software, serving burgers, booking travel, whatever. But the key is that people are not paid as much as the value they add. The surplus is profit for the business. If this surplus didn't exist, the business wouldn't be profitable.

    What happens to this surplus? If the business is a widely held public company, it gets distributed to the rest of us, through taxes, dividends, and reinvestment.

    To take an example: suppose I'm working for a company that provides geological modelling software to oil exploration companies all over the world. Say that our latest product took a team of three people a year to develop, and that annual revenues from this product are US $1.5 million. Assuming that the software is worth what people are paying for it -- they can use it to decide where to drill exploratory wells, increasing their chances of hitting oil -- and that each of us contributed equally, that means our individual contributions were worth US $500,000 a year.

    But that doesn't mean that we get paid $500,000 a year. Typical software developer salaries would be around CDN $40,000 or so, depending on experience. There's other costs to the company as well, like CPP and medical benefits; say the cost is $80,000 per year for each of us. Basically, the company made a CDN $240,000 investment and can expect to get US $1.5 million each year for as long as the product is viable. The profit goes to the company.

    What happens to the profit? Some of it is taxed. Some of it is paid to shareholders, in the form of dividends. The rest is reinvested in the company and used to finance growth. Maybe they hire six more developers so that they can develop three similar $1.5M products the following year. Besides creating jobs, this causes the value of the company to grow (the share price rises), which benefits the shareholders. For public companies which are widely held (e.g. by pension funds and mutual funds), this benefits a lot of people.

    Are the employees -- the ones who developed the software -- being cheated? No, because without the company, we probably wouldn't have been able to develop and sell the software. Between the three of us, we probably don't have the capital necessary to run a company like this -- to lease a building, to pay for marketing and sales and administration and technical writers, to pay the power and the heating bills, to buy the workstations and disk servers to develop and test the software, to keep the company going when sales are slow. Instead, we trade the value of our work for a dependable salary. We can share in the profits and growth of the company by owning stock in the company.

    It's the same story in any occupation. People working at McDonald's are paid $5 an hour; how many meals do they serve to people in that hour? How much is that worth? It'd better be more than they're being paid; otherwise, the business will fail. Same for assembling cars: the price of the car is much more than the cost of the parts plus the cost of assembling it.

    To sum up: in a successful business, each employee contributes more to the company than they're paid; this can be measured by the company's profits. These profits benefit the rest of us, either through taxation or through the ownership of the business. (Assuming the business is a public company with widespread ownership.)

    That's what it means for people to be contributing to the economy. If they're doing a good job -- if they're adding a lot of value -- then they benefit the rest of us. It doesn't matter if they're immigrants or not.

    (Conversely, businesses which make huge losses are sucking money straight out of the economy and thus making people poorer. The Soviet Union's economy was an example of this: there were businesses which actually destroyed value, where the final products were worth less than the raw materials they were made out of. In a market economy, these businesses would fail; in a command economy, they were kept alive by pumping money into them. I don't know how much things have improved in Russia over the last few years.)

  2. I've been down to Silicon Valley a few times. There's an amazing number of foreign-born software developers (e.g. from Hong Kong, Korea, India, and yes, Canada) working at the high-tech companies there; in some labs I've been to, more than half the engineers. It's hard to imagine how these companies would operate without immigrants.

    Why? According to a friend of mine from Montreal who's down there, there's a huge shortage of good programmers, even in Silicon Valley. The industry is growing so fast that some companies have job posting lists which are hundreds of pages long. (I'm not kidding -- I've seen one of these lists.) Without immigration, they wouldn't have enough people to do all the work.

    I'm using an American example because that's what I've seen. But the same applies to the high-tech industry here in Canada, aggravated by the fact that many Canadian software developers move down to the States to make more money and pay less taxes. (Some people move from the States to Canada, of course, drawn by the idea of being able to walk in the streets at night without being shot, stabbed, or beaten, even if they won't make as much money. But not as many.)

    Without immigration, Canadian high-tech companies which develop and export software and telecommunications equipment wouldn't be able to compete. They simply wouldn't have enough people to keep up with their competitors in the States and elsewhere in the world.

    The high-tech industry is what I'm familiar with. Things are probably the same in other highly competitive and fast-growing industries.

  3. Another place where we need immigrants is in companies which export their products (or services) overseas. To sell our exports to Europe, Asia, or Latin America, we need to overcome the handicap of not speaking the language and not knowing the culture. Without being able to hire immigrants for sales, customer support, and documentation, how well are Canadian companies going to do? Can we sell products to Mexico without speaking Spanish? To Japan without speaking Japanese? To China? To Germany? To Russia?

    Whether it's software, telecommunications equipment, canned food, or tourism, we need to export our products and services to the rest of the world, to pay for what we import. We can't export timber and oil forever.

  4. From their salaries, immigrants pay taxes, and buy products and services. This helps to provide employment for other people.

    A simple example: if an immigrant arrives from Hong Kong and buys a new house, somebody has to build the house. Thus immigration provides employment in the construction industry.

    Similarly, immigrants have to buy furniture, food, clothes, toys for their kids, whatever. All of this contributes to employment in the retail industry, furniture manufacturers, and so on. Same for services like banks, post offices, schools, etc.

    Bruce Schuck argues that immigration increases unemployment. If there's 16 million jobs and 18 million workers, then there's 2 million unemployed. If you add another 200,000 immigrants, and half of them are looking for work, you'll have 2.1 million unemployed, right? But this is ignoring the fact that the 200,000 immigrants are consumers as well as workers -- they need to buy housing, food, clothing, etc. -- and therefore businesses will need to hire more people to do the work.

    Immigration isn't very different from natural population growth (births minus deaths): as the number of people grows, the economy grows. The number of jobs in the economy isn't fixed. According to Stats Canada, Canada's population growth is currently about half due to natural population growth, half to net migration (immigration minus emigration).

  5. Immigrants also save and invest -- immigrants generally save more than the rest of us. And immigrants also bring capital with them, particularly economic immigrants. (In 1996, there were 120,000 economic immigrants, out of 225,000 immigrants and refugees.)

    Domestic savings are important because it provides capital for Canadian businesses to expand -- you can't build a new factory without money, you can't do new product development without money. Without domestic savings, Canadian companies would be forced to raise money from foreign investors, either by borrowing the money or by selling part of the business. In either case, profits flow out of the country.

  6. One minor benefit that we get whenever a university-educated adult immigrates from another country: we don't have to pay for their university education. (The cost of university education in Canada is still heavily subsidized -- tuition fees only cover about 1/3 of the actual cost.)

Okay, enough about benefits. What are the costs of immigration?

  1. Increased housing costs in Greater Vancouver. The average cost of a house in Vancouver has reached $300,000. (It seems to have levelled off there.) Not for a new house; this is $300,000 for a 25-year-old house! This makes owning a house extremely difficult for the average family. If monthly mortgage payments are $2000, you need an annual income of $70,000 to afford it. Not to mention having to save up a $30,000 down payment.

    Is this really due to immigration? I think so. Vancouver's hemmed in by the ocean and the mountains; there's not much room to build new houses, or new roads. People have been moving farther and farther up the Fraser Valley, but then they have to fight their way through an hour of traffic to get to work. Going upward -- building more high-rises -- is another possible solution, but it's limited by fear of earthquakes.

    (Outside Vancouver, things are a lot less painful. In Edmonton, where there's nothing to keep the city from growing, you can get a really nice house for $150,000.)

    For people from Hong Kong who are used to paying huge amounts of money to own a small apartment, $200,000 or $300,000 for a house probably seemed reasonable, or even cheap. This isn't all bad -- I'm sure a lot of homeowners and realtors made tons of money in the 1980s and 1990s -- but I think lack of affordable housing is definitely a problem in Vancouver. There's been a lot of condos built, but it isn't the same.

  2. ESL (English as a Second Language) costs. Bruce Schuck posted some numbers from the March 30, 1997 edition of the Vancouver Province: BC spends $955 on each ESL student, over and above the $5,799 for each student. 15% of students in BC, or 70,000 students, require ESL. That's about $70 million a year, or about $17 per person (BC has about 4 million people), out of a total education budget of $5.8 billion or $1400 per person. It's not a huge percentage, but it's not trivial, either.

  3. Increased crime associated with Asian gangs. There's been stories in the newspapers about individual incidents (a girl being shot with a crossbow in the BCIT parking lot, a doorman getting his jaw blown off by a shotgun, drive-by shootings in East Vancouver), as well as estimates of the size of the problem -- number of gangs, number of gang members. (There doesn't seem to be much on the net, or I'd throw in some numbers here.)

  4. Increased social tension. People complain that immigrants, particularly from Hong Kong, haven't made enough of an effort to integrate into Canadian culture, that they're prone to anti-social behaviour: driving too slowly or too fast, parking in handicapped zones, jaywalking, butting into lineups. They worry that immigrants see Canada as just a place to stay, like a hotel, rather than their new home.

    Are they just complaining, or is there really an issue? I think there is an issue, but I think it'll wear off in time. I see it as a big-city attitude, kind of like the stereotypical New Yorker. (Hong Kong is a city of 6 million people, after all.) People in New York are usually in a hurry, think nothing of crossing the street against traffic, and are suspicious of strangers. I haven't been to Hong Kong, but I assume there's some similarities.

    It's probably a good idea for people to remember the two rules of FidoNet:

            1. Don't be annoying.  2. Don't be easily annoyed.
My own opinion is that the benefits of immigration far outweigh the costs. We do need to make sure that we don't ignore the costs. We need to make sure that we're able to deal with problems of overcrowding in urban areas like Vancouver and Toronto: housing costs, crime, traffic. These aren't unsolvable problems, though. Nothing comes for free.

If we want our economy to continue growing, we need to make sure that Canadian businesses are competitive; to compete effectively, Canadian businesses need to be able to recruit people from all over the world.

Canada's one of three traditional destinations for immigrants, the other two being the US and Australia. I don't think that's likely to change. To head off the Reform party, the Liberals are likely to reduce the number of family immigrants and increase the number of economic immigrants, and they may reduce the overall immigration numbers somewhat (right now it's about 200,000 people per year, or a little under 1% of population). But drastic changes seem unlikely.


If you want more hard information, there's a wealth of statistics available through the Government of Canada page. In particular, see Statistics Canada and Citizenship and Immigration Canada.

If you want to compare Canada to other countries, economic statistics are available from the OECD.

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2 April 1997; last updated 31 May 1997

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