The Economics of Increasing Immigration During an Economic Crisis

The following is a guest post by Mikal Skuterud of University of Waterloo

On February 14, the Federal Government issued 27,332 invitations for permanent residency to Canadian Experience Class (CEC) applicants in the Express Entry pool. To issue this unprecedented level of invitations, Immigration, Refugees and Citizenship Canada (IRCC) reached deep into the pool, providing invitations to applicants with record-low Comprehensive Ranking System (CRS) scores.  

The CRS is a points system used by IRCC to select the “best” candidates in the Express Entry pool. CRS scores are assigned to candidates based on their submitted profiles. Analogous to how universities screen their applicants using high school grades, IRCC sets a cutoff score in every Express Entry draw, held roughly every 2 weeks, and issues invitations to all applicants with scores above the cutoff.

The criteria and their relative importance in calculating scores are based on a statistical analysis of what immigrant characteristics best predict immigrants’ earnings during their first 10 years in Canada. The initial CRS points grid was based on the analysis of Bonikowska, Hou and Picot (2015). Adjustments have been made since. Most notably in November 2016, points were reduced for having pre-arranged employment in Canada and were increased for having Canadian (as opposed to foreign) post-secondary educational credentials. The criteria that receive the most points are age (the younger, the better); level of education (the more, the better); English/French language ability (standardized test scores are required); and Canadian work experience (more is better).

The Express Entry pool is comprised of all applicants who have met the minimum requirements of one of Canada’s economic-class immigration programs. The three biggest programs are the Federal Skilled Worker Program (FSWP), the Canadian Experience Class (CEC) Program, and Provincial Nominee Programs (PNPs). The CEC targets candidates with Canadian work experience. Hence, candidates in this stream are more likely to be currently residing in Canada, and this presumably explains why IRCC restricted its February 14 draw to these candidates.

The cutoff CRS score in the February 14 draw was 75, as shown in the chart above. Using IRCC’s CRS calculator tool (https://www.cic.gc.ca/english/immigrate/skilled/crs-tool.asp), one can get a sense of the profile of an applicant with a CRS score close to 75, the score of the lowest ranked candidate(s) to be invited:

- Never-married, single

- 39 years old

- Level of schooling below a high school diploma

- IELTS score of zero in speaking, listening, reading, and writing

- 1 year of Canadian work experience in a technical occupation (e.g. cook or car mechanic)

- Zero years of foreign work experience

- Not currently employed

    CRS score = 95

In a press release justifying February 14’s unprecedented Express Entry draw, IRCC stated:

“From large companies to major labour unions, Canadians agree that immigration is essential to our economy. One in three businesses with employees is owned by an immigrant, creating thousands of jobs from construction to retail. Throughout the pandemic, newcomers have played an outsized role in Canada’s response, accounting for over one third of our doctors and pharmacists. Put simply, immigration is crucial to Canada’s short-term recovery and long-term prosperity.” (emphasis added) 

As an economist, who has studied Canadian immigration for more than two decades, I struggle to understand how increasing immigrant entries in the midst of an economic crisis with historically high and rising levels of joblessness will aid our short-term economic recovery. As shown in the chart below, data from the most recent Labour Force Survey reveals there are now 1.7 million Canadian jobless workers who have been employed since February 2020 and say they want to work now. Moreover, 29% of them have been jobless for more than 6 months, which is especially troublesome as there is compelling evidence that jobless workers’ odds of getting back to work drops precipitously after 5-6 months.  

My concern is that the “increased immigration is crucial for our economic recovery” narrative overlooks a long and extensive economics literature documenting the challenges Canada has had, and continues to have, in leveraging immigration to boost economic growth. The simple fact is that Canadian immigrants experience significant labour market integration challenges, even compared to similarly educated immigrants from the same origin countries (e.g. China or India) who settle in Australia and the United States. It is hard to believe that these challenges will not be exacerbated for those entering Canada’s labour markets during the current economic crisis.

It is unusual for countries to significantly increase immigration levels during recessions, for good reason. There is, therefore, scant empirical evidence to tell us what happens. However, the Canadian experience does offer one telling episode. Between 1996 and 2001, Canada saw an exceptionally large inflow of immigrants with educational backgrounds and work experience in information technology (IT) and engineering. Employment in the computer and telecommunications sector grew by more than 50% over this period nationally compared to 12% across all sectors (think Nortel and Corel). However, the crash of the “dot.com bubble” in 2001 put an end to the growth, which Picot and Hou (2009) show had a disproportionately large adverse impact on the earnings of immigrants who entered Canada between 2002 and 2004. Even four years after landing, these immigrant IT and engineering workers had average earnings that were 25% lower than comparable immigrants who arrived in the mid-1990s.

It remains to be seen whether IRCC reaches its historically high target of 232,500 new economic-class immigrants in 2021, as shown in the chart below. But February 14’s Express Entry draw sends a strong signal that they intend to do so, even at the cost of foregoing its merit-based system for screening applicants.

 

While policymakers will be watching for a swift and speedy economic recovery in 2021, I’ll be continuing to track the economic integration struggles of Canada’s most recent immigrants.

For more of Mikal Skuterud's writing on immigration, see this WCI post and the papers on Mikal's website here. Also recommended: Riddell, Worswick and Green, “How Does Increasing Immigration Affect the Economy?” Policy Options (here), and the Bonikowska, Hou and Picot paper cited above (here).

 

Comments

[Ken Schulz]

“there is compelling evidence that jobless workers’ odds of getting back to work drops precipitously after 5-6 months”
It would not be surprising to see the odds being rather different this time, when long-term unemployment has mostly resulted from government-mandated shutdowns.

[Erik Lund]

As Ken Schulz observes, this time is supposed to be different. Isn't Larry Summers weighing in with the suggestion that our problem will soon be "overheating"? That said, I apparently work in the midst of an entire staff of people who ought to have scored CRS 75. They're excellent workers, highly motivated, and very responsible. (In contrast, the kids working on part-time student visas are probably shoe-ins to hit much higher scores, and they're goofballs who remind me of me at their age.)

The only reason My sub-75 common-clay-of-the-new-west fellow employees are not making a middle class income is that my employer was able to get away with a two-tier contract in 1998. How that came to happen, and its consequences over time, seems like to have a much stronger bearing on immigrant earnings in the modern Canadian economy than these test scores if my experience is any indication.

[Mikal Skuterud]

Thanks for your comment Erik. The CRS points ("test scores" as you call them) are undoubtedly predictive of earnings. Certainly not perfectly predictive, but predictive in a similar way to how the educational attainment of Canadian-born workers is predictive of their future earnings.

[Erik Lund]

Hi, Mikal. I'm not arguing that low CRS points don't correlate with earnings. I'm pointing out that they correlate with low earnings because most of the people my employer has hired in the last two decades have low CRS scores, and those hired since approximately 2010 aren't qualified to jump up to the top tier in a two-tier wage structure. You can't make a claim to a correlation between earning potential and CRS score because earning potential has been determined by collective bargaining. Those who were able to leverage periods of low unemployment are doing well. Those who didn't time their Canadian labour force entry correctly, aren't.

We know what the solution is: Full employment (and a tolerance for high inflation to accommodate it). We're basically faffing around the problem to avoid that solution.

[Phillip Huggan]

A recent Financial Times articles mused about reinforcing the pandemic "bubble" industries. Healthcare will be needed. I.T. content would suggest India. There are questions about domestic vaccine manufacturing. Our best "applied engineering" epidemiology minds early tended to liase with other nations, improving testing and medical counter-measures. If we want our own vaccines, our own manufacturing base, and our own open-ended ability to ship to whomever, we will need loyal immigrants. I suggest instead, we focus upon our own domestically sourced non-vaccine pandemic medical solutions (antibodies). mRNA is important for medical cures, but it is maybe a case-by-case risk-reward of when we should look for elite immigrating engineers. Materials science is an alternative that I.T. immigrants can delve into in that our MI complex is weaker than that of most. I suppose if we can can the risk of medical blueprints being invented which shouldn't be, we should look for cure immigrants. If we can't can the risk, we look for materials science I.T. immigrants and defeat even robot rioters.

[Phillip Huggan]

...a median biomedical researcher makes $68k and soon $90k before Covid. A medical engineer (can eventually make implants) starts off at $51k, and is $7k less than $68k after 7 yrs, about the same as a user experience IT researcher. A materials science engineer makes $68k. I think the mRNA research (to cure diseases) might be safe enough for now under a DARPA or Manhattan Crown. What would one Covid be worth? Less than a lung cancer cure. Maybe an AIDS cure assuming treatments don't improve. At some point, synthetic biology techniques will diffuse and better screening will be needed. The mat-sci may give us dental improvements, or an unhackable metamaterials camera (all optical). The biomedic will cure lung cancer and might double the odds of the Interstellar crop blight. The user exp graduate will give us a better monitor.
FT yesterday said there are two sources of new knowledge: Managers who do the jobs of others sometimes and become multi-disciplinary, and it erred in assuming specialized engineers don't often create new tools. medical engineering suggests very multi-disciplinary. The ability to learn new fields is one group of people, and the willingness to specialize is another. We can maximize their salaries if we determine which learning is mRNA, and what kind of engineering we want (Covid/medicine raises some future salaries and externalities subtract from their earnings).

[Dee]

Clean credit history.

Nasty isn't it?