When is Immigration Bad?

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posted November 14, 2002

The basic economic case for immigration is strong. In Canada’s market economy immigrants on average receive wages that match their contribution to output, which in turn they use for their own purposes. As a result, the incomes of Canadians are the same with as without the immigrants, except that they benefit from doing business with them. The problems from having more people in the form of congestion and pollution are likely to be at least matched and possibly exceeded by benefits, which take the form of lower average costs of production and public services, and greater cultural diversity.

A contentious issue is the immigration of elderly parents who join their offspring already in Canada. There are two ways of looking at the merit of such a policy. On the one hand, Canada in principle taxes the working generation to finance the benefits of the retired. Accordingly, immigrants’ taxes pay for the benefits received by their parents and there is no burden on other Canadians. On the other hand, it would be clearly to the advantage of Canadians if we allowed the immigration of only the working generation. The taxes they paid would reduce the burden of caring for the retired Canadian citizens. Australia’s immigration policy is guided by that principle. Recent studies by Martin Collacott, Diane Francis and David Stoffman urge Canada to adopt Australia’s policy.

Recently, academic studies have raised a very important issue omitted from the preceding story. What happens if immigration takes place on such a large scale that it affects the incomes of employers and workers? These studies were presented at the IMF and will soon to be published by the prestigious National Bureau of Economic Research.

Thus, economic historians argue that the massive migration of labor from Europe to North America between 1870 and 1913 caused severe adjustment problems and damaging policy responses by governments on both continents. In Europe, landowners and capitalists earned lower returns on their assets. Governments responded by introducing higher agricultural tariffs during the last decades of the nineteenth century.

In North America the waves of unskilled immigrant workers provided fierce competition for similarly unskilled workers already in the country. In response the US and Canadian governments closed the door to further immigration in the 1920s. In addition, historians believe that the political backlash to the massive migration between 1870 and 1913 fanned the flames of nationalism, contributed to the outbreak of World War I and influenced the formation of the bad economic policies of the 1930s.

In recent years immigration in Europe, mostly of political refugees and guest workers has produced some strong reactions by the general public. There is a widespread belief that these immigrants have disproportionally been unemployed, contributed to crime and required public financial assistance. The perceived reason is that the immigrants have social values different from those held by native populations, which endanger the integrity of existing, generous and highly valued welfare programs that in the past have operated with minimal cheating and policing.

European political and intellectual elites have denied that refugees caused these problems. The public responded by supporting new political parties with anti-immigration platforms in Austria, the Netherlands, Italy, Denmark and France. The media and the chattering classes demonized the leaders of these parties like Jean-Marie Le Pen of France and Joerg Haider of Austria.

However, the electoral success of these protest parties was too big to ignore - Le Pen received 20 percent of the vote in the recent French presidential election. In response, virtually all European governments have made the admittance of asylum seekers much more restrictive.

Of special interest to Canadians are Australia’s new immigration policies, which were enacted also in response to the growth of a strong anti-immigration party. Refugee claimants no longer are automatically entitled to welfare and health benefits and await processing of their claims in remote locations where living conditions are harsh. Family reunification has become much more difficult.

The studies by Collacott, Francis and Stoffman stirred a lot of controversy. There were the usual hints of racism by the political left and of scorn by the chattering classes. The government has shown no interest in changing its immigration policies. Yet, what drove the authors to do their studies was a seeming widespread public discontent with current policies. It remains to be seen whether this discontent will lead to a repeat of what has happened around the turn of the 19th century and recently in Europe. Protest parties can cause a lot of political turmoil – just remember the Reform Party of Canada. Let us hope the government learns from these recent developments abroad and consults more openly and broadly with the general public.