Immigration and Wages

A study released by Statistics Canada today concludes that “Immigration has tended to lower wages in both Canada and the United States.” Of course, immigration is but one of many influences on wages and class divisions are of far greater economic significance than any supposed conflict between immigrant and non-immigrant workers. Nevertheless, this issue has the potential to be quite divisive among progressives.

The study’s bottom line is that, for a given level of labour demand, increases in labour supply tend to reduce wages. In my view, the best policy response is to increase demand for labour by expanding public investment and encouraging private investment through lower interest rates and targeted tax measures. As reported in the following National Post story, ensuring that immigrants and temporary foreign workers have the same workplace rights and protections as other Canadians would prevent employers from using them to depress wages.

UPDATE (May 26): The following story, which appeared electronically yesterday, is printed on page 7 of today’s Financial Post.

Immigration depresses wages in Canada and U.S: report

Eric Beauchesne
CanWest News Service
Friday, May 25, 2007
OTTAWA – Immigration has depressed wages in both Canada and the U.S., but has also reduced wage inequality in this country, while widening the gap in the U.S. Those are the key findings of a Statistics Canada study released Friday which found that a significantly higher proportion of immigrants to Canada than the U.S. are highly educated, increasing the supply of such workers, but lowering their earnings.

Immigration was a factor in a 7% drop in real wages of highly educated workers in Canada between 1980 and 2000, the report said.

Low-skilled workers in Canada have also gained relative to high-skilled workers, because the share of low-skilled workers in the labour force has declined, it said.

While the earnings gap between high school dropouts and university educated workers increased to nearly 45% from 38% in Canada over the past two decades, in the absence of immigration that gap would have widened to nearly 50%, it calculated.

In the U.S., however, immigrant labour is concentrated among low-skilled workers depressing their wages, and less so of highly-skilled workers, which served to magnify growth in US wage inequality, the report said.

In 2001, about four in 10 individuals with more than an undergraduate university degree were immigrants in Canada compared to only two in 10 in the U.S., it noted.

There was a significant but relatively comparable inverse relationship between the change in the supply of labour from immigration and in wages in Canada, the U.S. and in Mexico, said the report, which looked at the impact of immigration on wages in the three NAFTA countries between 1980 and 200.

A 10% change in the labour supply due to immigration resulted in a three-to-four-per-cent change in earnings in the opposite direction, it found.

. . .

Erin Weir, economist with the Canadian Labour Congress, said the report – on the positive side – suggests that Canada has done better in attracting higher skilled workers than the U.S.

However, that wages here have also been depressed by immigration, suggests that Canada needs to do a lot more to ensure immigrants are fully aware of their workplace rights to protect them from being taken advantage of by employers, Weir added in an interview.

Another “emerging issue” raised by the report is the more serious damping impact on wages of Canadian workers resulting from an increasing trend to bring in temporary foreign workers, he said.

For the full article, click here.

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