Ch' 11: Economics of Immigration

1
Lecture 9

• Ch. 11 Economics of Immigration
• Details about Canadas immigration system
• Earnings of immigrants
• The impact of immigrants on the source country
• The migration decision
• Ch. 13 Optimal Compensation Systems
• Efficiency Wages
• Economics of superstars
• Salaries as tournament prizes
• Deferred Wages

2
Immigration

• Basic Facts
• Key source of information Citizenship and
  Immigration Canada (http//www.cic.gc.ca)
• Immigrants
• Temporary Immigrants
• Permanent Immigrants
• Temporary Immigrants
• Foreign workers
• Foreign students
• Humanitarian components
• Other

3
Immigration (contd)

• Basic Facts (contd)
• Permanent Immigrants
• Family
• Economic
• Skilled workers
• Business immigrants
• Live-in caregivers
• Provincial nominees
• Refugees

4
Immigration (contd)

• Basic Facts (contd)
• Focusing on permanent immigrants
• Trends over time
• Settlement patterns
• Source countries

5
Trends over time
6
Where immigrants went (2002)
7
Where immigrants went (contd)

• Why do immigrants go where they go?
• Data from the Longitudinal Survey of Immigrants
  to Canada indicate.
• The five most important reasons principal
  applicants in the economic class chose to settle
  in Toronto
• Why did immigrants go to Vancouver?
• Source http//www.statcan.ca/Daily/English/03090
  4/d030904a.htm

8
Where immigrants came from (2002)
9
Selection system for skilled workers

• Skilled workers (part of the economic category of
  permanent immigrants)
• Selection system was re-designed in 2002
• A skilled worker (in the context of
  immigration) entered Canada under the point
  system
• There are six factors for assessment

10
Selection system (contd)

• Six factors for assessment
• Education
• Official language
• Work experience
• Age
• Arranged Employment In Canada
• Adaptability
• Need 67 points out of 100 to pass
• See http//www.cic.gc.ca/english/skilled/qual-5.
  html
• Would you get in as a skilled worker?
  http//www.cic.gc.ca/english/skilled/assess/index.
  html

11
Government policy choices

• What can the government do with regards to
  immigrant selection?
• The number of immigrants admitted
• Which immigrants are admitted
• Where they go?
• http//www.cic.gc.ca/english/policy/fedprov.html

12
Earnings of immigrants

• Important issue for the following
• Relatively poor earnings of recent immigrants
• Implications on immigrant selection
• Implications for government programs

13
Immigrant Earnings
14
Immigrant Earnings (contd)

• Why worsening performance over time?
• Macroeconomic forces?
• Lack of recognition of credentials?
• Changing composition of immigrants?
• Proportion of economic immigrants relative to
  humanitarian and family class
• Source country composition

15
The most serious difficulties immigrants
experienced when entering the labour force, 2001
16
Impact of immigration on labour market

• Two main questions
• Approaches to answer question
• Supply and demand diagrams
• Econometric studies
• Macro-econometric modelling

17
Impact of Immigration (contd)
Wages
Supply1
Supply2
w1
w2
Demand
N1
N2
Employment
18
Impact of Immigration (contd)
Wages
Supply1
Supply2
W1 W3
w2
Demand2
Demand1
N1
N2
Employment
19
Impact of immigration (contd)

• Econometric studies
• Compare economic performance of cities with
  different percentages of immigrants
• Major problem
• Findings Card (2001)
• Natural experiments (see Exhibit 11.2 pg. 327)
• e.g., Cuban migrants settling in Miami (1980)
• Key advantage of this approach

20
Impact of immigration (contd)

• Macroeconometric studies
• Start of by shocking the model
• What are the main effects?
• What is this mechanistic approach missing?

21
Why do people migrate?

• Why interprovincial migration?
• Why immigration into Canada?
• Why emigration out of Canada?
• Basic behavioural assumption in economics
• Sources for Brain Drain data, Zhao (2000) and
  Frank and Belair (1999). See references in BGR
  textbook on page 344.

22
The brain drain
23
The brain drain (contd)
24
The brain drain (contd)
25
The brain drain (contd)
26
The brain drain (contd)
27
Optimal Compensation Systems

• Efficiency Wages
• Economics of superstars
• Salaries as tournament prizes
• Deferred Wages

28
Efficiency Wages

• Previously, argued that W MRPN
• Efficiency wage theory argues that wages also
  affect productivity.
• What are some sources of enhanced efficiency?
• Did Henry Ford pay efficiency wages?

29
Efficiency Wages (contd)

• Equity theory (Adams, 1963)
• InputE (abilities, effort) vs
  InputsR
• OutcomesE (pay, other rewards) OutcomesR
• If IE/OE IR/OR perceived equity
• What if IE/OE gt IR/OR ?

30
Economics of Superstars

• Why does Tom Hanks get 25 million per film and
  Sean Penn get 5 million per film?
• Equation again W MPN x P
• Big differences in MPN could explain differences
  in actors salaries, musician earnings, etc.

31
Salaries as Tournament Prizes

• Executive salaries often seem to resemble prizes
  than reflect value of marginal product
• Why is this structure used?
• When is it efficient?
• When is it problematic?
• Predictions based on pay structure

32
Up or Out rules

• Under such rules, employees are evaluated usually
  at a specified point in their career, and are
  either promoted (up) or terminated (out)
• Why exist?
• Discourages bluffing
• Fixed slots
• To get rid of losers

33
Piece Rates

• What are they?
• Advantages from workers perspective
• Advantages from employers perspective
• When will such a system be used?
• When wont a system be used?

34
Deferred Wages
Wage, Marginal revenue product
W
MRP
Age
35
Rationales for Deferred Compensation

• Ensure honesty and work effort
• Reduce turnover
• Provide workers with financial interest in the
  firm
• Reduced need for performance evaluation
• Do workers prefer them too?

36
Rationale for Mandatory Retirement

• Mandatory retirement a personnel management
  practice in which a worker is compelled to retire
  upon reaching a certain age (e.g., 65)
• To enable deferred wages
• provides the termination date for contractual
  arrangements with deferred wages

37
Mandatory Retirement
Wage, Marginal revenue product
W
OP
MRP
UP
Age
Mandatory Retirement Age
38
Mandatory Retirement
Possible impact from banning MR
Wage, Marginal revenue product
W1
MRP1
MRP2 W2
Age