Canada and US Economic Relation: Immigration Impact | Free Essay Example

Canada and US Economic Relation: Immigration Impact

Words: 2793
Topic: Business & Economics


In the wake of international cooperation and globalization, intercontinental movement of people has significantly increased. Current economic trends have compelled people to move to foreign nations to seek employment opportunities, education, and business among other reasons. However, economic immigrants have increased significantly in the last decade. Their relocation to foreign nations has contributed immensely to the economic wellbeing of the destination countries.

Canada and the United States of America experience the highest influx of immigrants internationally. This situation has resulted in both positive and negative impacts on the economies of these countries. Recently, similar economic aftermaths have been noted in both Canada and the USA owing to immigration. This essay provides a comparative analysis of the impacts of immigration on the economies of Canada and the United States.

Demographic Information Concerning Immigrants in the USA

Immigration has been a component of demographic change in the United States since the 1940s. Influx of immigrants in the US has been escalating rapidly by approximately 1 million immigrants every decade (Borjas, 1999). A recent survey that was conducted by Smith and Barry (2011) to study economic, demographic, and fiscal effects of immigration indicates that 1 million immigrants are admitted in the US annually since 2002. However, this statistics exclude illegal immigrants who enter the US frequently. According to the Bureau of Citizen and Immigration Services, the number of immigrants has increased by about 7 million (Smith & Barry, 2011).

About 60-percent of the immigrants have settled in the USA due to family ties or friendship. The number of refugees is estimated to be 10-percent of the total immigrant population. Ever-rising impacts of immigration on the US economy have variously compelled the government to enact laws to regulate admission of immigrants. For instance, in 1986, the Congress implemented the Immigration Reform and Control Act that pardoned 3 million illegal immigrants and advanced penalties to employers who had not registered their workers with the relevant authorities (Bureau of Labor Statistics, 2011). However, the immigrant Act of included provisions that allowed more immigrants to settle in the US.

Demographic Information Concerning Immigrants in Canada

A study that was conducted by the National household Survey in 2011 reveals that over 200 races migrate to Canada annually. However, the government of Canada fortifies the influx of immigrants due to their influence on the demographic patterns, which enhances diversity (Bureau of Labor Statistics, 2011). Between 2006 and 2011, 1.2 million foreigners have settled in Canada. Birth rate is estimated at 17-percent amongst the Canadian immigrants. Canadian immigrants account for 3-percent of the total Canadian population.

There has been a gradual change in birthplaces of the immigrants in the last few years. Initially, Canadian non-nationals mainly came from European nations (Bureau of Labor Statistics, 2011). However, more arrivals who settled in country between 2006 and 2011 came from different continents. According to Fairlie (2012), Asians comprise 56-percent of the total immigrants while Europeans comprise 14-percent. Africans comprise12-percent of the immigrant population, which is almost equal to the number of Caribbean and American immigrants.

Fairlie (2012) reveals that foreign-born immigrants increased by about 20-percent in 2011. Ontario State, which admits the highest numbers of immigrants annually, recorded 29-percent foreign-born immigrants followed by British Columbia with 27-percent. Similar increases were also realized in other states. Intensifying non-Canadian population is a clear indication of the ever-increasing numbers of immigrants. Household surveys reveal that most of the immigrants dwell in the urban areas in cities such as Toronto, which leads the pack by 33 percent, and Montreal, which trails Toronto by 16 percent, among other states (Bureau of Labor Statistics, 2011).

Impact of Immigration on the Economies of Canada and the USA

Immigration has significantly influenced the economies of both Canada and the United States. For various reasons, both countries have been encouraging people of different nationalities worldwide to settle in their lands. Economics of immigration entail three distinct factors that explain why the two countries advocate for immigration.

At the outset, immigration enhances the growth of a country’s Gross Domestic Product (GDP). However, in many cases, the native citizens do not gain substantial benefits economically. The immigrants benefit through increased per-capita GDP and income (Borjas, 1999).

Secondly, the recipient countries benefit from evitable fiscal impact. In this case, the immigrants pay taxes without the inclusion of governmental costs. Lowly skilled immigrants earn low income and are net fiscal drained while the highly educated who possess competent skills enjoy high-income rates; hence, they are net fiscal beneficiaries.

Lastly, immigration significantly affects the wage patterns of domestic workers. Theorists advance that immigrants should create net gain for native citizens (Borjas, 1999). Economic theorists postulate that the amount of income becomes minimal with respect to the economy and realignment sizes. This state of affairs is due to emergence of competition amongst underprivileged and least educated native citizens and immigrants. Interestingly, this assumption deems the immigrants as losers. Immigration of foreigners has both negative and positive impacts on national economies based on factors such as labor market and wages.

Advantages of Immigration to both the USA and Canada

Effects on Annual Income

A research that was conducted by Borjas (1999), an economics expert, in 1999 revealed that the annual national income in the USA increased by about 1.6 trillion dollars in a period of 5 to 10 years. The government utilizes this income to pay wages and benefits that account for about 1.57 trillion dollars. The remaining 35 billion dollars are meant for the native citizens. Therefore, the government gains about 0.2-percent income owing to immigrant effect (Borjas, 1999).

It is interesting to note that both the USA and Canada advocate for increased immigration rates. Numerous researchers have attested that immigration has various positive effects on the labor market. For instance, Canada has a relatively higher labor market than the USA due to high rate of immigrant influx. It is estimated that the Canadian labor market surpasses the US labor market by 6-percent. This percentage accounts for average annual income of 3.3 billion dollars (Borjas, 1999).

The green card application program that is supported by both Canada and the United State underpins migration of foreigners to the countries. These countries have realized the benefits of diverse populations. Fairlie (2012) reveals that a new trend that has emerged in the two nations has realigned incomes for both immigrants and native citizens. For instance, Canada has already registered an income boom due to increased immigration. Employers have gained about 44 billion dollars income rise (Borjas, 1999). Therefore, the governments of the two nations strive to strike a balance between moderation of taxes on the employers and regulation subsidies to maintain production levels. As a result, there has been a need to ensure constant flow of immigrants.

Increase in the Economic Efficiency for both Nations

Both Canada and the USA register immigrants based on merits such as knowledge and competency that individuals acquires during their academic endeavors. Although the US has notably lost a grip of the labor market because of their selection criteria of that favors lowly skilled personnel, both countries have benefitted immensely in terms of economic efficiency. Inflow of both low and high skilled immigrants has led to enhancement of workforce availability (Borjas, 1999). This situation has led to various business startups, expansion, and invention of new ideas that are geared towards improvement of the economies.

Improvement of Entrepreneurship and Investment in both nations

Farlie (2012) reveals that immigrants have a significant effect on entrepreneurship and investment. The author posits that an estimated number of 15 companies are established in the USA annually (Farlie, 2012). These companies expand sources of employment. This situation improves the overall economy of the country. A further regulation of legal laws that pertain to labor and industrialization has enhanced the labor market (Fairlie, 2012).

This situation has resulted in expansion of employment capacities. It has also led to improvement of productivity in almost every sector of the economies. Consequently, there has been a notable increase in per capita income in both Canada and the USA. GDP growth is enhanced through aggregate demand in the short run. However, high GDP per capita is realized through enhancement of investment opportunities. This state of affairs is expected to double the economies of the US and Canada in the near future. Such circumstances have compelled the two countries to advocate for more immigrants (Fairlie, 2012).

Innovation and entrepreneurship have opened global opportunities that have immensely benefited both countries. Presumably, foreigners who are employed in these countries possess varieties of skills that are crucial for work performance. As a result, the two economies have been able to capture a large market share in the global arena. This situation has enhanced profitability due to availability of expansive markets for the products of the both existing and newly established companies. There is also an immense economic benefit of cultural diversity. Therefore, an increase in global network is inevitable (Fairlie, 2012).

Maintenance of Financial Viability of the Social Programs of the two nations

Both countries have established universal health care benefit programs that take care of retirement issues. These benefits are designed in a pay-as-you-go criterion. The program entails tax collection from active labor force. These funds are used to pay for various health-related costs, pensions, and retirement benefits (Fairlie, 2012). Due to low population of native citizens, it is important to register immigrants who are active and skilled to work in various industrial sectors. In the end, these immigrants are taxed money to cater for the aforementioned benefits (Fairlie, 2012).

Reduction in Labor Costs

Both Canada and the USA benefit from cheap labor that is obtained from the immigrants. This situation reflects in low cost of production as labor cost reduces. Smith, James, and Barry (1997) reveal that increased immigration has led to availability of cheap labor in both Canada and the United States. In most cases, the immigrants are energetic and have the will to work. As a result, they promote availability of personnel, which reduces the cost of labor whilst improving the output of various sectors.

Increase in Aggregate Demand and Real Gross Domestic Product (GDP)

A continuous increase of immigrants in Canada and USA has led to increased aggregate demand that enhances spending in both economies. There is also excellent supply of labor as well as labor demand, which has further resulted in increased spending (Smith, James & Barry, 1997). Therefore, intensifying immigration has been used as way of enhanced the real GDP in both Canada and the USA.

Flexibility of Market in both Countries

Immigration in both Canada and the USA has led to the enhanced market flexibility. Most immigrants are job seekers who seek permanent residence or work in these countries. Availability of varieties of labor that include skilled, semi-skilled, and unskilled personnel is beneficial to both countries. This situation results in enhanced innovation and improvement of existing production sectors at a relatively lower cost (Bureau of Labor Statistics, 2011).

Reduction of Dependency Ratio

In Canada, ageing people dominate the population. On attaining their retirement ages, the dependency ratio increases owing to slow birthrates in these countries. Consequently, Canada and the USA require an influx of immigrants to replace retired individuals in a bid to decrease dependency ratios. The Working immigrants further benefit the government through taxes and other sources of revenue (Smith, James & Barry, 1997). The governments consider age factor and education levels of the immigrants during admission to various fields of work.

Disadvantages of Immigration to both Canada and USA

Fiscal Impacts on the Economies of both nations

The fiscal impact of immigration depends on the traits of immigrants such as skills and age among others. These immigration considerations have the most negative impacts on the economy of a country. The impact of such considerations is felt on tax and the welfare systems of both the USA and Canada (Smith, James & Barry, 1997).

Most likely, highly skilled immigrant workers work in well-paying companies; hence, they are well paid for their skills. These people are also highly taxed. Fiscal impact on the economies of both nations can be clearly understood through the characteristics of their populations. In both countries, the immigrants who are not well educated or skilled earn moderate income and pay low taxes. These people are also entitled to welfare programs; hence, use more money to seek services than they use to pay taxes. This policy is usually applicable to less-educated natives, immigrants, and illegal immigrants.

A research that was conducted by Patrick Grady and colleagues reveals that there is an emerging problem of fiscal burden of about 20 billion dollars that is caused by immigrants annually. This fiscal burden is about 1-percent of the GDP that is contributed by the Canadian native taxpayers. Immigrants pay fewer taxes as compared to the native citizens. However, they both benefit equally from social amenities that are provided by the government (Borjas, 1999).

A similar situation is experienced in the USA. The immigrants impose a burden of about 103 billion dollars per year to the national economy. Therefore, immigration in both countries has greatly lowered the net income of the native citizens. This situation has compelled the governments of both countries to solve the problem of fiscal impact by placing measures to reduce the unnecessary influx of immigrants.

A summary of fiscal impact in relation to USA (Research facts) by NRC

  1. The Fiscal burden that was created by immigrants’ households as at 1996 was 11.4 billion dollars per year (National Academy of Sciences Press, 1997).
  2. Fiscal impact of immigrants is dependent on education level (Smith, James & Barry, 1997).
  3. Educated immigrants have a lifetime fiscal of 105,000 dollars (Bureau of Labor Statistics, 2011).
  4. Household of an illegal immigrant use 14,400 dollars higher than taxes they pay
  5. There is a direct relation between fiscal costs associates and illegal immigrants.
  6. Annual net fiscal deficit can only increase to 7,700 dollars per household upon legalizing immigrants (Fairlie, 2010).
  7. Illegal immigrants who are illiterate are fiscal drain. Less educated and legal immigrants pose a larger fiscal problem because of their eligibility to various programs.

Impacts on Employment in both Nations

Increased migration in the USA and Canada has led to some impacts on wages and employment. These are majorly influenced by factors such as elasticity of capital and labor substitution, elasticity of substitution between native citizen workers and immigrants (Borjas, 1987). Therefore, biasness on wage and employment distribution creates competition of jobs between immigrants and the native citizens.

Immigration negatively affects employment of native citizens. As a result, they withdraw from their jobs or become unemployed. This situation is supported by a research that was conducted by Rand Corporation in California between 1970 and1990. Their findings revealed that about 190,000 native citizens lacked jobs due to rapid increase in immigration (Kevin & George, 1997). The black Native Americans also experienced unemployment problem due to immigration that is both legal and illegal. Thus, in most ghetto areas, incidences of crime related activities such as rape, drug trafficking, and terrorism among others are eminent.

According to Litan (2010), other disadvantages of immigration to both countries include inflation, escalating prices of commodities, imbalanced trade system, congestion in urban areas, and inequality in person development due to poor wealth distribution among others.

Escalating costs on housing

Many researchers have revealed that immigration has led to higher costs of housing owing to wage instability. Immigrations that are short termed are expected to be more inflationary than long term or permanent basis immigrations (Borjas, 1987). The rise in housing costs is due to the immediate increased aggregate demand for such facilities as compared to the aggregate supply which adjust gradually not unless other condition prevail which include larger inventories among other things.

An increased customer price index (CPI) is highly depicted in situations where household expenses are expensive. Immigration permanency leads to lower prices of households due to labor availability (Kevin & George, 1997). Majority of immigrants who are offered job opportunities on short-term basis mainly experience this problem. Thus, the USA and Canada might not benefit due to declining immigrants who are offered such chances.


Both Canada and the USA immensely benefit from immigration in various ways. A close analysis of the two countries shows that their benefits are more or less similar. The economies of these two countries have also been affected by negative consequences of immigration. A socio-cultural aspect of immigration plays an important role in raising the economies of the two nations. Such benefits that are derived from global markets are owing to availability of diverse workforces who originate from different races and geographic locations around the world. Nonetheless, there is a need to fiscal impact problems that are caused by less educated immigrant populations in an attempt to increase the overall GDP of Canadian and the US economies.

Reference List

Bureau of Labor Statistics. (2011). Foreign-Born Workers: Labor Force Characteristics. Web.

Fairlie, R. (2012). Kauffman Index of Entrepreneurial Activity, 1996-2011. Web.

Borjas, G. (1999). Heaven’s Door: Immigration Policy and the American Economy. Princeton: Princeton University Press.

Borjas, G. (1987). Self-Selection and the Earnings of Immigrants. American Economic Review, 77(1): 531-53.

Kevin, M., & George, V. (1997). Immigration in a Changing Economy, California’s Experience. New York, NY: Rand Corporation.

Litan, R. (2010). Inventive Billion Dollar Firms: A Faster Way to Grow. Kauffman Foundation. Web.

Smith, J., & Barry, E. (2011). The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Washington, DC: National Academy Press.


Appendix I

Number of U. S. and U. K. Immigrants coming to Canada each year

Appendix II

Canadian born earnings