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I had an interesting discussion just, well, actually a couple of weeks ago with a friend of mine. We were discussing whether housing or immigration were the most important sort of social slash economic subjects today. And I said, well, they're both the same thing. I mean, the impact of one on the other. That's why I'm so pleased to have Mikkel Skutrud with me. The
This guy has done unbelievable work as a professor of economics at the University of Waterloo, director of the Canadian Labour Economics Forum, Roger Phillips Scholar of Social Policy, C.D. Howe Institute. Boy, you can see why I'm happy, Mikhail, that you're finding time for us. What do you get, about 15 minutes off a week with that schedule? It's busy, and it's been busy in particular as the immigration issue has become more topical in Canada.
Yeah. And as I say, I want to acknowledge, first of all, that you've been working on it for decades, you know, and the economic impact. But you're right. I mean, all of a sudden, it's as prominent an issue as we have in the country. And I do relate it to housing because that was so easy to understand. If you bring in 1.3 million people last year, for example, or the last 12 months.
They got to live somewhere. I think that was understandable to many people. And then they're impacted. And you're at the University of Waterloo. I was just looking at rents in Waterloo are up 20 percent today.
you know, year over year. You know, that's, and some of that at least has got to be driven by people coming in to the area. So, and of course, working at a university, that's been another hot topic, you know, of university students having no place to live. And of course, then we have the temporary visas and universities, you know, so it's a broad-based subject with that. Let me just get your take on
You know, immigration used to be sort of an off the table subject. You know, the broad majority of Canadians supported it. We're clearly seeing that support eroded right now. What's your take on why that's the case?
I think you're right. It wasn't, in a sense, an off-the-table subject. It's not because we didn't have high immigration, though. We had immigration rates of about 0.8% of the population for a decade and a half, and it was just kind of a slow-moving train that was...
behind the scenes, wasn't in the headlines of the newspapers, was very focused on a particular objective of trying to kind of raise average living standards in the population by raising the average skill of the population. So it was very much a skilled immigration system.
I think what's happened, especially in the post-pandemic era, is that there's been a reshifting of the immigration system and what it's trying to do. It's no longer focused on attracting and retaining high-skilled workers. It's much more focused on plugging holes in lower-skilled labor markets.
Yeah, and that has implications, obviously. You've been writing about them. And one is, you know, I'm so glad you have been writing eloquently about productivity. I mean, that's now, again, as the Bank of Canada says, we've got an emergency on a productivity per capita basis. But it comes directly back also to the subjects you work on, which is temporary visas. Who are we bringing in? I mean, it can't have all the same balanced kind of impact if I bring in someone who
without skills versus someone with skills. And as I say, you've been doing direct study on that. And I have been for decades. So within the economics literature, the question about what an optimal immigration policy looks like is very much focused not on immigrant settlement policies,
It's focused on immigrant selection policies. The reality, of course, for a country like Canada, with a very high standard of living, is that the supply of migrants that want to settle in Canada as new permanent residents far exceeds the absorptive capacity of the economy. What that means is that there's excess supply and policymakers can pick and choose who to
Who do we let in and who don't we? And of course, that's just a reality. You know, you have to, as soon as you prioritize one type of applicant over another, it means you're picking and choosing. And so the question for economists for many years has been studying, well, how do we do that? How do we...
And it's really not that different from a business who has multiple applicants for their job vacancy. You know, how do they pick and choose between them? They have imperfect information. Ideally, they want the most productive person. But in a job interview, it's hard to know who's going to be the most productive. And the immigration department's job is not really that different. It's a job of trying to predict who's going to be the most productive, given the characteristics they observe, which are often quite crucial.
crude measures of productivity, but that is what the job of immigration departments is.
Well, I think most Canadians would be surprised. They'd heard of this point system, if you know what I mean. Like, it's not their first subject, but they go, yeah, we're on a point system. And as you've written recently in the Globe and Mail, co-authored a column there was, you know, we used to be the envy of the world. But I think most Canadians would be surprised because they weren't consulted that that point system isn't in play any longer. Maybe you could elaborate on that.
I think it might be a little of an exaggeration to say it's not in play, but it has what it's not exclusively relied on in the way it was. So up to 2019, all economic class immigrants. So there are different categories of immigrants, but 60 percent of immigrants are entering as economic class immigrants and all.
And all of those immigrants were being selected through a system called the express entry system, which was using a single points grid to give people a score. And then it was cream skimming the applicants based exclusively on their scores.
It was setting a cutoff and just like a university, how they pick their applicants for admission into a university program. They look at high school averages and they say, here's the cutoff. And everybody with a grade above that gets in. The immigration department was doing the same thing. What happened after the pandemic is that a new program has been introduced that they're not relying on that system. Instead, the minister of the day is able to sort of pick and choose candidates.
the flavor of the month or whatever law business lobby group is lobbying and shouting the hardest, the loudest. And they can, they can, they can prioritize those individuals. And those tend to be, they have undoubtedly been individuals with lower income,
Because we see that every time they select a particular group, we see what the point levels were, and they're much lower. So they're lowering the CRS points in this new system. The name of the new system is category-based selection. So that was a policy that was introduced in September of 2022.
As I regularly say, there's only policy choices and then outcomes. Then you can decide whether you like the outcome in the end. So I want to talk about that economic outcome because it would seem a couple of things. It seems to me there's, and again, acknowledge that you've been writing about this, but I thought it's also for people easy to understand that.
And the rationale was we bring in a lot of people and GDP will go up. The economy will go up. And I said, well, how can that possibly be the goal? I'm someone who lived in India, by the way. And, you know, yeah, their GDP is doing pretty good, but their standard of living sure isn't. And to not make that link to standard of living, just as I say, it was the kind of thing that just gives me a head shaking, a headache and just, you know.
Is that a myth or am I off base or is, you know, when that becomes the only rationale, you know, on the economic side on, you know, there's the asylum seekers, refugees, et cetera, but on the economic side.
I think, you know, there's different ways I can respond to this. I'm not quite sure the best way, but I think the really important point here is that when you have an immigrant selection program, which is ultimately what the government has to do, you've got lots of applicants in the pool, you've got to pick and choose. When you pick and choose, you have to
decide how you're going to do it. The most reasonable way to do that is to set an objective, to say this is the objective. For economists, that's a mathematical function. You know, when you've done calculus, you know there's an objective function. You're going to maximize that function with respect to something. But the key is there has to be one objective. There's something called the Tinbergen rule. Tinbergen, Jan Tinbergen was the first Nobel Prize winner in economics.
And the Tim Morgan rule says that for every policy objective, you need at least one policy instrument.
If you have one policy instrument, like how many immigrants to admit, but multiple objectives, you're going to run into trouble unless those objectives through luck all just tend to be perfectly aligned. But the reality is that the objectives of immigration, there are many, but they're not well aligned. So, for example, trying to meet current labor market needs, which tend to be in low skilled occupations, is not well aligned with trying to leverage immigration to raise GDP per capita.
to raise the skills of the population. So if those are your two objectives, you say, well, I want to do both of those things. I want to meet current labor market needs and I want to raise GDP per capita. Then you pull the policy lever to raise GDP per capita, but you make the other things worse. So that's the dilemma we have. And I think the problem in Canada is what we have is that ultimately we don't talk enough about what the objective should be. And we've written a paper that argues the most reasonable objective
for economic immigration, not humanitarian immigration, but for economic immigration, is to try to raise the country's average standard of living, GDP per capita. And then we talk about how to do that. And the CDL Institute has put out a report that we wrote to a wider accessible audience today that's been released today that I encourage your listeners to read that talks about how to best do that.
And again, I want to come back because you've been writing about it. And as I alluded to earlier that Carolyn Rogers told us we had a productivity emergency. You know, if that was the goal, it would seem we'd have to go back to skills tests because you have to get above the Canadian average income, right, to improve productivity per capita. So, yeah, I'm still confused what our goal is. I hear what you just said, what it should or what if your economics was a goal, but it seems to be all over the map.
And I think it was the prime minister himself. You know, I don't want to politicize it too much because of a lot of reasons. But the prime minister itself said the temporary visa program was out of control. And I was shocked because it's going back a couple of years. I was shocked to learn they didn't know how many visas they were issuing. I thought, wait a second, you've got an immigration target.
But you literally don't know how many visas were out there and they'd only know after the fact, which, of course, makes it a little difficult for planning, you know. So, yeah, I just I find that whole system seems to have not worked at any real purpose other than we're letting a lot of people in.
I'm not sure what the goal was, you know, letting a lot of people in.
have been advocating for this for years, the growth in those non-permanent resident numbers. So we know sort of what's behind it. The reality of – and I should maybe also step back and make sure that, to be sure, the government knows how many permits are being issued. That we know for sure. There was never an issue about that. The issue is when they issue a permit, we're not really sure whether those –
Permits correspond one-to-one with people that are in Canada, that are living in Canada. You know, it's impossible an international student issued a permit, an approval to come to Canada to study as an international student, but decide not to come.
well then we're going to count them as part of the Canadian population when they're not actually here. That's possible. Our population numbers might, in that respect, be over counting the population. On the other hand, it could be that migrants have visas that expire and they don't leave.
And then we're not counting the population when we should be. So there is some fudge factor, some fuzziness in the estimates there. And ultimately, the reason why we have that problem is that unlike some countries, Australia is the model for this.
We don't track exits. You know, when you leave Canada, there's no paperwork to fill out. When you leave Australia, you know, if you've taken a flight out of Australia, you'll know there's a form. It asks you very specifically, where are you going? Why are you leaving? When are you coming back? Are you coming back? They collect wonderful data on exits of everyone, whether, you know, you're a permanent resident of Australia or not. Canada, we don't do that. So we don't, what we rely on is just like spiry dates of the visas to infer whether people have left. That might not be true.
Yeah, I can see that as a big problem. What about the whole, I mean, I hope more and more people are understanding this was a temporary visa problem, probably more so than an immigration target problem, you know, and that's what the government seems to have acknowledged recently by saying we're going to put a cap on it. So a few things around that. One, do you trust the cap? Do you think it's a good idea? Can they pull it off? You know, what are the implications there?
Economists never believe caps are a good idea. Caps are always a bad idea. I mean, you just think about like trying to regulate carbon emissions. You won't find an economist that thinks that a hard crap, that at least a cap where you can trade permits is one thing, but just a hard cap is a terrible idea. Why? Well, because governments generally aren't good at resource allocation. They aren't good at deciding where the labor is going to be more productive or where those carbon emissions are going to create
create the most value added to the economy. So, you know, as soon as you impose a cap on like study permits or work permits, you've got to decide, well, which companies get the visas that get the temporary foreign workers or what's the universities or colleges get them. And the,
That's hard to do. And so the government, with a cap on the study permits, what they did was they shirked their responsibility to decide which schools were going to get them. And they just passed it down to provinces, which I guess makes sense because education is the provincial jurisdiction. But provinces, at least the numbers I've seen in Ontario, have done a completely absurd job of allocating these. You know, 15% of the permits are going to universities.
So that really doesn't make sense if, and this is a big if, if the objective is to leverage immigration to raise GDP per capita, that doesn't make sense.
So caps are not a good idea. Coming back to kind of, well, what caused this huge surge in the non-permanent resident population? You're right. The kind of the talking points from the liberal government have been that, you know, that wasn't intended. Those numbers weren't those weren't targeted. That wasn't what we intended to do. It was something something independent of our policy. It's not our fault it happened.
I think that's not quite right. The reality is in Canada, we've moved increasingly towards, I could make this long, I'm going to try to make it as quick as possible, Mike.
Here's the story. We have moved towards a two-step immigration system. Didn't used to be like that. When my family immigrated to Canada, we landed at Pearson. We were new permanent residents the first day we landed in Canada. That's one-step immigration. Two-step immigration is you first come here on some temporary permit, and that is what's going to allow you to – so you kind of go through the first gate. The first gate is getting –
becoming a temporary resident, then that's going to allow you to get through the second gate, which is the transition to permanent residency. That's what people are aiming for. Permanent residency, not citizenship. People think that's not citizen. You know, you people, lots of Canadians. I lived in Canada for more than 10 years. I wasn't a citizen. It's permanent residency that matters.
So how do you make that transition to permanent residency? Well, the government has dramatically changed the rules there. It used to be this point system where it was very transparent and lower skilled migrants knew I had no chance of getting through that second gate. What's the point of me paying you ridiculous tuition fees at some substandard university or college?
to get through the second gate when I know I'm not going to get through it? Or what's the point of me accepting this really crappy job with really low wages and poor working conditions if it's not going to help me get through the second gate? And so what happened was after the pandemic, they changed the rules about who gets through the second gate. It looks much more like a lottery now. This categories-based selection system means that the minister every two weeks is changing who gets through. And so migrants say to themselves, well, I got a shot at this now.
And student recruitment agencies and worker recruitment agencies are telling migrants, come to Canada. And if you pay a lot of tuition or you work in those crappy jobs, you're going to have a chance to get through. And I think what that's done is it's lured large numbers of migrants hoping to make that transition to PR. And the problem is they're here. And for good reason, they...
are going to find it difficult to leave when their visas expire. And so then the question becomes, what happens to these folks? We undoubtedly are in the midst of a growing and surging undocumented population in Canada. And that's a big problem. That's a first-order problem for the economy. And so many other implications. As you were saying that, I'm going back to, have we really determined why we're letting these people
inviting people to come in. Have we really determined what the economic goal is? Is it an economic goal? I mean, I'm with you. It should be. That's what we've been sold. That's what, you know, the public's been told. But, you know, I'm looking at that university situation in Ontario.
my God, why didn't I go into business just setting up some cheap college that promised a pathway to permanent residency? Because I saw those tuition fees and then I compare them to your university, Waterloo, because you did, I think, the most in-depth study we've seen on that in Canada. You know, when you've started to track everybody at Waterloo and then you track these others and you go,
Remind me of the name, is it Catastoga College? Catastoga, yep. Yeah, that were charging $50,000, $60,000, which obviously they weren't selling an education. They were selling a pathway to permanent residency. But that wasn't the highest skilled. Those weren't the people who'd have the most positive impact on our overall economy. So, man, what a mess. So I think the really important point here is that trying to leverage immigration, right,
Whether changing the composition of the immigration inflow or the immigration rate, the number of immigrants, try to pull those policy levers to increase GDP per capita is really tough, really tough.
The literature overwhelmingly suggests that for the most part, immigration doesn't probably do a lot to GDP per capita. A relatively stable rate of like the numbers we were at, 0.8 percent, probably doesn't do much. When you go up to over 3 percent population growth like we've been seeing, it's undoubtedly it's contributing to the decline in GDP per capita. But for the most part, reasonable numbers doesn't do much.
However, what it does do and what we know from the economics literature is that it has big distributional effects.
What does that mean? That's economics lingo. But it crudely means there are winners and losers in the population. So who are the winners and losers? This is really important to recognize. To be a winner in the market, you want to make sure you're on the opposite side of every market from the newcomers. Where the newcomers are supplying things, you want to be demanding. What are immigrants supplying? Their labor.
And if it's cheap, low-skilled labor, you want to run any kind of a business that relies on low-skilled labor. There's going to be low costs of getting those folks.
And where immigrants are demanding stuff, then you want to make sure that you're supplying. So where immigrants are renting housing, you want to make sure you're a landlord. Where immigrants are buying mortgages, you want to make sure you're selling mortgages. Where immigrants need language trading, you want to make sure you're providing language. You want to be on the opposite side of every market. So then you can be a winner. But if you're on the same side of the market,
So if you're a recent immigrant who arrived, say, 10 years ago or five years ago, and you're living in an immigrant community where you're competing for rental housing with the newcomers, or you're competing for jobs in the same low-skilled sectors as the newcomers, there's going to be growing pains. You're going to feel that. And it's not surprising when you look at polling data where you see the highest increases in dissatisfaction with current immigration candidates among newcomers, among first-generation immigrants.
They're the ones feeling the pain. It's not, you know, the biggest push for the increasing temporary foreign workers numbers came from the Canada Business Council. I have Goldie Heider on record. I'm happy to share the video saying that Canada needs to remove all obstacles for business to access temporary foreign workers. That was only two years ago. I don't think he's making that point anymore, but that's what he was advocating for.
Right. And let's be clear about who's behind it. Let's be clear about who the winners are. And let's be clear about who's feeling the growing pains.
And speaking of losers, I mean, if you think we can't, you know, we need temporary workers because we're filling jobs no one else is filling. You know, we need them. Well, those are the jobs. Well, raise the price. Someone will fill it. So you're basically saying we're not raising prices. You know, we're not raising wages. So the existing workers, I can see, again, not doing any study, but the existing workers are the ones, hey, I'm not doing that unless you pay me $20 an hour. Well, no, I got somebody in. I'll just bring him in. We'll pay him $12. You know what I mean?
I can see them, Ali, your point really being the ones who pay a price. Right. No, I think that, I mean, I teach Econ 101 every fall term to about 800 incoming students to Waterloo. And Econ 101, that's sort of the bread and butter is the workhorse model of neoclassical economics is the demand and supply model. And a shortage in the demand and supply model is very simply defined. It's a situation where the demand for something is greater than the supply at a given price.
And if you have a situation where there's excess demand at a given price, what should happen is that that scarcity should lead the people trying to get whatever it is that's scarce to bid up the price, to bid it away from their competitors to get it. And so what companies should be doing is if there's scarce labor, they should be bidding up wages. But in fact, it's funny when you look at these sectors of the economy or occupations where
all this rhetoric around labor shortages is, for example, in the skilled trades, and you look at what's happening to wages, they're flat. There's no evidence of real wage growth.
So it really does fly in the face of this real narrative. I'm sure there are tight labor markets, but tight labor markets, at least if you're a worker, are not a bad thing. If I ask my students, when you graduate, would you rather to be in a situation where jobs are scarce or workers are scarce? None of those students will say they want...
They want to be in a situation where there's more workers than jobs. They say, we want to be where there's lots of jobs compared to workers. That's good. That's not something to worry about. That's something to celebrate. And it's really interesting to see some recent poll results, very recent, talking about the dissatisfaction of 18 to 34-year-olds. You know, I know housing is a big part of that, but not getting a summer job. And I don't want to oversimplify, but dissatisfaction.
this would be an example or, or, you know, we're, we're seeing it. I don't think it's been quantified how many young people, but they come on Tik TOK or something and say, I've put out 73 job applications and I can't get a job. Obviously that's frustrating, but it's, it's important to understand there could be relationships here that people should examine. And there are always consequences. I say just policies and they're going to be consequences. I don't want to run out of time without getting into one other quick subject, but first let's,
Let's sum up the immigration for a second and say, okay, I give you a magic wand. We're far down the road. We have some huge challenges. What would you start with? Returning, for example, to the point system, or is there something else that you think, one or two things? I just want to make sure people leave with that clear clarification. To make the point as strongly as possible, Mike, I'm going to give you one thing, and I think it really is the most important.
And it's really not, you know, usually when people ask, what would you, what's kind of your dream or your wish for a system? Often these are pie in the sky wishes. This is not. Why? Because it's literally returning to the system we used to have.
That's all I'm asking for. Let's go back to the way we used to do it. In 2019, we had a system that relied on this scoring system called the comprehensive ranking system to cream skin the applicant pool every two weeks. It was a predictable system. Immigrants, migrants could go online and they could see what their points were. If they found that their points were below the cutoff they needed to get admission, they could say, well, what if I improve my English language score a little bit, right?
What if I went and got another degree here or upgraded? How much would that push my score up? And so I would go back to that system. But not only that, I would improve it. So I was part of the consultations when that system was introduced in 2015. And one of my recommendations was I emphasized that the points grid can't be a static thing. You can't.
Do it once and forget about it. Where the point system comes from is statistical analyses of looking at the characteristics of migrants at the time they apply and predicting using what's called regression analysis to predict their earnings 10, 15, 20 years in the future.
But that's constantly changing. What characteristics, what fields of study or occupations are valued more is constantly adjusting. So we need to constantly update the points grid. And that's what I would like to see us do. Go back to relying exclusively on the points grid, but improve the points grid. I have all kinds of recommendations on how we can improve it. But for example, we don't make any distinction between immigrants' fields of study, the school they came from,
The earnings that they have, we don't like we have the earnings in Canada. We're not even using that information and deciding who to pick and choose. Right. Why not use that information to do a better job of selection? I think that's fair to the immigrants and it's going to lead to better outcomes for the economy.
No, that's well said. Well said. But I also want to recommend that, and I am really glad that you are putting out your work now and go to CD How, but go to, you know, you were just recently in the Globe and Mail, you know, and there's other outlets. I just would really recommend people have a look because no one's doing more in-depth research in this, as I say, for over 20 years, but with the data that I hadn't seen anywhere else.
So I really highly recommend it. I think we agree. What a key subject, as you've just said, you know, a myriad of implications economically. I'll add socially. Not you. But it's incredibly important stuff and we appreciate you finding time with us.
Yeah, so, you know, I'm an economist. For 20 years, I worked in this space of the economics of immigration and very rarely did any media outlet or people like you contact me. I wrote papers in academic journals and probably five to six people read these things on average.
the issues become bigger I've been pulled into this space that I don't really enjoy you know I'm not I refuse I keep a button of disclosure statement on my website I take no money for any research none I won't accept it for me even the CDI Institute they wanted to give me money I refuse it so I am due
am doing this because I care about immigration, right? I deeply care about immigration in this country. I'm an immigrant. I want to keep my economics hat on and I want to stay, I do not want to become a talking head that talks about every aspect of the economy and culture. But I will say this, I'll just say this, that I immigrated to Mississauga as a child, eight-year-old child. I grew up in a kind of
middle income neighborhood where the vast majority of my friends were immigrants themselves or their parents were immigrants. I think that Canada's record on immigration has truly been outstanding.
The way we've been able to maintain high immigration rates, we've had diverse populations of people becoming newcomers in Canada for decades, and we've maintained high public support. That's an incredible record when you look around the world.
I worry about the direction immigration is moving in. And I worry about, in particular, the way that we're selecting immigrants and we're focusing on these lower skill labor markets instead of trying to raise kind of the average skills of the population. I think that has important consequences. Great stuff. Thanks for having me on, Mike. I really appreciate it.