Bring Back the Head Tax (Sort of): A Proposal on Immigration

Immigration policy is the thing right now, south of the border, what with Bush's "comprehensive immigration reform" proposal. In Canada, it is one of those tempting big issues that no respectable person is supposed to talk about for fear that race riots would immediately ensue on Eglinton Avenue.

From what I understand, the economic case for immigration is a powerful one. The immigrant presumptively benefits, since otherwise they wouldn't have come (people make mistakes, but in the aggregate they balance out). People in the receiving country will lose if their skills are substitutes for those of the immigrant, but will benefit if their skills are complementary. In a diverse economy with a well-developed division of labour, far more people will have complementary skills to substitutionary ones (and economic growth will make this increasingly the case). Economically, the limiting factor is fixed natural capital, of which Canada has a lot relative to its population. So, to the extent people interact voluntarily through the market, immigration is good.

However, people don't just interact voluntarily though the market. Some people commit crimes and become net recipients of the benefits of the welfare state, thereby impoverishing the receiving population. More subtly, too large a group of unassimilated immigrants can undermine the economic, cultural and political institutions that made the receiving country desirable in the first place.

So there are two tasks of a good immigration policy. First, the total number of immigrants must be sufficiently limited that they can be assimilated over the medium term without detrimental change to the institutions of the receiving country. Second, given this constraint on the total number, the immigrants who will provide the most benefit should be the ones chosen.

On the second point, Megan McArdle makes the useful point that scarce goods are best allocated by the market. She proposes "auction[ing] off various tranches of visas, classed not by type but by length of stay." I think we could be more market-oriented than that and still avoid the obvious accusation that we are only letting the rich in. Decide on how many people we want to let in for a year. Divide that number by the Canadian population and allocate every citizen a number of people-days. People-days can be banked for as long as desired or transferred to any Canadian individual, non-profit or for-profit enterprise, either for money or as a donation. If you donate your people-days to a refugee-oriented charity, you get a generous tax credit; otherwise, you get what the market can bear. Excluding tourist visas, the only way to get into the country is with the requisite number of people-days. Permanent residency status is abolished. After five years, you can apply for citizenship, but on the condition you renounce your past citizenship. The government can exclude people who have committed certain crimes, or just by name if it has security reasons it doesn't wish to disclose. The current economic class, family class and refugee process would be abolished and the federal government's role would otherwise be limited to specifying the total, maintaining records and enforcement. Since ease of assimilation has external benefits and language is the only proxy we are likely to use for this, we should require two people-day credits per day for anyone without fluency in French or English.

Inevitably, there would be a market for people-days. Enterprises who wanted particular employees could just purchase the units for the people they wanted. People who wanted family members to come could save up their units or buy them. Do gooders would be responsible for deciding which refugees could come, and would have to make choices. The economic rents arising out of the scarce good of being able to come to Canada would be internalized for Canadians and distributed equally among them, which is how things should be.

Approximately 4 million people immigrated to Canada between 1981 and 2001, giving an average of 200,000 a year. As a result, the most recent census in 2001 showed 18.4% of the population as foreign-born. Since 2000, the targeteted levels for new permanent residents have been 220,000 annually: see 2005 Annual Immigration Plan. Just over half were economic immigrants, with the remainder either family reunification or refugees. These ratios are set by policy, although the government can't completely control the number of refugees. In addition, there are 90,000 temporary worker permits per year and 130,000 student visas.

Take 220,000 for annual permits. Permanent residents should be the equivalent of five annual permits, so we get a total of 1.3 million annual permits. There were 28 million citizens of all ages in 2001. Let's say we allocate for all citizens, giving the benefit of minor children's share to their guardians. That gives everybody about 17 person days every year if we want to keep roughly the current aggregate level.

Update: I've rethought the abolition of permanent residency status. There shouldn't be such a strong material incentive to choose citizenship. So my amended proposal is that after being here 5 years legally, a person gets permanent residency status. If they never obtain citizenship, they can trade the stauts in for a one-year transferable credit.