3240 Week 11 Exercises:

Textbook Ch 11
Review Questions
: 2, 3, 4, 6, 7, 8.
Problems: #
4, 6.
#2. Point System and its role in Canadian immigration policy:
 Implemented in 1967.
 To make the selection criteria more objective.
 Before that time, applicants from the US and Commonwealth countries, such as the United Kingdom, were heavily favoured over applicants from many developing countries.
 Since most of the native Canadians were either aboriginal or of European descent, whites were heavily favoured.
 The power of selection was supposed to be less subject to the preferences of government bureaucrats and more subject to transparent criteria that could be evaluated.
 To the extent that these criteria are applied, applicants are to be assessed according to their ability to succeed in the Canadian labour market.
 Ideally, the policy seeks to fill positions for which there is a shortage of qualified Canadian candidates.
#
3. Economic Assimilation for human capital earning function:
 After controlling for the standard, observable variables which tend to influence earnings, such as education and experience, the earnings levels of immigrants reach parity with those of native-born Canadians.
Page 2 of 5
 In other words, it is wage gains to experience spent in the host country above and beyond the gains to experience observed for natives.
 The interpretation of this economic phenomenon is that immigrants are expected to enter the Canadian labour market with some disadvantages compared to native-born Canadians, as reflected in the so-called entry effect.
 This might be thought of as the entry disadvantage or penalty.
 It is akin to competing in a race with a starting line well behind your rivals.
 As time passes, however, immigrants may experience greater returns to experience than do native-born Canadians, permitting them to catch up in terms of earnings.
#4
#4
“An increase in the immigration of low
“An increase in the immigration of low–skilled workers has an unambiguously adverse impact skilled workers has an unambiguously adverse impact on the wages of lowon the wages of low–skilled nativeskilled native–born workers” Diborn workers” Discuss. scuss.
 Immigration expands the supply of labour, and it might have an indirect effect of slightly expanding the demand for labour.
 A crucial, and often overlooked, variable is the degree of complementarity between the labour of natives and that of immigrants.
 In some cases, immigrants fill vacancies in the labour market, both in very highly skilled jobs and in modestly skilled jobs.
 To the degree that their services are complements rather than substitutes for native labour, immigration is economically beneficial.
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#6:
#6:
A steady decline in the entry earnings of immigrations, and slow rates of assimilation:
A steady decline in the entry earnings of immigrations, and slow rates of assimilation:
 Not fully understood.
 It is thought that the labour market conditions that prevail at the time of entry have some effect.
 Those immigrants are likely to be very sensitive to the business cycle, and more so than the stock of native-born Canadians.
 This development is all the more surprising in light of the fact that immigrants since the 1990s have been pretty well-educated (more so than their native-born counterparts), which is a result of the points system.
 They thus tend to have high values for observed skills.
 The research has demonstrated that immigrants receive very little remuneration for the experience that they obtained in their former countries.
 That experience is simply not recognized by Canadian employers. It is thought that the decline in entry earnings of immigrants can be partly attributed to changes in the source countries of immigrants.
 Many immigrants do not arrive with strong language skills in English or French.
 It is possible that many of them worked in environments and cultures that are very different from that in which Canadian labour markets operate, making them less desirable to Canadian firms until they have adjusted to our professional milieu, which can take a long time.
#8:
#8:
Highly educated individuals can earn higher salaries in the Unite
Highly educated individuals can earn higher salaries in the United States than in Canada, but d States than in Canada, but not every highly educated Canadian moves to the United States. Why?not every highly educated Canadian moves to the United States. Why?
 In the economic model of migration, all other factors held constant, one would expect the higher salaries paid in the US to attract many highly skilled Canadian workers to migrate.
 But there are all sorts of frictions that could occur that would work in the opposing direction.
 The greater the costs associated with migration, the higher the pay differential has to be in order to induce migration.
 These countervailing costs can take the form of family ties and both implicit and explicit costs of moving.
 There is also the non-pecuniary factor of preferences.
 Some individuals have strong preferences for either a particular region in Canada or the Canadian way of life and culture.
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Problem #4:
S: cW bP a e   
D: W P e      
e= log of employment
P=log of population
W=log of wage
1) Interpret b and β
b is the elasticity of labour supply with respect to the population, while β is the elasticity of
labour demand with respect to the population.
P P
e e
b S s
/
/


 ,
P P
e ed d
/
/


 
2) Solve for e and W.
c
a P b
W

  


(  ) (  )
*
c
a c b c P
e

  


  (   )
*
3) c  0.1,  0.3, β=0 and b=1
c
b
P
W






* (  )
c
b c
P
e






* (   )
Or,
e  a  P  0.1W
e  0.3W

0.4
( )
( ) 0.4 0


  
     
P a
a P W W and
0.4
0.1 0.3a 0.3P
e
 


 2.5
0.4
1
   


P
W
and 0.75
0.4
0.3
 


P
e
the values are -1/0.4 = -2.5 for the wage elasticity, and -0.3/-0.4 = 3/4 for the
employment elasticity. With this set of values, the immigration inflow has a
negative (and highly elastic) effect on wages, but a positive and inelastic
effect on employment. There is a strong supply shift (b = 1) and no offsetting
demand shift at all (β = 0).
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4) 3. 0 , 1. 0     c , β=1 and b=1
W P a e 1. 0   
W P e 3. 0   
0.4
( ) 0.4 0



    
a
a W W , and
0.4
0.3 0.1 0.4
0.4
0.1
0.4
0.3
0.4
0.1
0.4
0.1
0.4
0.1
a P
P
a a
a P
a
e a P
 
        




 
  
   
0.4
0.3a 0.1 0.4P
e
 


0, 1





P
e
and
P
W
Problem #6:
 Starting salary in the US: C$75,000 at the age of 25 until 65
 Starting salary in Canada: C$50,000 at the age of 25 until 65
 6 % grows each year.
1) PV of earning for both:
2) How much would a potential migrant have to value living in Canada in order to stay?
(LO5) The easiest way to address this problem is to calculate the discounted present value of the discrepancy in the value
of the two jobs. We can take this step because the time horizons and the growth rate in earnings are the same in each
case. The job in the US pays $25,000 more, and this stream of payments is augmented by 6% each year for a period
extending 40 years into the future. In the following year, for example, the discrepancy is $ 26,500, while in the
following year, it is $ 28,090. Applying the formula for calculating DPV, the first three terms are 25,000 +
26,500/1.05 + 28,090/(1.05)2. If we add up all 40 terms, we would have the amount by which the lifetime earnings
in the US exceed the lifetime earnings in Canada. We cannot use the approximation given by the formula for
calculating the discounted present value of a stream of payments paid in perpetuity, which is equal to simply the
payment divided by the interest rate, because the payment is not constant in each period.
Taking only pecuniary factors into consideration, the value of the Canadian job is the negative of this figure. Nonpecuniary
factors, such as family ties, working conditions and geographical preference, may weigh in the other
direction, however, encouraging this person to remain in Canada. He/she may have a partner with a good career in
Canada, which would constitute a pecuniary factor weighing against migration. There may also be very high
mobility costs. If so, we would expect this person to move sooner rather than later in his/her career.
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