The long-run impact of low-semi-high skilled labor immigration on economic growth: the case of Canada

Abstract

There is a paucity of empirical evaluations of the impact of immigration on economic growth, while the majority of prior research are theoretical. Nevertheless, when such studies do exist, they lack structural models and are often hindered by data restrictions. Neoclassical growth theories based on the Solow model hold that permanent immigration will generally reduce economic growth, especially when immigrants are less skilled or perfect substitutes than natives. Later theoretical studies argued that immigration can foster long-term growth only if it consists of highly skilled workers. In this context, this research examines the long-term impacts of low-semi-high-skilled immigrant labor and native-born Canadian workforce on economic development in Canada. Within the scope of this research, quarterly data for the years 2006-2022 in Canada are used to investigate how the presence of immigrant workers influenced overall economic growth. In the model examined, the dependent variable is considered to be real economic growth, while the independent variables are capital and employment. The employment variable is broken down into two categories: native-born Canadians and immigrant workers. According to the level of education and competence that immigrants possessed, immigrant employment is categorized as low-skilled, semi-skilled and high skilled workers. The series of workers born in Canada is incorporated into the model as a separate component so that it would be possible to examine the impact of employment in the appropriate manner. In addition to employment, Physical Capital, which is the most important factor in economic growth, is also included in the empirical model. In order to estimate the long-term parameters, the Vector Error Correction (VECM) and Dynamic Ordinary Least Squares Estimator (DOLS) are employed. The estimates revealed that a 1% increase in native Canadian employment raises real output by 0.69%; a 1% increase in low-skilled immigrant employment decreases real output by 0.10%; a 1% increase in the semi-skilled immigrant employment raises real output by 0.15%; a 1% increase in high-skilled immigrant employment raises real output by 0.26%. The results demonstrate that immigration can only stimulate long-term real output if the inflow consists of qualified immigrant workers.