Would an Increase in High‐Skilled Immigration in Canada Benefit Workers?

Abstract

This study examines the economic and welfare effects of raising the number of high‐skilled immigrants in Canada. It uses a life‐cycle applied general equilibrium model with endogenous time allocation decisions between work, education, and leisure. According to the simulation results, raising the number of high‐skilled immigrants would boost productive capacity and labour productivity but could lower real GDP per capita. In addition, by raising the supply of high‐skilled workers, more high‐skilled immigrants would reduce the skill premium and the return to human capital. This in turn would lower incentives for young adults to invest in human capital and have a dampening effect on the domestic supply of skilled workers. Finally, it is found that more high‐skilled immigrants would be welfare enhancing for medium‐ and low‐skilled workers but welfare decreasing for high‐skilled workers.