Statistics Canada weighed in with its latest study on the brain drain last month, confirming some suspicions perhaps, but raising others and resolving little.
The evidence in Brain Drain and Brain Gain: The migration of knowledge workers from and to Canada, clearly shows Canada suffers a net loss of highly educated workers to the United States, but it also explored the extent to which that loss is offset by immigration into Canada from the rest of the world.
The conclusion: for every degree holder leaving Canada for the United States, there are four university degree holders entering Canada from the rest of the world.
The brain drain is not the end of the world and there’s no need to panic, said Finn Poschmann, a policy analyst with the C.D. Howe Institute in Toronto. But it is definitely an issue that holds back the Canadian economy, he added.
“There is a very large number of skilled workers coming into Canada that fully offsets the outflow, but there is more to this than just net balance.”
The churn is highly costly to Canada, he said. Highly educated, highly paid people leave but many of the people who replace them start at lower levels, and language, certification and training barriers slow their full entry and contribution to the economy.
The study addressed this by taking a look at expected lifetime earnings of computer scientists and concluded that those who immigrate at a relatively young age integrate well and actually earn more than Canadian-born computer scientists after the age of 45. Those immigrating at older ages tend to have more difficulty.
“Hence, in high-demand occupations, there is no evidence that the labour market discerns qualitative differences between immigrant and Canadian-born workers,” the report states.
Another recent study from Statistics Canada, South of the Border: Graduates from the class of ’95 who moved to the United States, found the number of grads from 1995 who relocated to the U.S. and still lived there in 1997 was 1.5 per cent of the nation’s post-secondary graduates. The percentage is higher among those with PhDs, with 12 per cent remaining in the U.S.
It also showed a disproportionate number of emigrants from that class ranked themselves in the top 10 per cent of their class.
Among those who moved to U.S. for work-related reasons, the most common reasons cited were greater availability of jobs and higher pay. A much smaller percentage said high Canadian taxes were a reason for them leaving.
But Poschmann said people factor tax rates into their take-home salary and still find the U.S. much more favourable. Somebody who starts at $80,000 a year is already taxed at the top rate in Canada, while it is a very different story in the U.S.
Compensation may continue to draw people to the U.S., but differences in taxation may be overstated, said Michael Thompson, vice-president, North American Reward Consulting for the Hay Group.
“I don’t believe wages will ever get to the same level as in the U.S. because there are some fundamental differences.” A larger market with more options for employees automatically creates upward pressure on wages, for example.
Compensation will continue to attract people to the U.S. but Canada is starting to catch up a little, he said. Canadian businesses are becoming more aggressive and offering more and better stock options, which have become of greater value after recent changes to the way they are taxed in Canada.
“Canada treats exercise gains more favourably than in the U.S.,” said Thompson, because in Canada they are treated as if they are capital gains, while in the U.S. they are treated as regular income.
“For the most typical stock option exercise gains, taxes are lower in Canada than in the U.S.”
His research also shows that when total tax burden is taken into account, entry level professionals are often better off in Canada than in the United States, particularly if they plan on moving to high-tax markets such as New York, Los Angeles or Philadelphia.
“The problem is the earnings gap is still really big. If you’re an entry level professional you’re still better off to stay in Canada. But as you start to progress in your career the gap gets bigger.”
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