It’s been roughly 10 months since Donald Trump became president again, and his policies, which include a trade war, have affected Canada in many ways. But a recent Trump announcement—that his administration will impose a higher application fee of US$100,000 for new H-1B visas (a temporary visa that allows employers to hire high-skilled foreign workers)—should make Canada a more attractive destination for highly educated immigrants.
Indeed, the 35-year-old H-1B visa program has been an important channel for U.S.-based technology firms (e.g. Amazon, Microsoft) to hire scientists, technologists, engineers and mathematicians (in other words, STEM workers) from outside the United States.
Trump’s new fee, meant to “protect American workers,” effectively amounts to an indirect tax on U.S. firms that typically hire foreign workers using the H-1B program. All other things constant, this indirect tax should reduce the demand for high-skilled STEM immigrants in the U.S. and encourage such individuals to look elsewhere for opportunities, including Canada.
In fact, Canada has been relatively successful in attracting highly-educated (B.A. degree or higher) STEM-trained immigrants. According to a new study published by the Fraser Institute, the number of immigrant STEM workers (as a share of the total STEM workforce in Canada) is actually higher than in the U.S. But there’s a crucial difference—the employment rate for highly-educated native-born Canadians exceeds that of highly-educated immigrants in Canada, while the reverse is true in the U.S. And highly-educated immigrants in Canada have a lower median employment income (on average) than highly-educated native-born Canadians while, again, the reverse is true in the U.S.
In other words, highly-educated immigrants in the U.S. do better, from an employment perspective, than in Canada.
Why should Canadians care?
Because employment income is closely linked to labour productivity, so it’s reasonable to infer that highly-educated immigrants in the U.S. make larger contributions (on average) to improving labour productivity compared to highly-educated immigrants in Canada. Put differently, the U.S. seems to attract the best and brightest (or at least better and brighter than Canada attracts). For decades, the ability of the U.S. to attract the best and brightest immigrants has helped fuel the technological dominance of the U.S., as evidenced by the rise of Amazon, Alphabet, Microsoft, Nvidia and other global tech leaders.
But things may be changing. In addition to Trump’s new H-1B visa fee, his administration has cut funding for scientific and medical research and clamped down on international student visas. Again, these moves present a real opportunity for Canada to attract and retain STEM talent.
To seize this opportunity, policymakers must act. For starters, the Carney government should reduce Canada’s federal business and personal top income tax rates, which effectively penalize productivity, and encourage the provinces to follow suit. Currently, high income-earners in the U.S. face lower tax rates than their Canadian counterparts. The Carney government should also eliminate the capital gains tax. These policy changes would enhance the incentives and capabilities of Canadian entrepreneurs to grow their startup companies into world-class competitors.
Prime Minister Carney has stressed the need to do “big things” to spur productivity and economic growth in Canada. Improving the rewards for successful economic performance, whether achieved by immigrants or native-born Canadians, should be at the top of Carney’s to-do list.
Steven Globerman is a senior fellow at the Fraser Institute.