Using two very crude methodologies, this paper presents two estimates of the
output and productivity gains arising from interprovincial migration in Canada. The first
methodology uses the impact of interprovincial migration on earnings to estimate the
gains from migration. The gains in 2006 are estimated at about $413 million in labour
income and $779 million in GDP, the latter equivalent to 0.05 per cent of GDP. The
second methodology uses inter-provincial labour productivity differences. In 2006, the
estimated total change in nominal output as a result of interprovincial migration was
$1,966.4 million, equivalent to 0.137 per cent of GDP. About 70 per cent of the gains
were from the reallocation of workers and 30 per cent from employment increases.
The gains to aggregate productivity from interprovincial migration based on the
methodologies discussed above are not huge, although they are likely underestimated for
a number of reasons. Importantly, however, the estimated annual output gains from
migration are positive and cumulate over time. Migration should be recognized as a
contributor to aggregate productivity growth.
One concrete suggestion to increase labour mobility would be the creation of an
independent agency for the development and dissemination of LMI along the lines of the
Canadian Institute for Health Information (CIHI). Both federal and provincial
government play a role in the LMI area, but their efforts are often uncoordinated and
duplicative. A non-governmental agency funded by both levels of government could
potentially invigorate the LMI field and make Canadians more aware of employment
opportunities throughout the country.
In terms of new policies to foster interprovincial mobility, this paper also
proposes that the federal government establish a tax credit for expenses associated with
job search in other provinces. Moving expenses are currently deductible from income.
But the expenses associated with initial job search, such as travel and accommodation
expenses, are currently not covered. Their coverage would reduce the after-tax cost of
interprovincial job search and hence provide an additional fiscal incentive for workers to
seek better employment opportunities in other provinces. The actual costs of such a
program would be small. A ballpark estimate of the cost of the initiative might be in the
range of $15 to $25 million.
Conclusion
This paper has made the case that productivity is our economic destiny and that
Canada’s dismal productivity performance, both from a historical and international
perspective, therefore represents our biggest economic challenge. It then put forward
three specific policies to improve Canada’s productivity performance: foster the diffusion
of best-practice technologies; remove the provincial sales tax on purchases of machinery
and equipment; and promote interprovincial movement of workers by improving labour
market information, removing professional barriers to labour mobility, and establishing a
tax credit for interprovincial job search. The short-term costs of these policies would be
greatly outweighed by the long-term benefits.