Brain Drain And High Taxes Essay, Research Paper

Brain Drain and High Taxes:

Is there a correlation?

Introduction:

Campaigners against high taxes use the problem of brain drain as the perfect scapegoat to portray themselves as defenders of national interest. Brain drain is a pejorative description of the tendency for skilled workers to seek employment away from their own country. Canada can relate to the brain drain problem and its worst enemy is the United States. The drain of knowledge started off as only a little trickle. But it became an issue of interest by the early 1990’s, as there was evidence of Canada becoming a net loser of skilled workers to the United States, even though Canada was also a recipient of skilled workers on a worldwide basis. “Taxation is testing the allegiance of some of Canada’s best and brightest”, claims John Roth who is the vice-chairman and chief executive officer of Nortel Networks (Canada Newswire, 1999, page1). A network design and engineering company like Nortel Networks has to deal with a shortage of skilled high-tech workers in Canada and thus blindly point the finger at high taxes to be the cause of this problem. Hence, clearly high-taxes have become a perfect excuse for those who are trying to avoid dealing with the real reasons behind the brain drain problem.

Referring to the statement made by the Canadian Alliance Leader, Stockwell Day that, “High taxes are pushing some skilled workers to the U.S” (Canada NewsWire, 2000, Page1). It clearly shows that, the above individuals have not taken into mind the correlation between the brain drain and other factors, such as Canadian public sector cutbacks, the lack of professional and skilled occupations available with higher salaries, and the insufficient amount of investment put into research development, which also have a major role to play. Realistically, the tax differential is not a major issue for Canadians who have moved or who are planning to move to the United States. And despite all the myths and research that claim high-taxes to be the primary cause for Canada’s best and brightest to cross the border, this so-called tax advantage from a move to the United States may not be very significant at all.

In order to clear up the misconception of taxes having to be the major cause for the brain drain, many articles have referred to a survey conducted by the PricewaterhouseCoopers and ComputerWorld Canada in September 1999, to back them up. More specifically, journalist Murray G. Dobbin wrote an article on the “Brain drain- nonsense”, and used this survey to strongly prove that the tax level in Canada has nothing to do with why people immigrate to the United States. The survey was conducted by asking high tech workers to list all the factors that they will take into consideration when looking for another job. And the results show that taxes did not even make it into the top ten considerations. The main concerns to the individuals in the survey were to do with the way their employer respected and supported them. Which was then followed by concerns to do with sufficient health care benefits, paid training and if the company was offering the latest technology for them to work with. Thus, the most significant reasons for Canadians high-tech workers to want to emirate to the U.S. had to do with factors related to the attitude of employers. “It is not surprising that those same employers look around for something else to blame. And as they are already on record as wanting to ‘down-size’ government social programs and income redistribution, why not blame taxes?” claims Dobbin and is evidently to case for many.

The cause for concern:

Based on the knowledge that,

“Emigrants to the United States are more than twice as likely to hold an university degree than are immigrants to Canada. However, because of the overall greater number of immigrants, there are four times as many university degree graduates entering Canada from the rest of the world as, there are university degree holders of all levels leaving for the U.S” (Education Quarterly Review, 2000, page 8).

So why then do we have to be concerned about the brain drain issue if Canada is not actually losing that many skilled workers to the United States? The concern lies in the fact that, those that are leaving are mostly from high-technology industries, which include engineering, computer science and communications. Also many workers employed in hospitals and schools in Canada are leaving as well. Consequently, it is necessary to focus on the reasons why such emigration occurs in the above-mentioned industries, as they are all vital pillars that hold up the Canadian Economy.

When dealing with the outflow of Canadian skilled workers, it not only deals with a loss to the Canadian knowledge-based economy, but it also implies a loss in societal investment made by the Canadian Government. Comparing the amount of investment in skill development, “Canada ranks first among the G-7 countries when it comes to education spending” (HRDC and Industry Canada, 1999, Page 5). With all the money invested, it should be a concern to the Canadian Government if all its profits, which are in the form of skilled workers, are leaving for the United States.

Furthermore, the likelihood of having a Canadian leave, based on his or her education level needs to be observed as well. A National Graduate Survey in 1995 claims that, ” About 4,600 Canadian post-secondary graduates in 1995 were living in the U.S. two years later” (HRDC and Industry Canada, 1999, Page 15). And what is more concerning is, based on the above survey 42% of graduates who moved to the United States for work-related reasons was ranked in the top 10% of their class, while 81% were in the top quarter of those who left. More so, the survey depicts a further trend in the proportion of Canadian graduates who moved. The proportion of graduates who did move that happen to have a degree in health, math, engineering and applied sciences was above average. Thus, clearly it is a cause for concern when Canada starts to loose its best and brightest to the United States after all the effort Canada took to educate them.

Questioning the presence of a real tax advantage:

Consequently, arguments against a correlation between the brain drain and high taxes are demonstrated in: Toronto Star, November 6th, 1999, which reports a study conducted in 1998 by Michael Wolfson and Brian Murphy for Statistics Canada. They set about to compare the disposable incomes (i.e. what was left behind for consumption and saving when all the taxes and deductions were completed.) of Canadian and American families.

This study asserts that, ” Families .living in the United States are not necessarily better off in terms of disposable income, than their Canadian counterparts” ( Speirs, 1999, page 1). Further investigation into the problem led the two authors to believe that the first thirty five percent of Canadians in the sample were better off in absolute terms than the Americans studied. One may argue the possibility of this happening by offering evidence of Americans being paid a higher salary than Canadians on average. But what about realizing that there are more persons in the United States than Canada who are extremely rich, and so it is possible for the income average to be raised up much more that that of Canada. Hence, there is clearly room for a lot of misconception regarding the so-called tax advantage of moving to the U.S.

Following, would it be incorrect to assume that there may be if any an insignificant tax advantage from moving south? Those who have already moved seem to become sadly aware of this only after all the dust has settled. The Toronto Star conducted an interview with a registered nurse who was originally from Toronto and now works in a Kansas Hospital. Now earning around $27,500 U.S by working in Kansas and comparatively paying less taxes and rent than in Toronto, the above individual finds herself paying more in medical and malpractice insurance on top of it all. Furthermore, the Toronto Star states that, ” Overall, she says her expenses may total less, but she’s not as far ahead as she expected- and she misses the quality of life she was able to afford in a Canadian city” (Speirs, 1999, page 2). Although the above example refers to only an individual and may not properly represent the overall picture, what needs to be made clear is as follows. She maybe making more money and overall be saving a little more than compared to before, but is that tax advantage really worth losing out on having a better quality of life, such as a safer neighbourhood and a cleaner environment.

Canadian advocates to tax cutting have taken for granted the advantage of living in an egalitarian society (i.e. a society that asserts equality of mankind). And further making the mistake of putting Canada and the United States into one big picture. How is this possible when they are two totally different countries all together? The Canadian tax and transfer system attempts to redistribute wealth in an attempt to even out the extremes between the rich and the poor.

” In Canada, governments tax upper middle-income earners and the rich much more stiffly, and go easier on those with lower incomes. The poor, and those in the lower middle-income ranges, end up with more in their pockets in this country than they do in the States” (Speirs, 1999, page 1).

Furthermore, what needs to be realized is that nearly half of Canada’s tax money is going into paying off an interest on an accumulated public debt incurred by government spending in the past, while the remaining goes to investment and public services. Canada and the United States may be neighbours, but they are two totally different societies facing totally different problems. America has a greater amount of individuals who are extremely rich along with a larger population overall, which enables it’s government to reap much more in income taxes from which more attractive salaries and investment into research and development can be offered. Evidently, tax cut advocates need to realize this distinction before starting to compare tax rates in Canada and the United States.

Only after taking into consideration the amount of real goods and services each unit of money can buy, which is also known as purchasing power, a proper comparison can be made between the United States and Canada with regard to the amount of taxes they both pay.

With the use of the measurement of the purchasing power parity between Canada and the United States, which is estimated to be $1.25 Canadian can roughly purchase as much as $1 American, Statistics Canada was able to compare the amount of income that was going into taxes and social transfers and deductions. The following was one of the many results that were obtained. “A Canadian family with two earners and two children making $75,000 a year would pay 23.6% in taxes and deductions” while “A similar American family making a comparable $60,000(U.S.) would pay 21.6%” (Speirs, 1999, Page 2). Is this 2% change the great tax advantage that tax cuts advocates are claiming to be present?

Canadian Immigration Laws:

Also, when addressing the brain drain problem, there are Canadian immigration laws that need to be brought to light as well. ” Traditionally, most people leaving Canada for the United States applied for permanent immigration” and “Temporary visas had limitations, such as restrictions on the number of renewals possible” (Education Quarterly Review, 2000,page 10). Persons who left Canada with unknown intentions of returning, and lived outside of Canada for more than two years are referred to as permanent emigrants. But the number of such skilled workers leaving for the United States on permanent immigration permits has not become all that noticeable during the last few years when compared to the early 90’s. Continuing, temporary emigrants are Canadians who, have lived outside of Canada for less than two years with an unknown intention of coming

back, or are Canadians who have lived outside of Canada for less than six months with the intention of coming back home. This option of temporary migration needs to be looked at closely as there is a growing trend to it. As reasons to this may possibly be hidden under the easy access to apply and extend temporary work permits to the United States.

By using the North American Free Trade Agreement (NAFTA) as a useful stepping-stone, skilled workers in Canada are able to easily gain entry into the United States when having qualified for American jobs. The Human Resources Development of Canada and Industry Canada claims that, “Evidence suggest that NAFTA and other temporary visas have become the instrument of choice for skilled Canadians to enter the U.S. to work” (1999, page 10). The above facts come from a detailed survey conducted on Canadian graduates in the year 1995 that moved to the United States. Referring to the pie chart created from this survey, graduates who moved to the U.S. with the use of NAFTA visas amounted to 72%, while 18% of Canadians graduating in 1995 used other temporary visas to gain access to the U.S. Also, the substantial easing of entry requirements under the NAFTA has offered Canadians to keep renewing their visas indefinitely. One could raise doubt on the reliability of the information on the total number of temporary immigrants from Canada. But, ” Based on the best available data, we estimate that the total number of temporary skilled emigrants to the U.S. ranges between 10,400 and 16,450″ (HRDC and Industry Canada, 1999, page 12). Hence, it is clear that the flexibility of temporary visas play an important role in adding to the problem of brain drain. Canada needs to look closer at its immigration laws and possibly become more in control of its immigration laws for Canadians as a whole.

A loss to Canada’s knowledge-based economy:

There has been a great demand for skilled workers all across the world, most of which was focused on the United States. Workers with post-secondary diplomas or degrees are required to meet the demand for skilled workers. The article on brain drain by the HRDC and Industry Canada claims that, “Canada has the highest post-secondary enrolment in the world” (1999, Page 5). Which came about only with excessive government spending on education during the early 90’s. If so, why then is Canada faced with an unpleasant outflow of skilled workers when the presence of a growing demand for them within particular industries and occupations exists. ” The software Human Resources Council of Canada estimated a shortage of 20,000 computer programmers (Parsons 1996), paralleled by an estimate of 190,000 vacancies in the information technology sector in the United States (Miller 1997)” (HRDC and Industry Canada, 1999, Page 9). Thus, it is no wonder that Canadian graduates are attracted to the higher paying occupations over in the States, which offers a higher likely hood of being hired as well.

In 1997, HRDC and Industry Canada observed the trend of skilled permanent emigrants to the United States by occupation. The results show that, of all skilled workers who immigrated permanently to the United States 60% of them were represented by executives and health professionals. Which did the next largest group represented by engineers, computer and natural scientists follow. The above are individuals who are members of knowledge based industries and are essential in any economy if there is a hope for growth. Further more, ” During the 1990’s, there was a 19 to 1 ratio of physicians leaving versus entering Canada in the bilateral exchange with the United States, and similarly a 15 to 1 ratio of nurses..” (Education Quarterly Review, 2000, Page 17). Clearly, it could be argued that, the lack of investment for research and development along with founding to the above industries has caused an outflow of Canadians to the U.S. Skilled workers in knowledge-based industries find the U.S. more attractive mainly because of the amount of founding available and its attractive salaries. The Canadian government needs to find a way of keeping its skilled workers within as the facts prove that, “Canada suffers a net loss of skilled workers to the United States in several key knowledge-based occupations” (The Daily, 2000, Page 1). And not only is it just skilled workers that are lost, but it’s a loss in Canadian investment as well.

Conclusion:

Finally, it can be said that the issue of the brain drain is far more complex than it first may appear, as there are a lot of critical issues that need to be focused on. Unfortunately for Canada, the majority of those who moved to the U.S were heavily composed of better-educated, high-income earners who mainly represented the prime working age group. Those who moved to the U.S. seemed to be influenced by better employment opportunities, attractive salaries, new and improved technology at the workplace and lower tax rates. But as formerly proved, lower taxes in the U.S. has not appeared to be a significant factor in the decision making of Canadians who plan on moving south. The controversy of high Canadian taxes should not be the main concern in the brain drain issue, as there are many more important problems that act in correlation to it and are of greater importance. In an attempt to ease the brain drain flow it is advised to focus on methods that will keep Canada’s skilled workers at home. Perhaps an attempt to encourage more transfers into knowledge-based industries and creating more challenging job opportunities for Canadians is one answer. Also, it is important to understand the real issues hidden behind the brain drain problem before accepting the assumptions that are simply thrown out there as scapegoats for other problems

Work Cited.

“Brain drain and brain grain: The migration of knowledge workers into and out of

Canada” The Daily 24 May. 2000 Online posting. 2 Nov.2000 (http://www.statcan.ca/daily/english/000524a.htm.)

“Canada’s Tax Regime Drives out ‘Scarce Skills’” Canada Newswire 29 Apr.1999

Online posting. 2 Nov. 2000 (http://www.canadiansocialresearch.net/taxes3.htm.)

Dobbin, Murray G. “Brain drain-nonsense: The tax grass is greener theory doesn’t wash.” Online posting. 2 Nov. 2000 (http:/www.straightgoods.com/item80.asp.)

Education Quarterly Review, 2000, Vol.6, No.3. “Brain Drain and Brain Gain: The

Migration of Knowledge Workers from and to Canada.” Statistics Canada

Catalogue no.81-003.

Human Resource Development Canada (HRDC) and Industry Canada. 1999.

“International Migration of Skilled Workers: Facts and Factors.”

Speirs, Rosemary. “Tax Surprise: Most of us pay less than Americans in Canada, it’s

only the better off who folk out more.” Toronto Star 6 Nov.1999. Online posting 2 Nov. 2000 (http://www.canadiansocialresearch.net/taxes.htm.)