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Why do immigrants earn less in their first years in Canada?


During their first few years in Canada, immigrants typically earn less than those born here.


However, studies show that immigrants’ relative earnings rise in subsequent years as they gain “Canadian experience”, acquire language skills, and learn about local labour markets.


For example, during their first five years in Canada, immigrants who landed during the late 1970s had earnings that were 85 per cent of those of their Canadian-born counterparts.


After 11 to 15 years, their relative earnings had reached 92 per cent. The earnings of later immigrant cohorts were typically lower.


The earnings of immigrants who landed in the early 1990s were 60 per cent of those of their Canadian-born counterparts during their first five years in Canada, reaching 78 per cent after 11 to 15 years.


Immigrants’ earnings trajectories, and how these differ over the years, are best studied by means of longitudinal data comprising large sample sizes and information on socioeconomic characteristics, but most research is based on census data. This is because longitudinal data have only recently become available and contain relatively few socioeconomic covariates. Notably, Canadian longitudinal data do not allow researchers to take into account educational differences between immigrants and the Canadian-born.


In a 2008 study, researchers focused on young male immigrants, a very mobile group, and estimated that about one-third left during their first 20 years in Canada, more than half of that group leaving in their first year. Hence, much of the earnings gains with years since landing may result from a change in the composition of the cohort, a form of sample selection bias, not from a real increase in earnings.


A study conducted in the United States concluded that the higher probability of out-migration among low-wage immigrants systematically led past researchers to overestimate the wage gains of immigrants remaining in the United States. These findings paint a less optimistic picture of the economic outcomes achieved over time by immigrants in the US.


Contributors to the immigration policy debate in the US often cite the Canadian experience as a system where high-skilled immigration is actively encouraged. Whether a point system similar to that used by Canada would improve the economic outcomes of immigrants to the US remains an open question. However, establishing whether immigrant earnings growth in Canada is overestimated, as it appears to be in the US, will help inform policy makers in both countries.


The earnings growth of immigrants and the earnings differential between immigrants and the Canadian-born are estimated over the years since migration for three immigrant cohorts that have arrived since the early 1980s. The analysis provides little evidence of a bias in the immigrant-Canadian-born earnings gaps. Although lower-paid immigrants in the three cohorts are more likely to exit the cross-sectional sample, the same is true of the Canadian-born. That is, the earnings growth of both the immigrant and the Canadian-born cohorts is overestimated in cross-sectional data, by roughly the same extent.


Two papers based on the Survey of Labour and Income Dynamics (SLID), a six-year longitudinal panel of Canadian workers in which immigrants can be identified, found that there was little change in the wage gap between immigrant and Canadian-born men. Earnings growth was about the same for both groups over the five-year study period. Among women, an increase, rather than a decrease, in the unadjusted wage gap was observed, as earnings growth was greater among Canadian-born than among immigrant women.


A comparison of these results to those in the US suggests that immigrants to Canada display labour market participation patterns that are more similar to those of the native-born than would appear to be the case in the United States                        


                                                                                                                              – Statistics Canada

Posted: May 30, 2012

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