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Temporary foreign workers and firms: Theory and Canadian evidence

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  • Pierre Brochu
  • Till Gross
  • Christopher Worswick

Abstract

Temporary foreign worker (TFW) programs have grown considerably in size when uncapped. We develop a simple efficiency‐wage model to explain this phenomenon and examine the empirical evidence for it. We also use the model to evaluate the implications of TFW programs for domestic workers. In our framework, firms that have been unable to find domestic workers may hire TFWs at the wage previously advertised to domestic workers. Due to the lower outside option for TFWs than domestic workers, TFWs will exert more effort for the same wage. Firms would thus prefer to hire otherwise identical TFWs rather than domestic workers. Our model identifies an unintended consequence of a TFW program: since the repercussions of a failed domestic job search are less severe if a TFW may be hired instead, firms have an incentive to lower their wage offers made to domestic workers. Using Canadian data, we find that, relative to domestic workers, TFWs work longer hours, have lower rates of absenteeism and are less likely to be laid off, consistent with higher effort in our model. Moreover, for TFWs from home countries with a relatively high outside option, effort is lower than for TFWs from other countries. Résumé Travailleurs étrangers temporaires et entreprises: théorie et exemple canadien. En l’absence de plafonnement, les programmes de travailleurs étrangers temporaires (PTET) se sont considérablement développés. Afin d’expliquer ce phénomène et d’en examiner les preuves empiriques, nous avons développé un modèle simple de salaire d’efficience. Nous avons également utilisé ce modèle pour évaluer l’incidence des PTET sur les travailleurs domestiques. Dans notre cadre d’étude, les entreprises peinant à trouver une main d’œuvre locale peuvent embaucher des travailleurs étrangers temporaires au salaire préalablement proposé aux travailleurs domestiques. Compte tenu d’options extérieures plus faibles, les travailleurs étrangers temporaires déploieront davantage d’efforts pour le même salaire. Les entreprises préféreront donc embaucher des travailleurs étrangers par ailleurs identiques plutôt que des travailleurs domestiques. Notre modèle identifie une conséquence inattendue aux PTET: étant donné que les conséquences d’une recherche d’employés domestiques infructueuse sont atténuées par l’embauche de travailleurs étrangers temporaires, les entreprises sont incitées à diminuer les offres salariales proposées aux travailleurs locaux. En exploitant les données propres au Canada, nous avons découvert que les travailleurs étrangers temporaires travaillaient plus d’heures, avaient des taux d’absentéisme inférieurs et étaient moins susceptibles de se faire congédier que les travailleurs domestiques, conformément au concept d’effort accru développé dans notre modèle. En outre, pour les travailleurs étrangers temporaires originaires de pays à options extérieures relativement élevées, l’effort sera moindre que pour ceux provenant d’autres pays.

Suggested Citation

  • Pierre Brochu & Till Gross & Christopher Worswick, 2020. "Temporary foreign workers and firms: Theory and Canadian evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 871-915, August.
  • Handle: RePEc:wly:canjec:v:53:y:2020:i:3:p:871-915
    DOI: 10.1111/caje.12449
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    2. Fang, Tony & Xiao, Na & Zhu, Jane & Hartley, John, 2022. "Employer Attitudes and the Hiring of Immigrants and International Students: Evidence from a Survey of Employers in Canada," IZA Discussion Papers 15226, Institute of Labor Economics (IZA).
    3. Robert Falconer, 2020. "Family Farmers to Foreign Fieldhands: Consolidation of Canadian Agriculture and the Temporary Foreign Worker Program," SPP Briefing Papers, The School of Public Policy, University of Calgary, vol. 13(21), August.

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    More about this item

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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