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Temporary Foreign Workers and Firms: Theory and Canadian Evidence

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  • Pierre Brochu

    (University of Ottawa)

  • Till Gross

    (Carleton University)

  • Christopher Worswick

    (Carleton University)

Abstract

The goal of our paper is to better understand the economic implications of Temporary Foreign Worker (TFW) programs as well as comprehend the underlying reasons for the rapid expansion of the number of TFWs hired by employers under the Canadian program brought to light in 2014. We present an efficiency wage model that allows for the possibility that a firm, unable to find a worker after advertising for a period of time, may hire a TFW at the advertised wage. Due to the assumed lower outside option for the TFW than the domestic worker, the TFW will exert higher effort than a domestic worker even if the TFW is paid the same wage as would have been paid to a domestic worker. In equilibrium, lower wage o ers are made to less-skilled domestic workers when a TFW program of this kind is in place. The model also implies higher unemployment rates for domestic workers after the introduction of a TFW program. Our empirical analysis is based on the confidential master files of the Canadian Census (1991-2006) and the Labor Force survey (2006-2013). We find that TFWs in Canada work longer hours, have lower rates of absenteeism, and are less likely to be laid off, consistent with higher effort in our model. Moreover, TFWs work at lower wage rates than domestic workers even for similar job characteristics, which is also a prediction of our model.

Suggested Citation

  • Pierre Brochu & Till Gross & Christopher Worswick, 2016. "Temporary Foreign Workers and Firms: Theory and Canadian Evidence," RF Berlin - CReAM Discussion Paper Series 1628, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
  • Handle: RePEc:crm:wpaper:1628
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    References listed on IDEAS

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    Cited by:

    1. David A. Green & Christopher Worswick, 2017. "Canadian economics research on immigration through the lens of theories of justice," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1262-1303, December.
    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

    Keywords

    temporary foreign workers; guest workers; efficiency wage; hours; wages; absenteeism; job transitions;
    All these keywords.

    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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