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The Deteriorating Economic Welfare of Immigrants and Possible Causes: Update 2005

  • Picot, Garnett
  • Sweetman, Arthur

This paper reviews the increase in the earnings gap between immigrants and Canadian-born over the past two decades, and the current explanations of this labour market deterioration among recent immigrants in particular. The paper also outlines the rising gap in low-income rates between immigrants and non-immigrants. Like previous research, the paper concludes that the earnings gap at entry has increased for immigrants entering Canada during the 1990s, as compared to those of the 1970s. Furthermore, the gap in the low-income rate has been increasing. The rate of low income has been rising among immigrants (particularly recent immigrants) during the 1990s, while falling among the Canadian-born. The rise in low-income rates among immigrants was widespread, affecting immigrants in all education groups, age groups, and from most source countries (except the "traditional source regions"). Immigrants with university degrees were not excluded from this rise in low-income rates, in spite of the discussion regarding the rising demand for more highly-skilled workers in Canada. As a result of both rising low-income rates among immigrants, and their increasing share of the population, in Canada's major cities virtually all of the increase in the city low-income rates during the 1990s was concentrated among the immigrant population. Also reviewed here are the explanations discussed in the literature for the deterioration of immigrant economic outcomes. Three major sources are identified as being empirically important, all of which follow from declining labour market outcomes. First, the change in the characteristics of immigrants (e.g., from different source regions, rising levels of educational attainment, etc.) appears to have accounted for about one-third of the increase in the earnings gap at entry (i.e., the gap between immigrants and comparable Canadian-born). Second, decreasing economic returns to foreign work experience appears to play an equally large role. Third, there has been a general decline in the labour market outcomes of all new entrants to the Canadian labour market, and when new immigrants arrive in Canada they, regardless of age, appear to face a similar phenomenon. Other possible explanations are also discussed. Importantly, one potential factor that does not appear to be behind the decline is a reduction in the economic return to education. Immigrants, on average, do have a somewhat lower return to education obtained prior to immigrating (although not to education obtained once in Canada), but this has not changed much over the past two decades.

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Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2005262e.

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Date of creation: 27 Jun 2005
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Handle: RePEc:stc:stcp3e:2005262e
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  1. Peter S. Li, 2003. "Initial Earnings and Catch-Up Capacity of Immigrants," Canadian Public Policy, University of Toronto Press, vol. 29(3), pages 319-337, September.
  2. Aydemir, Abdurrahman, 2003. "Effects of Business Cycles on the Labour Market Assimilation of Immigrants," Analytical Studies Branch Research Paper Series 2003203e, Statistics Canada, Analytical Studies Branch.
  3. Paul Beaudry & David Green, 1997. "Cohort Patterns in Canadian Earnings: Assessing the Role of Skill Premia in Inequality Trends," NBER Working Papers 6132, National Bureau of Economic Research, Inc.
  4. Baker, Michael & Benjamin, Dwayne, 1994. "The Performance of Immigrants in the Canadian Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 369-405, July.
  5. Kevin M. Murphy & W. Craig Riddell & Paul M. Romer, 1998. "Wages, Skills, and Technology in the United States and Canada," NBER Working Papers 6638, National Bureau of Economic Research, Inc.
  6. Richard B. Freeman & Karen Needels, 1993. "Skill Differentials in Canada in an Era of Rising Labor Market Inequality," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 45-68 National Bureau of Economic Research, Inc.
  7. David E. Bloom & Morley Gunderson, 1991. "An Analysis of the Earnings of Canadian Immigrants," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 321-342 National Bureau of Economic Research, Inc.
  8. J.B. Burbidge & L. Magee & A.L. Robb, 2001. "The Education Premium in Canada and the United States," Quantitative Studies in Economics and Population Research Reports 364, McMaster University.
  9. Crossley, T.F. & McDonald, J.T. & Worswick, C., 1999. "Immigrant Benefit Receipt: Sensitivity to the Choice of Survey years and Model Specification," ANU Working Papers in Economics and Econometrics 1999-370, Australian National University, College of Business and Economics, School of Economics.
  10. Ana Ferrer & David A. Green & W. Craig Riddell, 2006. "The Effect of Literacy on Immigrant Earnings," Journal of Human Resources, University of Wisconsin Press, vol. 41(2).
  11. Mary L. Grant, 1999. "Evidence of New Immigrant Assimilation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 930-955, August.
  12. Chiswick, Barry R, 1978. "The Effect of Americanization on the Earnings of Foreign-born Men," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 897-921, October.
  13. Joseph Schaafsma & Arthur Sweetman, 2001. "Immigrant earnings: age at immigration matters," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 1066-1099, November.
  14. Morissette, Rene & Frenette, Marc, 2003. "Will They Ever Converge? Earnings of Immigrants and Canadian-born Workers over the Last Two Decades," Analytical Studies Branch Research Paper Series 2003215e, Statistics Canada, Analytical Studies Branch.
  15. Hou, Feng & Picot, Garnett, 2003. "The Rise in Low-income Rates Among Immigrants in Canada," Analytical Studies Branch Research Paper Series 2003198e, Statistics Canada, Analytical Studies Branch.
  16. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1, December.
  17. Bloom, D.E. & Gunderson, M., 1989. "An Analysis Of The Earnings Of Canadian Immigrants," Discussion Papers 1989_18, Columbia University, Department of Economics.
  18. Borjas, George J, 1985. "Assimilation, Changes in Cohort Quality, and the Earnings of Immigrants," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 463-89, October.
  19. Sweetman, Arthur, 2004. "Immigrant Source Country Educational Quality and Canadian Labour Market Outcomes," Analytical Studies Branch Research Paper Series 2004234e, Statistics Canada, Analytical Studies Branch.
  20. James Ted McDonald & Christopher Worswick, 1998. "The Earnings of immigrant men in Canada: Job tenure, cohort, and macroeconomic conditions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(3), pages 465-482, April.
  21. Abdurrahman Aydemir & Mikal Skuterud, 2005. "Explaining the deteriorating entry earnings of Canada's immigrant cohorts, 1966 - 2000," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 641-672, May.
  22. Abdurrahman Aydemir, 2003. "Effects of Business Cycles on Labour Market Assimilation of Immigrants," Labor and Demography 0309010, EconWPA.
  23. Geoffrey Carliner, 1981. "Wage Differences by Language Group and the Market for Language Skills in Canada," Journal of Human Resources, University of Wisconsin Press, vol. 16(3), pages 384-399.
  24. Abdurrahman Aydemir, 2003. "Effects of Business Cycles on Labour Market Assimilation of Immigrants," Labor and Demography 0309009, EconWPA.
  25. Ana Ferrer & W. Craig Riddell, 2008. "Education, credentials, and immigrant earnings," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 186-216, February.
  26. Picot, Garnett, 1998. "What is Happening to Earnings, Inequality and Youth Wages in the 1990s?," Analytical Studies Branch Research Paper Series 1998116e, Statistics Canada, Analytical Studies Branch.
  27. James Ted McDonald & Christopher Worswick, 1997. "Unemployment Incidence of Immigrant Men in Canada," Canadian Public Policy, University of Toronto Press, vol. 23(4), pages 353-373, December.
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