Firm Characteristics and Immigrant Wage Outcomes in Canada

The earnings outcomes of recent immigrants to Canada are considerably below those of similarly skilled native-born workers and these gaps rarely fully dissipate over time. A few recent studies examine the importance of unobserved firm-level wage premiums in explaining immigrant-native wage gaps. These studies find that the sorting of immigrants into low wage establishments explains a significant portion of the initial earnings gap between immigrants and native-born workers and that movements to higher wage firms over time partially explains why immigrant wages catch up to those of the native born. Likely due to a lack of detailed information on firm attributes, very little is known about the role of observed firmlevel characteristics in immigrant wage outcomes. This paper focuses on the relationship between observable establishment-level characteristics and the relative wage outcomes of immigrants using linked Canadian employee-employer data from Statistics Canada’s Workplace and Employment Survey (WES) for 2005. We augment a human capital model with a rich set of observed establishment-level characteristics to identify the precise establishment attributes driving firm-specific wage premiums and the establishment characteristics associated with unobserved worker-firm match quality across immigrants and the native born. We find that, while several observed establishment characteristics are associated with firm pay premia, the average skill level of employees at a firm plays a particularly important role in the sorting of immigrants across establishment. Recent arrivals to Canada are sorted into establishments with lower average skill levels, which is associated with lower wages. Such sorting is concentrated among immigrants from non-traditional source countries. With time in Canada, immigrants move to establishments with higher average skill levels.