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Temporary foreign workers and firms: Theory and Canadian evidence

Author

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  • Brochu, Pierre
  • Gross, Till
  • Worswick, Christopher

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 offers 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 Labour 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

  • Brochu, Pierre & Gross, Till & Worswick, Christopher, 2016. "Temporary foreign workers and firms: Theory and Canadian evidence," CLEF Working Paper Series 6, Canadian Labour Economics Forum (CLEF), University of Waterloo.
  • Handle: RePEc:zbw:clefwp:6
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    File URL: https://www.econstor.eu/bitstream/10419/203337/1/CLEF-006-2016-Fall-Brochu-Gross-Worswick.pdf
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    References listed on IDEAS

    as
    1. Djajić, Slobodan & Michael, Michael S. & Vinogradova, Alexandra, 2012. "Migration of skilled workers: Policy interaction between host and source countries," Journal of Public Economics, Elsevier, vol. 96(11), pages 1015-1024.
    2. Pierre Brochu & David A. Green, 2013. "The Impact of Minimum Wages on Labour Market Transitions," Economic Journal, Royal Economic Society, vol. 123(12), pages 1203-1235, December.
    3. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
    4. Schmidt, Christoph M., 1997. "Immigrant performance in Germany: Labor earnings of ethnic German migrants and foreign guest-workers," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(Supplemen), pages 379-397.
    5. Dominique M. Gross & Nicolas Schmitt, 2012. "Temporary Foreign Workers and Regional Labour Market Disparities in Canada," Canadian Public Policy, University of Toronto Press, vol. 38(2), pages 233-263, June.
    6. Lemieux, Thomas & Riddell, W. Craig, 2015. "Top Incomes in Canada: Evidence from the Census," CLSSRN working papers clsrn_admin-2015-12, Vancouver School of Economics, revised 07 Jul 2015.
    7. Michel Beine & Serge Coulombe & Wessel N. Vermeulen, 2015. "Dutch Disease and the Mitigation Effect of Migration: Evidence from Canadian Provinces," Economic Journal, Royal Economic Society, vol. 125(589), pages 1574-1615, December.
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    More about this item

    Keywords

    temporary foreign workers; guest workers; efficiency wage; hours; wages; absenteeism; job transitions;

    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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