Study: Why the earnings of new immigrants to Canada have deteriorated over time

The earnings of new immigrants to Canada deteriorated during the 1980s and 1990s because of a complex set of factors involving the value of foreign job experience, language abilities and nation of origin, according to a new study.

This study uses census data to evaluate the relative importance of a number of common explanations of why the entry earnings of Canada's immigrants have deteriorated over the past 30 years.

Immigrant men who arrived between 1995 and 1999 had estimated earnings in their first year in Canada that were on average 24% lower than their counterparts who arrived between 1965 and 1969, after adjusting for inflation. This is with comparable amounts of foreign experience and years of schooling.

Roughly one-third of the deterioration in the earnings of new immigrants appears to be the result of a decline in the value of foreign labour market experience. This decline has occurred almost exclusively among men from Canada's non-traditional source regions, which include Eastern Europe, Africa and Asia.

It may be that there is an issue regarding the valuation of foreign credentials in the Canadian labour market. However, this analysis suggests that the value of a foreign university degree has fallen little during the past 30 years. Hence, this factor does not contribute significantly to the understanding of the decline in entry earnings.

The study found little or no evidence to support the perception that the foreign education of Canada's most recent immigrant men was valued any less by Canadian employers than that of immigrants who came to Canada 30 years ago. This is true whether education is measured as completed years of foreign schooling or as acquired educational credentials from foreign institutions, such as high school diplomas and university degrees.

The study also found that the group of immigrants who arrived during the late 1990s came from different nations, and spoke different languages, than those of the late 1960s. Roughly one-third of the earnings deterioration was associated with these compositional factors.

A number of other factors may have also contributed to the earnings decline. One possibility is that immigrants could have experienced a deterioration in the earnings they obtained in their first year of work that mirrored the deterioration in the earnings experienced by young Canadian-born workers when they first entered the labour market. A deterioration in the earnings of new labour market entrants, which includes both young Canadian-born and new immigrants, may have contributed to the decline in immigrant earnings.

Value of foreign work experience has declined significantly

The value of foreign work experience in Canada's labour markets has declined significantly over the past 30 years.

Among immigrants who arrived in Canada during the late 1960s, an additional year of foreign experience raised their earnings by an estimated 1.5%. However, immigrants of the late 1990s obtained a return of only 0.3% on average for each additional year of foreign experience.

This decline occurred almost exclusively among men from Eastern Europe, Africa and Asia. Immigrants from Northern, Western and Southern Europe, as well as those from the United States, saw essentially no change in the returns to their foreign experience.

Immigrants from Eastern Europe, Africa and Asia who arrived in the late 1960s obtained, on average, a return of 1.1%. The return to foreign work experience for immigrants of the 1990s from these regions appears to have fallen to essentially zero.

On average, an additional year of work experience raised the earnings of traditional source-country immigrants who arrived in Canada in the late 1990s by 1.8%, down slightly from 2.0% for those who arrived in the late 1960s.

The return to an additional year of labour market experience for a Canadian-born man with the same level of experience as the average new immigrant was 3.5%.

The exact cause of this trend remains unclear. One possible explanation is that technological change has progressed differently in Canada than in the non-traditional immigrant source regions. As a result, the skills immigrants bring to Canada are less applicable in Canadian labour markets. However, other possible explanations exist outside the scope of this study.

No evidence that foreign education valued any less than in earlier decades

Unlike foreign work experience, there is little or no evidence that the foreign education of Canada's most recent immigrant men was valued any less in the Canadian labour market than that of immigrants of the 1960s and 1970s.

For example, on average, a four-year university degree from abroad raised the earnings of immigrants of the late 1990s by 38.0% above those of immigrants arriving in the same period with only a high school diploma. This increase was essentially unchanged from a return of 38.1% received by immigrants who arrived in the late 1960s.

The return to education among immigrants from Canada's non-traditional source regions has been lower than that of immigrants from Canada's traditional source regions for some time.

For example, between 1995 and 1999, the expected increase in earnings resulting from a university degree obtained in a traditional source region was 47.8%, compared with 36.2% if the degree was obtained in a non-traditional source region.

One possible explanation for this difference is that education from non-traditional source countries is less likely to be recognized by Canadian employers. The results, however, do not suggest that this is a new phenomenon.

Entry earnings are traditionally lower for men from Asia, Africa and Eastern Europe

Entry earnings have traditionally been lower for new immigrant men from regions such as Asia, Africa and Eastern Europe.

For example, on average over the past 30 years, new immigrant men from Asia had earnings in their first year in Canada that were 10% to 15% lower than immigrants from the United States with similar years of experience and schooling, and even lower than comparable men from Northern, Western and Southern Europe.

As the share of immigrants from regions with traditionally lower entry earnings increased, the entry earnings of immigrants as a whole declined.

Between 1965 and 1969, 70% of Canada's immigrant men were born in the United States or Northern, Western or Southern Europe, and only 21% in Eastern Europe, Africa or Asia. By the late 1990s, these proportions had almost reversed.

An important part of the explanation for the disparity in entry earnings between immigrants from Asia, Africa and Eastern Europe and the more traditional countries is the fact that the labour market return to foreign experience and schooling from Canada's traditional source countries has always been higher.

The changing composition of immigrants with respect to mother tongue was associated with the decline in earnings, in a manner similar to that of the changing composition by source region. Immigrant men with an English or French mother tongue have always had earnings that were significantly higher than immigrants with a foreign mother tongue.

This disparity in earnings exists after accounting for differences in labour market experience and education. The proportion of new immigrants with a foreign mother tongue rose during the 1980s and 1990s. This compositional shift is associated with the decline in entry earnings for immigrants as a whole.

Additional possible factors include differences in immigrants' familiarity with Canadian labour markets, particularly how to find jobs; differences in immigrants' access to social networks, which might be an important determinant of whether immigrants obtain jobs in high-wage firms or sectors of the economy; and discrimination. Identifying the role of these possible factors is beyond the scope of this study.

The research paper Explaining the Deteriorating Entry Earnings of Canada's Immigrant Cohorts: 1966 to 2000 (11F0019MIE2004225, free) is now available online. To access the Analytical Studies Research Paper Series, select Studies on the left side bar from the home page, then, under Browse periodical and series, choose Free and for sale. Under Series, select Analytical Studies Branch.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Abdurrahman Aydemir (613-951-3821) or Mikal Skuterud (613-951-3881), Family and Labour Studies Division.