Study: Impact of immigration on labour markets in Canada, Mexico and the United States

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Immigration has tended to lower wages in both Canada and the United States, according to a new study. However, it was found that the impact of immigrants on the wages of domestic workers depends to a large extent on the skill mix of the newcomers.

A significantly higher proportion of immigrants to Canada are highly skilled. In 2001, around 4 in 10 individuals with more than an undergraduate university degree were immigrants in Canada compared to about 1 in 5 in the United States. This has had the impact of curtailing the earnings growth of the most educated Canadians relative to the least educated, the study found.

In the United States, however, the opposite has happened. A significantly higher proportion of immigrants to the United States have been much less skilled. As a result, these newcomers have depressed the earnings of low-paid Americans and increased the gap relative to the highest-paid.

In Canada, immigration has dampened the trend to higher earnings inequality but in the United States, it has exacerbated it.

The study, based on census data from each country relating to workforce participants aged 18 to 64, explored the impact of the immigration on each nation's labour market.

Between 1980 and 2000, immigration increased the male labour force by 13.2% in Canada and 11.1% in the United States, the study found. However, Mexico experienced a 14.6% loss in the size of its potential male workforce.

Inverse relation between immigrant-induced shifts in labour supply and wages

One of the central questions in the economics of immigration concerns the impact on the labour markets of countries that send and receive immigrants.

A key finding of this study is that there was a sizable, statistically significant, and roughly comparable inverse relationship between immigrant-induced shifts in labour supply and wages in each of the three countries.

In each, a migration-induced shift of 10% in labour supply was associated with a 3% to 4% change in weekly earnings in the opposite direction.

But, as the study found, the mix of skills was a factor, causing real weekly wages to decline in different skill groups in each country.

While the United States and Canada are two major host countries for immigrants in North America, Mexico is a source country of immigrants, almost all leaving Mexico for the US.

Therefore, while evidence from the United States and Canada shows the impact of immigration on wages in host countries, Mexico provides a mirror image of the impact of emigration in a source country.

In Mexico, emigration has resulted in a decline in the labour supply and, consequently, an increase in wages. The study found that the effect on Mexican wages was almost identical in scale, though the changes were in the opposite direction. A labour supply decline of 10% was estimated to induce a wage increase of 3% to 4%. The impact of emigration on the wages of those who stay in Mexico also depends on the skill mix of those who leave the country.

Different skill mixes are the result of immigration policies

The differences in skill mixes between Canada and the United States are the result of differences in immigration policies during the last four decades.

Canadian immigration policies since the 1960s have encouraged high-skilled workers to come to the country. During the same period, American immigration policy has emphasized family reunification, which resulted in a disproportionate number of low-skilled immigrants.

Significant illegal immigration to the United States since 1965 (an estimated 10.3 million as of 2005), more than half of which is estimated to have been from Mexico, has also contributed to the tendency for US immigrant workers to be lower-skilled than those who entered Canada.

Immigration to the United States, moreover, has tended to increase the supply of young workers; the opposite has been observed in Canada.

This study suggests that immigration played a role in the 7% drop in real weekly wages experienced by workers with more than a university undergraduate degree in Canada between 1980 and 2000. Over this period, the immigrant share of all workers with more than a university undergraduate degree in Canada increased. Between the 1986 and 2001 censuses, this share rose from 32.5% to 38.2%.

The study also suggests that, in the long run, low-skilled workers in Canada have gained relative to high-skilled workers. This has occurred not simply because disproportionately more highly educated immigrants to Canada have dampened upward pressure for the wages of high-skilled workers, but also because the share of low-skilled workers in the labour force has declined.

The net result is that migration-induced effects on the Canadian labour supply have served to reduce measured wage inequality between low-skilled and high-skilled workers. The weekly earnings gap of 38% between those who dropped out of high school and those with a university degree increased to almost 45% between 1980 and 2000. In the absence of immigration the study estimates this gap would have been 49%.

The story for the US labour market is different. The tendency for the supply of immigrant labour to the United States to be concentrated among low-skilled workers served to depress the wages of workers in the lowest skill groups.

Coupled with only a small dampening effect of immigration on the wages of highly-skilled workers, who saw their real weekly wages increase by 20% in the United States between 1980 and 2000, immigration served to magnify growth in US wage inequality between low-skilled and high-skilled workers over the same period.

In Mexico, however, emigration rates are highest in the middle of the skill distribution and lowest at the extremes.

As a result, international migration has increased relative wages in the middle of the Mexican skill distribution and lowered the relative wages at the extremes.

Paradoxically, the large-scale migration of workers from Mexico actually slightly reduced the relative wage of low-skill workers remaining in that country.

Most of these effects, however, were small when compared to actual wage changes and were consequently not the main explanation for the developments in earnings inequality in these three countries.

A summary of the research paper "A comparative analysis of the labour market impact of international migration: Canada, Mexico, and the United States" is available in the publication Update on Family and Labour Studies, winter 2007 (89-001-XWE, free), from the Publication module of our website. A complete copy of the research paper is available in English only at the following website (http://papers.nber.org/papers/w12327).

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