The deteriorating economic welfare of immigrants and possible causes:
Update 2005
by Garnett Picot and Arthur Sweetman
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 262
Context
Host countries such as Canada look to the skills and initiative of
immigrants to promote economic growth. Immigrants, in turn, look to
the host country for opportunities to gainfully employ their skills
and abilities. These considerations are particularly important when
immigrants are highly educated. Host countries are increasingly seeking
highly-educated immigrants to drive economic growth in the "knowledge-based"
economy, and immigrants look to use their higher education levels to
achieve high economic standards of living.
However, if immigrants are unable to convert their training to productive
use, the expectations of both the host country and the arriving immigrants
remain unmet. Immigrant contributions to the host country, which are
central to the economic justification for relatively open immigration
policies, may not be fully realized. In light of these considerations,
there is considerable concern regarding the deteriorating economic outcomes
among recent immigrants over the past two decades.
Objectives
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.
Findings
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.
Data Sources: This study uses the data brought forward earlier by various studies.
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