2 Recent trends in immigrant worker assimilation in Canada

View the most recent version.

A basic theory of immigrant assimilation emphasizes the difficulties experienced by new immigrants in finding employment in their host country. Immigrants, who may face linguistic, information and social barriers, initially have fewer employment opportunities and receive lower wages compared with the Canadian-born residents. As they become more knowledgeable about the labour-market conditions in their new country, acquire more country-specific skills and establish an employment record, their earnings begin to rise and the slope of the immigrant earnings profile is often steeper than that of the Canadian born. Eventually many immigrants may actually do better than the Canadian born with similar characteristics.

The economic performance of immigrants to Canada in the past 25 years has been a subject of numerous studies with mixed results. Immigrants to Canada are generally noted to be more educated but have less work experience compared with persons born in Canada (Frenette and Morissette 2003). Increasingly, immigrants to Canada come from 'non-traditional' sources and are members of visible minorities.¹ Baker and Benjamin (1994) find that, similar to the U.S. experience, the immigrants who arrived in Canada during the 1970s were not as successful in integrating into the Canadian labour market as those who had arrived in the previous decade; the entry earnings and assimilation rates of the former were considerably lower. They conclude that their picture of immigrant experience in the Canadian labour market is "fairly pessimistic" (p. 400). Grant (1999), on the other hand, shows that immigrants who came to Canada during the 1980s had better fortune than previous cohorts; the entry level earnings were about the same at the beginning and end of the decade, and the assimilations rates of immigrants in the 1980s were higher than the assimilation rates experienced by their predecessors.

Frenette and Morissette (2003), who use census data covering the years from 1980 to 2000 to analyse the convergence rates of immigrant and non-immigrant earnings, argue that the relative entry earnings of immigrants declined drastically during this period, and this trend was only partially offset by the greater relative earnings growth of recent immigrants. Despite an increasing number of university graduates among immigrants, the relative earnings of immigrants did not improve from 1990 to 2000, and the low-income rates among immigrants rose substantially by the end of the decade.

The deterioration of immigrant entry earnings in Canada is further documented by Aydemir and Skuterud (2005), who explore its causes using the same census data as the previous study. They find that about one third of the deterioration in immigrants' entry earnings can be explained by the shifting ethnic composition of immigrant cohorts. Although they find little evidence of the decline in the returns to foreign education, they find a strong evidence of the decline to the foreign labour-market experience, which may account for somewhere between one quarter and one half of the overall deterioration in the entry earnings of immigrants.

In sum, the picture emerging from these and other studies seems to show the immigrants' integration into the Canadian labour market is becoming increasingly difficult. These results raise further questions, which so far have not been answered. In particular, have these difficulties translated into growing inequality among immigrants? Have falling entry earnings been accompanied by increases in earnings instability among immigrants? What was the impact of changes in immigrant cohort composition on the changes in earnings inequality and earnings instability since the early 1980s? Although the immigrant wage dynamics are a very important indicator of immigrant economic progress, the picture is not complete without looking into other aspects of immigrant earnings dynamics, such as earnings inequality and earnings instability.

The distinction between current (cross-sectional) inequality and long-term inequality, however, is crucial in the analysis of earnings inequality and earnings instability. Changes in earnings inequality are usually related to fundamental skill-based technological changes, which make certain skills obsolete while creating a demand for new skills (worker attributes). Changes in earnings instability, on the other hand, are mostly related to increased competition, institutional changes or changes in trade regulations.

Clearly, a snapshot of earnings inequality obtained from cross-sectional data does not distinguish between permanent and transitory components of earnings, so the source of current earnings inequality cannot be identified. Such separation can only be possible with panel data models; some of such models relevant to this study are discussed in the next section.

¹ The Employment Equity Act defines visible minorities as "persons, other than Aboriginal peoples, who are non- Caucasian in race or non-white in colour."