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1. Introduction
2. Declining entry earnings of immigrants to Canada: A literature review
3. Data sources and demographic variables
4. The changing characteristics of entering immigrants
5. Entry earnings trends over the 1991 to 2004 period
6. The effect of changing characteristics on rising entry earnings during the 1990s
7. Why did entry-level earnings deteriorate from 2000 to 2004?
8. Conclusion and discussion

1   Introduction

This paper focuses on the earnings at entry to Canada of successive cohorts of entering immigrants over the 1990s and early 2000s. It asks if the changing characteristics of immigrants contributed positively to improving economic outcomes for immigrants observed during the late 1990s. The paper also asks what role the information technology (IT) downturn during the early 2000s played in the renewed deterioration in economic outcomes for immigrants during that period.

Earlier research documented, and largely explained, declining entry-level earnings throughout the 1980s and early 1990s. Some improvement was observed in the late 1990s, both in this paper and earlier analyses of earnings and low-income rates. This improvement coincided with a significant change in the characteristics of immigrants—rising education, more immigrants in the skilled class and in engineering and IT occupations—as well as an improvement in the economy.

Earlier research also showed that the rising educational attainment of entering immigrants and increasing number in the skilled economic class had relatively little positive effect on chronic low income among immigrants entering during the 1990s, or on the likelihood of entering or exiting low income. But one would have expected these changes in these two characteristics to have positively influenced earnings. The research on low income by necessity focused on outcomes at the bottom of the earnings distribution only. This paper extends that research. It asks what happened to entry earnings across the entire distribution during the 1990s, and why.

The paper then moves to the early 2000s, asking if entry earnings of new immigrants continued to improve over this period, and if not, why not.

2   Declining entry earnings of immigrants to Canada: A literature review

Employment earnings of immigrants is the most studied area of immigrant economic integration in Canada. Early findings indicated that newly arrived immigrants have lower earnings than comparable non-immigrant workers, but their initial earnings gap narrows significantly as they adjust to the labour market in the receiving society (Chiswick 1978, Meng 1987). More recent research has suggested that the initial earnings gap may not close as quickly as earlier thought, even among groups entering during the 1970s (Hum and Simpson 2003). Moreover, these gaps increased in the 1980s and 1990s. Subsequent research indicated an emerging trend during the early 1980s of declining earnings among successive waves of immigrants relative to the Canadian born (Bloom and Gunderson 1991, Abbott and Beach 1993). As a result, a number of studies have begun to ask if the decline was associated primarily with recessions or with the changing mix of immigrants by source country, and if this decline abated during the late 1980s (McDonald and Worswick 1998, Baker and Benjamin 1994, Grant 1999).

Some studies conclude that the decline in entry-level earnings of immigrants continued through the early 1990s (Reitz 2001). Research studies using even more recent data observe some improvement during the late 1990s (Green and Worswick 2002, Frenette and Morissette 2003). Others note that although there has been a large decline in entry-level earnings, the rate of growth in earnings with years in Canada is faster than among earlier cohorts (Li 2003).

Recently, a number of studies have taken a close look at the rise in the earnings gap between recent immigrant cohorts and the Canadian born (Aydemir and Skuterud 2005; Green and Worswick 2002; Ferrer, Green and Riddell 2003; Ferrer and Riddell 2003; Schaafsma and Sweetman 2001; Sweetman 2004). These studies point to issues such as the changing characteristics of entering immigrants, education quality, language skills, credentialism and the returns to years of schooling, declining returns to foreign labour market experience, and a general deterioration in the outcomes for new labour market entrants, of which immigrants form a part. See Picot and Sweetman (2005) for a review of these explanations.

Focusing on low-income rather than earnings, Picot and Hou (2003) conclude that immigrant low-income rates were on a continuous, long-term upward trend over the 1980-to-2000 period (abstracting from business cycle effects). At business cycle peaks, successive entering immigrant cohorts had successively higher low-income rates, even though the educational level of each successive cohort was rising. The rise in low-income rates was widespread, occurring among 'recent' immigrants from all age groups, whether they spoke an official language or not, in all family types, and at all educational levels. The gap in the low-income rate between recent immigrants and the Canadian born was highest among university graduates, particularly those with engineering or applied science degrees. Source region did matter, however: the source regions with the largest increase in the share of the immigrant population (Africa, and South, East and West Asia) also experienced the most rapid increase in low-income rates. Even so, changes in the characteristics of immigrants—language, education, age, source region—accounted for less than half of the overall rise in the low-income rate.

In a later paper, Picot, Hou and Coulombe (2008) found that low-income rates among entering immigrants—those in Canada for five years or less—did not improve after 2000 and, if anything, deteriorated. Low-income rates among entering immigrants were roughly 2.5 times those of the Canadian born through the 1990s, and they rose to around 2.7 to 2.9 from 2000 to 2004. The paper also found that the rise in educational attainment and share in the skilled economic class only marginally improved low-income outcomes during the immigrants' first few years in Canada.

The change in earnings and low-income rates among successive cohorts of entering immigrants over the 1975-to-2000 period is summarized in Table 1.

3   Data sources and demographic variables

This study uses Statistics Canada's LAD-IMDB database that combines the Longitudinal Administrative Databank (LAD) and the Longitudinal Immigration Database (IMDB). LAD is a random, 20% sample of the T1 Family File, which is a yearly cross-sectional file of all tax-filers and their families. Individuals selected for LAD are linked across years to create a longitudinal profile of each individual. IMDB contains immigrant landing records and annual tax information for all immigrants who have arrived since 1980. LAD-IMDB is produced by matching the two databases, with the result that 20% of all immigrants on IMDB are identified on LAD. The LAD-IMDB allows comparisons of known immigrants and other Canadian tax-filers.

We only include immigrants aged from 20 to 54 at time of entry to Canada. The dependent variable in most models is the natural logarithm of annual earnings. There is a significant amount of information on immigrants at landing from the landing records. In our descriptive tables and multivariate models, we use the following demographic variables of immigrants:

1. Immigrant cohort, defined as all arriving immigrants who were in Canada for one full income-tax year. Hence, for example, immigrants arriving throughout 1992 would be considered to be in the 1993 cohort, since 1993 was their first full year of earnings. We focus on the 1991-to-2005 entering cohorts.
2. Years since immigration.
3. Age at landing, converted to potential labour market experience abroad.
4. Place of residence in each tax year, grouped into 13 categories: Montréal, Toronto, Vancouver and the 10 provinces (excluding the three aforementioned cities in their respective provinces).
5. Family structure in each tax year, grouped into four categories: single, lone parents, couples with children, couples without children present.
6. Self-reported official language ability at landing: speak at least one official language or speak neither official language.
7. Immigrant class: family, business, skilled class principal applicants, skilled class spouses and dependents, refugees, and other immigrants (backlog, live-in-caregivers and so on).
8. Education at landing, grouped into five categories: less than 11 years of high school, 11 or 12 years of high school, some postsecondary, bachelor's degree, and master's or doctorate degree.
9. Intended occupations, grouped into six categories: management; information technology (IT) professionals (including IT professionals, as well as electrical and electronics engineers); engineers (excluding electrical and electronics engineers); other professionals (occupations usually requiring university education or college education, and which are related to natural and applied sciences, health, social science, education, government services and religion, art and culture); sales and services; and other occupations.
10. Immigrant source regions, grouped into eight categories: United States; Caribbean, Central and South America; Northern, Western and Southern Europe; Eastern Europe; Africa; South Asia; East Asia; other Asian countries; and other countries.

Since the data can only identify immigrants entering Canada since the 1980s, we cannot separate immigrants entering Canada prior to that time from the Canadian born. Hence, the 'comparison group' includes the Canadian born plus immigrants in Canada for 10 years or more. It is well known that immigrants in Canada for longer periods of time more closely resemble the Canadian born regarding their economic outcomes than do more recent immigrants. ¹  However, the use of the comparison group is restricted to a few descriptive tables. All models include a sample of immigrants only, and the focus is on their earnings during the first 2 full years in Canada.

4   The changing characteristics of entering immigrants

The immigrant selection system was altered in 1993 to increase the points for the more highly educated in particular. As well, the priority for economic class immigrants was increased, and emphasis on the family class was reduced. Furthermore, during the information technology (IT) boom of the late 1990s, increased emphasis was placed on selecting IT professionals and engineers.

These initiatives were very successfully implemented. While the overall level of annual immigration remained at around 225,000 over the 1990s, the number of immigrants with university degrees rose from around 10,000 annually in the early 1980s to about 41,000 by 1995, and then it rose dramatically to about 78,000 by 2000, remaining stable after that time (Chart 1). The number in the skilled economic class doubled from 60,000 annually in the late 1980s, to around 120,000 by 2000 and it remained at that level into the early 2000s (Chart 2). For the skilled principal applicants—the group evaluated in the selection points system—the number with 'intended' occupation at the time of entry listed as engineering or IT professions rose from only a couple of thousands through the 1980s, to about 9,000 by 1995, to 25,000 annually by 2000 (Chart 3).

To provide a benchmark regarding the size of this increase, we turn to census data on immigrants and data on graduates from Canadian universities. These data indicate that, during the early 1990s, the Canadian university system provided more potential labour market entrants in engineering and the IT professions than did immigration, but by 2000 the opposite was the case: immigration had become a larger supplier of new human resources in these fields than the university system.

In 1990, based on the field of study of the highest university degree held by entering immigrants, about 5,500 entering immigrants were engineering graduates, as compared with about 9,700 who graduated from Canadian universities. By 2000, far more engineering graduates were entering Canada through immigration (17,000) than were graduating from the Canadian university system (11,400). A similar story holds true for computer science graduates: by 2000, immigration was providing more computer scientists than was the Canadian university system (Table 2).

Hawthorne (2006) found that of all persons in Canada trained as IT professionals in 2000, fully 22% had immigrated during the previous five years; the corresponding number for engineering was 20%.

5   Entry earnings trends over the 1991 to 2004 period

Following a significant recovery in the late 1990s, entry-level earnings—defined as average annual earnings during the first two full years in Canada—declined between the 2000 and the 2004 entering cohorts in both relative (to the Canadian born) and real terms (Charts 4 and 5, and Table 3).

One of the advantages of the Longitudinal Administrative Databank is the ability to focus on small groups of entering cohorts. Sample sizes are provided in Text table 1. During their first two full years in Canada, men in the 1991 entering cohort earned 54% of that of the Canadian born of the same age. Little change was observed until the mid-1990s, when this number started to rise. Among the 2000 cohort it had reached 65%, but fell back to around 54% for the 2002-to-2004 cohorts, in spite of the fact that the entering cohorts of the 2000s were much more highly educated than those of the early 1990s. Among the 1992 entering cohort, 26% held degrees; among the 2004 entering cohort it had risen to 61%. Women did not experience the recovery in the late 1990s, but they did register a decline in the 2000s. Earnings at entry were at about 56% of those of the Canadian born up to 1997, and then they fell to 53% among the 2004 entering cohort.

6   The effect of changing characteristics on rising entry earnings during the 1990s

How much of the improvement during the 1990s (among men) was related to changing characteristics, particularly the change in the distribution of the education and skilled class variables? To test this we set up a regression with log annual earnings as the dependent variable. The sample includes immigrants aged 20 to 54 at time of landing who entered Canada since 1980. Earnings during the first 10 years in Canada are included, except for more recent cohorts, where less than ten years' data are available. The independent variables include education, immigrant class, potential foreign work experience ²  and work experience squared, a knowledge of French or English language dummy variable, years since migration, annual cohort, immigrant class, province and city dummy variables, source region, intended occupation, family type, and a detrended regional unemployment rate ³  for prime-aged workers to account for business cycle effects. Cohort and years since migration are interacted to allow different earnings for different cohorts. Individuals with positive earnings in any year are included in the sample. Regressions are run separately for men and women. The regression coefficients are as expected (see Text table 2).

To generate the raw data in the first column of Table 4, the model is run with only cohort, years since migration and cohort and years since migration interacted (Model 1, Text table 2). The model is then run controlling only for education and immigrant class (Model 2, Text table 2) to generate the data in the second column of Table 4. Model 3 is run, controlling for all characteristics described above, resulting in the data in the third column of Table 4.

The results suggest that, evaluated at mean earnings, the change in characteristics did substantially improve the entry earnings of immigrants between 1991 and 2000. In the raw data, entry-level earnings for men increased by approximately 27% over this period. Controlling for education and immigrant class—i.e., holding these characteristics fixed—one sees only a 12% increase in entry-level earnings, Hence, the changing characteristics accounted for over one half of the increase, approximately 15 percentage points (27% minus 12%).

Among women, there was no change in entry-level earnings between 1991 and 2000, but holding characteristics fixed, one would have seen a 0.10 decline in the natural logarithm of earnings (roughly a 10% decline in earnings). Hence, the change in characteristics was associated with a 10% increase in entry-level earnings.

Improved economic conditions during the 1991-to-2000 recovery and expansion would also have contributed to the increase in entry earnings. A detrended regional unemployment rate for prime- aged workers was included in the regression to account for improving labour market conditions over the 1991-to-2000 period. ⁴  When controlling for changing labour market conditions and holding immigrant characteristics fixed (fourth column in Table 4), mean entry earnings are seen to improve 3% for men, and to decline 10% for women over the period. These results suggest that of the 27% increase in mean entry earnings over the 1991-to-2000 period, changing characteristics accounted for perhaps 14 percentage points (27 - 13) and increasing economic conditions accounted for a further 10 percentage points (13 - 3). Among women, changing characteristics are seen to improve earnings by 6 percentage points (0 - [-6]), and improving economic conditions by 4 percentage points (-6 - [-10]).

These results are significantly different than those reported in the earlier literature, where changing characteristics produced little change in the likelihood of entering or exiting low income, or of being in chronic low income.

There may be a couple of reasons for the differing findings. First, low-income data are based on family income, and the earnings data are for individuals. It may be that events occurred to other family members that affected low-income entry and exit rates. Second, and likely more important, the earnings changes are evaluated at the mean value, and the low-income data focus on individuals at the bottom of the income distribution. It may be that the effect of the change in characteristics varies across the income distribution, with the rising educational levels and the shift toward more skilled class immigrants having more positive effects on the earnings of people at the top of the distribution, for two reasons.

First, the more highly educated and the skilled class do tend to earn more than the less educated and family class; more highly educated immigrants entering Canada may be more likely to find themselves at the top of the income distribution. Second, the returns to higher levels of education (e.g. the earnings advantage of a degree over high school graduation) will be greater among immigrants at the top of the income distribution. Immigrants with higher levels of education who find themselves at the bottom of the income distribution are likely there because they are not receiving the same kinds of returns to that education for whatever reason—related to the quality of their education, language issues, field of study, or possibly other unobserved characteristics.

It may be, then, that the increase in the level of education among immigrants and in the number of immigrants in the skilled workers class significantly affected outcomes at the top of the income distribution, but did little to increase earnings among those at the bottom and, therefore, did little to reduce low-income rates among immigrants.

To determine if this is the case, we turn to a procedure that appropriately re-weights the sample. This technique was developed by DiNardo, Fortin and Lemieux (DFL, 1996). The DFL procedure can be used to calculate the hypothetic, or counterfactual, earnings distribution that would have been observed in 2000 had the distribution of education and immigrant class that existed in 1991 been in place in 2000. ⁵  One can then compare this hypothetical earnings distribution for 2000 with the actual earnings distribution in 2000. The hypothetical distribution essentially holds the education and immigrant class characteristics fixed from 1991 to 2000. Therefore, the difference between the actual and hypothetical earnings distributions is associated with the change in these characteristics between the two years.

This procedure is analogous to other, more commonly used decomposition or standardization techniques, except that such techniques typically provide estimates of hypothetical and actual values at the mean only. This approach allows one to produce hypothetical (counterfactual) distributions, not just mean values. Rather than generating and plotting the entire distributions, we have chosen to produce hypothetical and actual earnings estimates at the 15th, 50th and 90th percentiles of the earnings distribution. The results are presented in Table 5.

For men, at the 15th percentile, entry earnings rose 16% from 1991 to 2000. If one holds the education and immigrant class distributions fixed from 1991 to 2000, earnings are still seen to rise 16%. Therefore, the change in these characteristics resulted in a 0-percentage-point increase in entry earnings (16 minus 16). Doing similar calculations at the 50th and 90th percentiles, we find that at the 50th percentile there was a 10-percentage-point increase in earnings associated with the changing characteristics during the 1990s, but at the top of the earnings distribution (the 90th percentile) this increase is 24 percentage points. During the 1990s, the rise in education and the shift to the skilled class had much more effect on earnings at the top of the earnings distribution, but they did little to reduce low-income rates, as noted earlier. Similar results are observed for women, where the effect of changing education and immigrant class increased earnings by only 1% at the bottom of the distribution and 20% at the top.

To determine why changing education and immigrant class characteristics had a larger effect on earnings at the top of the distribution, we first focus on the education variable. Changing education characteristics may have had more effect at the top of the distribution, because it is here that one finds the more highly educated skilled class immigrants, and changes in these distributions may be concentrated at the top.

But this was not the case. The rise in educational attainment among immigrants during the 1990s was seen across the entire entry-earnings distribution, not just at the top. For example, the share of entering male immigrants with a university degree (bachelor's, master's or doctorate) rose 31 percentage points from 1991 to 2000 in the bottom of the earnings distribution and 36 percentage points at the top (Table 6).

Among women, the educational attainment of those in both the bottom and top did increase significantly. The proportion of entering immigrants with university degrees rose 23 percentage points between the 1991 and the 2000 entering cohorts among those in the bottom quarter of the earnings distribution and 34 percentage points in the top quarter.

These results are consistent with earlier observations that the educational attainment of immigrants in chronic low income rose dramatically over the 1990s (Picot, Hou and Coulombe 2008). Among the 1993 entering cohort, of those in chronic low income some 13% had degrees; among the 2000 entering cohort, this rose to 41%. Over half of the entering immigrants in chronic low income were in the skilled economic class in the 2000 cohort.

Since the rise in educational levels is observed across the entire earnings distribution, this is not a plausible explanation as to why the changing characteristics resulted in greater earnings gains at the top than at the bottom of the distribution.

The answer lies in the differences in the relative returns to a university degree. To demonstrate this effect, we ran quantile regressions at 15th, 50th and 90th percentiles. The dependent variable is the natural log earnings. The independent variables are identical to those employed in the mean value regression reported above, ⁶  except that the unemployment rate is excluded (Text table 2). The coefficients are available on request. Models were run separately for men and women, based on pooled data for the 1991-to-2004 entering cohorts. Regressions were run on two separate populations, those in Canada for 2 years or less, and those on Canada for 10 years or less.

The coefficient on the bachelor's degree variable estimates the percentage difference in earnings between bachelor's degree holders and entering immigrants with 11 or 12 years of schooling. Generally speaking, this university wage premium is much greater at the 90th than 15th percentile (Table 7). In fact, during the first 2 years in Canada, male bachelor's degree holders at the 15th percentile earned 9.7% less than their less educated counterparts, although over the first 10 years in Canada they earned marginally more (3.7%). ⁷  But at the 90th percentile, this bachelors degree wage premium was 13% during the first 2 years in Canada, and 20% or more over the first decade. The story is similar for entering immigrants with master's/doctorate degrees, except that the wage premium is greater, as one would expect. But the differential between the bottom and top of the distribution is observed: over the first 10 years the wage premium is 39% at the 90th percentile, and 10% at the 15th. A similar pattern holds for women, except that the wage premium is higher everywhere for immigrant women than men, just as it is among the Canadian born.

The story regarding the effect of immigrant class on earnings growth for men is similar to that for the education variable. Over the 1990s, there was a significant increase in the share of male immigrants who were skilled class principal applicants both at the bottom and top of the earnings distribution (Text tables 3 and 4) just as there was for education. But the earnings advantage of being a skilled class male principal applicant was much less for those who found themselves at the bottom of the distribution than for those at the top. During the first two years in Canada, skilled class principal applicants earned 7% more than the family class at the 15th percentile; at the 90th percentile they earned 19% more. Among women the story was reversed, the earnings advantage of being skilled class female principal applicants was larger at the bottom of the earnings distribution than at the top. However, among women the higher return to skilled class principal applicants at the bottom was probably offset by the much smaller increase in the share of skilled class principal applicants than at the top.

To summarize, during the 1990s the changes in education and immigrant class characteristics were associated with a significant improvement in average earnings outcomes, and notably with improved outcomes at the top of the distribution. But an increasing share of these highly educated skilled class immigrants found themselves at the bottom of the earnings distribution because they were unable to convert these characteristics to higher earnings during the first 2 years, and even during the first 10 years in Canada. As a result, the change in characteristics did little to improve earnings at the bottom of the distribution, or outcomes related to low-income rates.

7   Why did entry-level earnings deteriorate from 2000 to 2004?

Given the partial recovery in entry-level earnings during the late 1990s, the new 'labour-market friendly' characteristic of immigrants and the continued strong economic growth over the 2000-to-2004 period, ⁸  why did the trend not continue?

First, the effects of changing characteristics on earnings over the 2000-to-2004 period were very small at all points in the distribution evaluated (Tables 4 and 5). This is likely because the standard background characteristics changed little over this period.

What of the standard explanations for the entry earnings decline of the 1980s and 1990s? They include declining returns to foreign experience, changing source regions and the associated factors—language, culture, school quality, discrimination—and the deterioration outcomes for new labour market entrants in general. These factors accounted for virtually the entire decline over earlier periods (Aydemir and Skuterud 2005).

However, it is unlikely that the earlier explanations will account for much of the decline in the early 2000s. The returns to foreign experience had gone to zero by the late 1990s, and hence this variable is unlikely to have had little to contribute with regard to the decline. In the regressions reported in Text table 1, returns to 'potential' foreign work experience were virtually zero (or slightly negative). Hence, this is an unlikely explanation.

With regard to the deterioration in labour market outcomes for labour market entrants as a whole, with immigrants being a special case, Green and Worswick (2002) found that this was very important during the 1980s, but that it accounted for little of the observed decline in the 1990s. Furthermore, the outcomes for young labour market entrants—particularly males, where the decline was largely observed—had stopped deteriorating during the late 1990s and early 2000s (Morissette 2008).

Finally, the major change in the source region distribution occurred from the 1960s to the 1980s; there have been relatively few changes since that time, certainly not during the early 2000s. Table 8 shows that, from 2000 to 2004, the distribution by source region of entering immigrants changed little.

Given the very large increase in the number of entering immigrants in the information technology (IT) and engineering professions over the late 1990s, and the continuing large numbers—though declining—in the early 2000s, the IT downturn may have played a significant role in the deterioration of entry-level earnings. Employment growth in the Canadian economy has been very robust since the late 1990s. Chart 6 indicates that employment grew by 12% from 1995 to 2000 and another 7% from 2000 to 2004, the period of interest to us. In the computer and telecommunication sector, ⁹  however, employment gained 60% from 1995 to 2001 and declined 12% by 2004, followed by some recovery.

We find that the decline in immigrant entry earnings was concentrated among skilled principal applicants that work in IT and engineering professions (Charts 7 to 12 and Table 9). Among men in these occupations, entry-level earnings fell by 37% between the 2000 and the 2004 entering cohorts; other groups registered some decline, but much less. Among skilled principal applicants with other intended occupations (other than IT and engineering professions) and the spouses of skilled principal applicants, earnings fell around 11%; among the family class, they changed little. Similar differences were observed among women.

A simple way of assessing the extent to which the decline from 2000 to 2004 was concentrated among the skilled class, particularly those whose intended occupation was IT or engineering, is to simply exclude them from any calculations, and then assess the effect.

For entering male immigrants as a whole, entry earnings fell 17% between the 2000 and the 2004 entering cohorts. But if one excludes immigrants whose intended occupation at entry was IT or engineering, the decline falls to 4% (Table 9). After including controls to account for cross-cohort differences in characteristics, the earnings decline for all male entering immigrants is 12%, but with IT workers and engineers (intended occupation) removed, this falls to 2%. Hence, among men, much of the decline was concentrated among skilled principal applicants whose intended occupation was IT or engineering.

For women, about half of the decline in earnings from 2000 to 2004 is accounted for by excluding IT professionals and engineers. Therefore, overall, with men and women combined, the earnings decline (with controls) is 10% for all immigrants, and 4% with IT workers and engineers excluded. About two thirds of the overall decline appear to be attributed to what happened to these particular immigrants.

Since virtually all IT professionals and engineers hold a university degree, and earnings for this group of entering immigrants declined after 2000, the value of a degree for this group obviously declined. It declined to a lesser extent for 'other' skilled principal applicants and rose among the family class (Table 10). Hence, one cannot talk in general terms about the declining outcomes for the university educated after 2000, it depends upon which immigrant class one is in.

8   Conclusion and discussion

Research has documented, and largely explained, declining entry-level earnings throughout the 1980s and early 1990s among successive cohorts of entering immigrants. Some improvement was observed in the late 1990s, both in this paper and earlier studies of earnings and of low-income rates. This improvement coincided with a significant change in the characteristics of immigrants—rising education, more immigrants in the skilled class and in engineering and information technology (IT) occupations—which in turn was related to changes to the immigrant selection system. Economic growth was also substantial during the late 1990s, potentially accounting for some of the improvement in earnings.

Earlier research showed that the changes in immigrant characteristics had relatively little effect on chronic low income or the likelihood of entering or exiting low income. The earnings-based analysis in this paper concludes that changing education and immigrant class characteristics did result in some improvement in entry earnings over the 1990s, as did improving labour market conditions. However, during the 1990s, the entry-earnings gains among successive entering cohorts were much greater among higher rather than lower paid entering immigrants, even though the educational attainment of both high- and low-paid immigrants increased significantly. An increasing share of the highly educated, economic-class entering immigrants found themselves at the bottom of the earnings distribution because they were unable to convert these characteristics to higher earnings levels. This was certainly true during the first two years in Canada, and even over the first decade. As a result, these changing characteristics had only a small effect on earnings at the bottom of the distribution and on low-income outcomes. But the face of chronic low-income changed significantly: the share of immigrants in chronic low income—in low income at least four of the first five years—with a university degree rose from 12% among the 1993 entering cohort to 41% in the 2000 entering cohort, and in this latter cohort over half of the immigrants in chronic low income (51%) were in the skilled class (Picot, Hou and Coulombe 2008).

Why did increasing numbers of entering immigrants experience very low relative returns to their university education during the 1990s and find themselves at the bottom of the earnings distribution? Possible reasons might include:

1. the inability of the labour market to absorb such a large increase in the supply of the highly educated, resulting in downward pressure on relative wages;
2. 'credentialism' issues related to the recognition of foreign degrees;
3. potentially lesser quality education—relative to North American higher education—held by many entering immigrants from the non-traditional source regions; and
4. possible language issues that prevented the higher education held by many new immigrants from having the expected positive effect on earnings.

There is some evidence to support this last view. In a recent paper, Bonikowska, Green and Riddell (2008) observed that immigrants have lower levels of literacy in French or English (the most common languages of work in Canada) than do the Canadian born. Furthermore, they found that the returns to any given level of literacy were no lower among immigrants than among the Canadian born. These results were observed for all levels of education. Viewed at a point in time, these results suggest that half or more of the gap in earnings between immigrants and the Canadian born could be accounted for by differences in literacy skills in English or French. Such literacy skills could have both a cognitive and language component.

Another recent paper by Chiswick and Miller (2002) found that in the United States, immigrants earned 7% more for each additional year of education if they were fluent in English, but only 1% more if they were not. In other words, in the absence of English language fluency, additional education provided little in the way of additional earnings over a less educated immigrant. It may be that language issues were preventing immigrants from taking advantage of the earning potential of their higher degrees. As noted above, there are other possible reasons.

After 2000, the deterioration in entry level earnings observed over the 1980-to-mid-1990s period returned, only for very different reasons. The principal determinants of the earlier decline, namely lower returns to foreign experience, the shift in the source countries from which immigrants come, and the overall decline in labour market outcomes, likely had little to do with the decline after 2000. This is because the returns to foreign experience had already fallen to zero and would have to become significantly negative in order to have had any effect; the change in the source counties of immigrants occurred mainly during the 1970s and 1980s, and changed little after 2000; and the labour market for new entrants was not continuing to deteriorate in the late 1990s and early 2000s. Therefore, one has to look elsewhere for possible causes for the decline in entry earnings after 2000.

Much of the decline was concentrated among entering immigrants who intended to practice in the IT or engineering occupations. This coincided with the IT downturn, which appears to have significantly affected outcomes for these immigrants, particularly the men. Following the response to the call for more high-tech workers in the late 1990s, resulting in a rapidly increasing supply through immigration, the large numbers of entering immigrants were faced with the IT downturn.