3 The declining entry-level earnings from the early 1980s to the early 2000s

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Those immigrants arriving in Canada through the 1990s and early 2000s were increasingly highly educated. In 2001, fully 42% of adult 'recent' immigrants (those arriving during the previous five years) possessed a university degree, and a historically high 54% entered under the 'economic' admissions class2 (with only 31% being in the family class). The situation was very different 20 or more years earlier: in 1981, only 19% of the recent immigrants had degrees, and during the early 1980s, only 37% entered in the 'economic' class, with 43% being in the family class. Immigrants of the late 1990s and early 2000 were increasingly selected because of their potential contribution to the Canadian economy. Therefore, there exists the puzzle regarding the deteriorating earnings of successive entering immigrant cohorts.

To address the puzzle, the majority of the Statistics Canada research has focused on entry-level earnings. There are a number of reasons why this metric is important. First, the significant decline in earnings at entry over the 1980s and early 1990s prompted a response on the part of the immigrant selection system to improve outcomes. Hence, it is reasonable to focus on entry earnings to assess the effects of the resulting change in immigrant characteristics. Second, recent Statistics Canada research on return migration suggests that the rate of out-migration of immigrants is large (up to 35%) and that it occurs primarily during the first two years following entry. Therefore, economic outcomes during the initial years may be an important factor in determining the extent to which Canada retains its immigrants. Third, Canada is increasingly in competition with other countries, notably the United States and Australia, for highly skilled and educated immigrants. If relative economic outcomes at entry are poorer in Canada than elsewhere, such information will be shared through networks with potential immigrants, and this will have a potentially negative impact on their decisions. Fourth, poverty studies indicate that most immigrants who enter poverty do so during their first full year in Canada—from 35% to 45% of immigrants enter poverty during that period—and that this is followed by fairly high rates (around 20%) of longer-term poverty. Poor entry-level earnings have, by and large, been followed by poor outcomes during at least the first decade or so.

In spite of the increasingly economic nature of immigration during the late 1990s, earnings among adult 'recent' immigrants declined, both in absolute terms and relative to their Canadian- born counterparts.

Over the past 15 years, immigrants have become more highly educated than the Canadian born. Hence, most research compares recent immigrants with 'like' Canadian born—those who are similar along dimensions such as age, education, visible-minority status, marital status and region of employment (including major city). This is typically done within a regression format that computes the log of the ratio of the earnings of immigrants to those of the Canadian born.3 The results of such an analysis are given in Chart 1.

The earnings gap has been significantly increasing with each successive cohort, both at entry and after many years in Canada. Among males, the log earnings ratio at entry declined from 0.83 among the late 1970s cohort to 0.55 among the early 1990s cohort. There was a minor improvement in the earnings gap at entry between the cohorts of the early and late 1990s (log earnings ratio increased from 0.55 to 0.60).

The traditional 'economic trajectory' story among immigrants, where they earn less at entry but catch up after a number of years in Canada, was last observed among cohorts entering in the late 1970s. Among the more recent cohorts, the elimination of this earnings gap will be more difficult. For the early 1990s cohort, they earned roughly 60%4 of that of the Canadian born after 6 to 10 years in Canada, and it is not clear if they will catch up after 20 years in the country. Granted, the rate of improvement in earnings (i.e., the slope of the line in Chart 1) was much greater among the 1990-to-1994 cohort than among the 1980s cohorts, but they had a much larger gap to overcome. The pattern was similar for women.

The situation has not changed markedly in more recent years. Although there was some improvement for the cohorts entering during the late 1990s, during the early 2000s outcomes deteriorated once again. The census data in Chart 1 indicate that, during the first five years in Canada, immigrants in the late-1990s entering cohort earned about 65% of that of similar Canadian born, but among the early 2000s entering cohort, this fell back to around 60%. Administrative tax data suggest similar results. These data provide very large samples that allow more recent estimates of the entry-earnings gap on a yearly basis. Following some recovery in the late 1990s, entry-level earnings again declined for those cohorts entering up to 2005 (Picot and Hou, forthcoming). Furthermore, this research indicated that the reasons for the decline—to be discussed shortly—differed during the post-2000 period from those of the 1980s and 1990s.5

 

2 Immigrants to Canada enter under a particular class. The main classes include (1) the skilled economic class, the only class where the immigrant selection rules are applied; (2) the family class, used for family reunification; (3) refugees; and, (4) a business class, which includes a small number of entrepreneurs.

3 The log earnings ratio is an approximation of the earnings of immigrants as a proportion of those of comparable Canadian born when the differences are small (say 10% to 20%), but when they become large (say 40% to 50%) the log (earnings ratio) overestimates the percentage difference.

4 That is, log earnings ratio of 0.6.

5 Very large samples are required for the analysis of the earnings patterns of successive annual cohorts of entering immigrants. Very recently the necessary data source was created by linking selected information from the landing records of immigrants to a longitudinal file of a 20% sample of taxation records of Canadians (an already existing file). This new administrative data file provided both the sample sizes necessary, and the income and characteristics information needed, to assess what was happening to annual cohorts of entering immigrant cohorts after 2000.

Chart 1
Log earnings1 ratio,2 earnings of immigrants to those of comparable Canadian born, full-time, full-year workers aged 16 to 64