Data and basic patterns

The main dataset we use in this investigation is the International Adult Literacy and Skills Survey (IALSS), the Canadian component of the Adult Literacy and Life Skills Survey (ALL). Statistics Canada carried out this survey in 2003 to study the skills of Canadians. The IALSS data contain the results of literacy, numeracy and problem-solving tests as well as information on labour market variables such as income, education and labour force status. The survey covers individuals age 16 and over, and this is also the age range we focus on in our analysis. We drop individuals who list their main activity as “student” in order to focus on the effect of completed schooling and what happens subsequently to individual skills. We also drop the over-sampled aboriginal population, reserving a careful analysis of these individuals for a separate paper. Finally, we drop observations when we do not have information on age at arrival or education, and in the earnings analysis we also drop observations with missing earnings information. Although much of the immigration literature focuses on males, we analyse both male and female immigrants. We use the sample weights in our analysis, so all summary statistics and regression estimates are nationally representative. In the regression analysis, when computing standard errors for the coefficient estimates we also use the Jackknife replicate weights provided in the data set to account for the complex survey design.

Our combined immigrant and Canadian-born sample has 18,373 observations, of which 3,709 are immigrants. However, when we turn our attention to the impact of cognitive skills on individual earnings, we restrict the sample to earners, thereby excluding the unemployed and individuals who are out of the labour force. We also exclude the self-employed and workers with weekly earnings that are less than or equal to $50 and over $20,000. The latter restriction cuts out a small number of workers with earnings that are significant outliers relative to the rest of the sample. We exclude the self-employed because we wish to assess the way skills are rewarded in the labour market, and earnings from self-employment reflect both returns to skills and returns to capital.

For the earnings analysis our dependent variable is weekly earnings. In the IALSS, respondents are first asked about their standard pay period and then about typical earnings in that pay period. Using these responses we construct a weekly earnings measure for each paid worker. Thus, for example, in the case of individuals who report that they are paid monthly we divide their usual monthly earnings by 4.333.

The main objective, and major advantage, of the IALSS survey is to provide measures of four skills: Prose literacy, Document literacy, Numeracy and Problem Solving. The test questions do not attempt to measure abilities such as those in mathematics and reading but rather try to assess capabilities in applying skills to circumstances that arise in everyday life. Thus, the Document questions, which are intended to assess capabilities in locating and using information in various forms, range from identifying percentages in categories in a pictorial graph to assessing an average price by combining several pieces of information. The Numeracy component ranges from simple addition of pieces of information on an order form to calculating the percentage of calories coming from fat in a Big Mac based on a nutritional table. Thus, the questions are related to implementation and use of skills in the real world and are intended not just to elicit current capacities but also adaptability to answering questions in other contexts (Murray, Clermont and Binkley, 2005).¹ This is an important point for the interpretation of our results since we want to interpret the test results as revealing job relevant skills at the time of the interview rather than inherent abilities. It is worth emphasizing that these skills are essentially cognitive in nature.

The survey was administered by first asking respondents to complete a limited set of “core tasks.” The majority of respondents then completed the survey and a set of “main tasks” that were randomly drawn from a large pool of potential tasks. Those unable to complete the “core tasks” because of language difficulties or other limitations remain in the sample but have their skill test scores imputed. In our empirical analysis we control for this group, usually by including a dummy variable for “those unable to complete main skill tasks.”

A salient feature of the data is the strong correlation among the various cognitive skill measures. The correlation between the Prose literacy and Document literacy scores is 0.96, that between Prose literacy and Numeracy is 0.90, and the correlation between Prose literacy and Problem Solving is 0.93. Further, a principal components analysis indicated only two principal components with the first being vastly more important and placing equal weight on all four scores. Thus a simple average of the four scores captures much of the information available in the skill measures. This is the skill measure that we use in much of the analysis.

The other main variables in our analysis are standard human capital measures plus variables related to language ability in English or French. The survey asked respondents their number of years of completed schooling, so we are able to construct the standard Mincer measure of potential experience (i.e., age – years of schooling – 6). Since we know the age at which immigrants entered Canada, we are able to divide experience of immigrants into foreign experience and Canadian experience.² We examine educational impacts using the respondent’s highest level of educational attainment, grouped in four categories: less than completed high school, high school graduates, non-university post-secondary graduates, and those with a Bachelor’s or higher university degree.³ As mentioned earlier, a major advantage of the IALSS data is its detailed questions on where immigrants obtained their education. In particular, respondents are asked about their total years of completed schooling as well as their years of schooling completed outside of Canada. The survey also asks whether the respondent completed his/her highest level of education in Canada. We make use of this information in what follows by dividing our analysis between immigrants who completed their education in Canada versus those who completed it abroad. This turns out to be an important distinction and is one that cannot be made very precisely in data sets such as the Census.

The survey also includes a series of questions on language ability in English or French, all of which are self-reported. We use one that asks respondents about their first language spoken. We create a dummy variable that equals one if the first language spoken is other than English or French. Finally, we include dummy variables corresponding to the country of origin. One variable corresponds to immigrants from the United States or United Kingdom, a second to immigrants from continental Europe, and a third to immigrants from Asia, with the rest of the world forming the omitted category in the estimation.⁴ Much of the earlier literature on immigrants indicates that there are strong source country effects and that immigrants from the United States and United Kingdom adapt particularly well to the Canadian economy.

Tables 3.1 and 3.2 display summary statistics for the main variables of interest. Both male and female immigrants are, on average, four years older and, correspondingly, have four more years of labour market experience than their Canadian-born counterparts. Immigrant men report one more year of schooling than do Canadian-born men, but immigrant women report one year less education than Canadian-born women. This gender difference in the immigrant – Canadian-born educational attainment gap is also evident when we look at the highest level of education attained. Among males, the distribution of formal education among immigrants is very different than, and generally superior to, that for the Canadian born. The fraction of Canadian-born men with no postsecondary education is 57%, versus 46% among immigrants. Additionally, a much larger fraction of male immigrants has a university degree (31%) compared to Canadian-born men (18%). In contrast, the fraction of Canadian-born women with no post-secondary education is the same as that for immigrant women (57%) and the fraction of immigrant women that did not complete high school (26%) is higher than that of Canadian-born women (23%). At the top of the educational distribution, a larger proportion of immigrant women has a university degree (21%) than is the case for Canadian-born women (17%), but the gap between immigrants and native-born Canadians is much smaller than that for males.

Table 3.1
Summary statistics for immigrants and the native (Canadian) born – males

Table 3.2
Summary statistics for immigrants and the native (Canadian) born – females

Another evident difference between immigrants and native-born Canadians is their levels of cognitive skills, as assessed in English or French. The average skill levels of immigrant men range from 241 to 252, whereas these range from 274 to 281 for native-born Canadian men. The largest gaps between immigrants and the Canadian-born are in prose literacy and problem solving and the smallest are in numeracy. Across the four domains, male immigrant skill levels are 9% to 12% lower than those of Canadian-born males. The immigrant – Canadian-born skill gaps are generally even larger for females, ranging from a gap of 31 points for problem-solving to 44 points for prose literacy. The largest gaps are in prose literacy and document literacy and the smallest is in problem solving. Across the four domains, female immigrant skill levels are 11% to 16% below those of native-born Canadians.

An interesting fact arising from Tables 3.1 and 3.2 is the substantial fraction of immigrants who acquire some education in Canada. Columns 1 and 2 separate immigrants between those who report obtaining some or all of their schooling in Canada and those who did not acquire any education in Canada. It is immediately apparent that these two groups have very different characteristics. Both male and female immigrants with Canadian education are much younger, have less work experience, but at least as much experience in the Canadian labour market. They arrived in Canada at a substantially younger age, and have been in the country much longer, despite being substantially younger than immigrants educated abroad. In terms of educational attainment, immigrants with Canadian education have more years of completed schooling, are much less likely to be high school dropouts, but equally likely to be university graduates as immigrants without Canadian education. Perhaps the most striking differences are those relating to measured skills. Immigrants with Canadian education have skill levels somewhat below those of the Canadian born, but much higher than those of immigrants without Canadian education. The skills gap between foreign-educated immigrants and native-born Canadians is especially large for women. Relative to Canadian-born men, the gap in average skills for those educated outside of Canada ranges from 13% for numeracy to 17% for prose literacy and problem solving, whereas for male immigrants with some Canadian education the average skills gap ranges from 3% for numeracy to 6% for problem solving. Among female immigrants educated in Canada the skills gap is somewhat larger than for men – ranging from 5% for numeracy to 8% for prose literacy and problem solving. Among female immigrants educated prior to arrival the skills gap is huge – approximately 20% across all four skill domains. These differences suggest that controlling for the origin of education may indeed be important for understanding immigrant labour market outcomes. They also suggest that there may be gender differences in immigrant outcomes relative to those of native-born Canadians.

We explore these differences further in Tables 3.3 and 3.4, which report summary statistics for our sample of earners – individuals currently employed as paid workers. The substantial differences in the characteristics of the two groups of immigrants are also evident in the sample of earners. Compared to the Canadian born, immigrants without Canadian education are older, have more work experience, and less experience in the Canadian labour market. These generalizations hold for both men and women, although the differences between immigrants without Canadian education and native-born Canadians are more modest among women. As before, one dimension on which there are gender differences is that relating to educational attainment gaps between immigrants and Canadian-born. Immigrant men educated abroad report higher attainment than men born in Canada at both the bottom and the top of the educational distribution. For example, 38% are university graduates versus 18% among Canadian-born men. In contrast, immigrant women without Canadian education have a more dispersed educational distribution than that of native-born Canadians, being both more likely to be high school dropouts and more likely to be university graduates.

Table 3.3
Summary statistics for immigrant and native (Canadian) born workers – males

Table 3.4
Summary statistics for immigrant and native (Canadian) born workers – females

The apparent advantage in education and experience among immigrant men does not translate into higher income. Average annual and weekly earnings of Canadian-born men are substantially higher than those of immigrants without Canadian education, and the gap in median earnings is even greater. In contrast, mean earnings of immigrants with some Canadian education exceed earnings of the Canadian born, although median earnings are modestly lower than those of native-born Canadians. Among women both mean and median earnings of foreign-educated immigrants are below those of the Canadian-born, whereas mean and median earnings of Canadian-educated immigrants exceed those of native-born Canadians.

One possible explanation for the puzzle of lower earnings of immigrants without Canadian education, despite their generally reporting more experience and education, is that the Canadian labour market may place a different value on the experience and education obtained outside of Canada than on that obtained after arrival in Canada. Another possible explanation for lower earnings is that the skills of immigrants educated abroad are much lower than those of native-born Canadians, despite their higher levels of educational attainment and greater amount of total labour market experience. We explore both of these explanations further in what follows.

Notes

1. The IALSS builds on the IALS survey that was carried out in several countries during the period 1994 to 1998. Two of the skill domains – prose literacy and document literacy – are defined and measured in the same manner in IALS and IALSS.
2. Foreign experience = age at arrival – foreign years of schooling – 6 if positive, zero otherwise. Canadian experience = age – age at arrival – (total years of schooling – foreign years of schooling) if positive and age at arrival >=6. Canadian experience = age – total years of schooling – 6 if age at arrival<6.
3. Individuals with some but not completed post-secondary education are classified as high school graduates.
4. We also examined finer breakdowns of the source country but these had little effect on the results.