GRSJ224/Immigration Wage Gap in the Canadian Labour Force

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Canada’s immigrant-focused wage gap describes the systematic asymmetry in earnings between immigrants and Canadian-born workers of similar skill sets. The wage gap describes a phenomenon in which immigrants, on average, receive less compensation for identical work as compared to Canadian-born workers. The wage gap is further dissected in gaps between male and female immigrants, newly arrived and longstanding immigrants and demographic origins. Of key importance, labour market research cites sub-par literacy competency among immigrants as the main driver of the immigrant wage gap. There are, however, case-based theories which demonstrate that the wage-gap may be the result of ethnic biases and market inefficiencies.

Measure of Skill in the Canadian Labour Force

The Canadian labour market can be interpreted as a system which matches individual “skill sets” to appropriate occupations. In this sense, those with specific skills (e.g. quantitative analysis, problem solving, etc.) will be matched with job opportunities that require the appropriate skill sets. The means by which an individual develops these skills is typically through some form of formal education, e.g. secondary school, trade school, etc. By consequence, this suggests that education provides earning potential, and thus, earnings are a “return on education (Mendolicchio, 2012).” By transitive logic, it holds that, while immigrants may have the same skill set as Canadian-born workers, they are receiving a lesser return on education investment. The reasoning behind a diminished return on education for immigrant workers is described below.

Theories of Wage Gap Causation

The theory as to why immigrants experience lesser compensation as compared to Canadian-born workers of similar skills is divided into two schools of thought:

Canadian Labour Market Skill Bias

As previously shown, the Canadian labour market matches skill sets (which are developed through education) to skilled workers. It is argued, however, that not all skills are weighted equally; rather, the Canadian labour market has an institutional bias which favours skill sets typically absent in the immigrant worker (2005). In specific, the market places extreme emphasis on English and French literacy, while neglecting universal skill sets, such as problem solving and team collaboration.

The datas behind a lacking of literacy skills is shown in the analysis of International Adult Literacy and Skills Survey (IALSS), in which Canadian-born adults scored significantly higher than average aggregate immigrant score (2008). This result suggests that while immigrants may have near identical skill sets as compared to Canadian-born workers, their potential earnings are diminished by subpar literacy skill sets. As Desjardins (2011) shows, holding the language proficiency variable constant, immigrants’ estimated potential earnings was $57 000 per year, 21% above their actual average. This suggests that while other skils are of equal value compared to Canadian-born workers, a lower literacy conpetency constraints immigrants’ potential earnings, thereby contributing towards the wage gap and promoting linguistic discrimination.


While English and French literacy may promote wage differentiation, Galarneau and Morissette (2008) argue that immigrants should in fact outperform Canadians in terms of high degree attainment (Galarneau & Morissette, 2008): "The proportion of native-born Canadians with a university degree rose from 16% for men and 13% for women in 1991 to 19% and 23% in 2006. Among recent immigrants, the increase was much larger. In 2006, 58% of recent male immigrants and 49% of recent female immigrants had at least a bachelor’s degree (Galarneau & Morissette, 2008)."

Comparing low-skilled job distribution between immigrants and Canadian-born workers

With this in mind, it may be argued that immigrants should experience a higher return on education investment, as they proportionally offer more skills to the Canadian labour market. However, as previously noted, the Canadian labour market employs language-based skill biases which put immigrants at a competitive disadvantage in the job market, and promotes a skill-based wage gap. The validity of such biases, as will be discussed below, is contentious and draws to question the presence of ethnic discrimination in the labour force.

Foreign Worker Discrimination

Oreopoulos and Dechief (2011) provide evidence suggesting that the wage gap exists as a result of systematic prejudice against foreign workers, as opposed to market skill biases (Oreopoulos & Dechief, 2011). In this, they argue that foreign workers are discriminated against on the basis of ethnic identity, as opposed to skill sets or education attainment.

The authors examined call-back rates on resumes, holding all content constant barring the name of the applicant. In the latter field, they varied between Western and Asian names, and compared interview call statistics. The research found that, once the resume assumed a Western identity, call back rates increased 35%. By product, the authors suggest that employers treat name as a “signal for communication and Western social skills.” This, as compared to a bias in skill sets, clearly demonstrates that the wage gap, at least in part, may be a product of invalid prejudice against foreign workers. An asymmetry of power dynamics and exploitation of Western norms promotes a labour market which benefits those in power and penalized those outside of the Western realm.


Other Factors Influencing the Immigrant Wage Gap

Economic conditions As an systematically disadvantaged group, immigrants face high job loss rates during times of poor economic conditions (Mansbridge, 2009). With higher unemployment rates, the former effectively have less salary bargaining power, and must accept either unemployment, or under-compensation as compared to Canadian-born workers.

Local Language Influence The language deficiency bias is further amplified when considering French labour markets. In specific, immigrants in Quebec experience a higher wage gap as compared to English-speaking provincial occupations (Nadeau & Seckin, 2010.)

Wage Discrepancies comparing Quebec to the Rest of Canada

References

  • Oreopoulos, P., & Dechief, D. (2011, September). Why Do Some Employers Prefer to Interview Matthew, but Not Samir? New Evidence from Toronto, Montreal, and Vancouver. SSRN Electronic Journal. doi:10.2139/ssrn.2018047
  • Nadeau, S., & Seckin, A. (2010). The Immigrant Wage Gap in Canada: Quebec and the Rest of Canada. Canadian Public Policy, 36(3), 265-285. doi:10.1353/cpp.2010.0016
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