Academic Literature, Report

Earnings of Immigrants in Canada – First paid employment of immigrants is a strong predictor of their long-term labour market outcomes

In spite of the role that employers may play in the selection of economic immigrants, little is known about whether and how firm-level characteristics are associated with immigrants’ labour market outcomes over the longer term. As a first step towards providing relevant evidence, this study asks whether there are large gaps between the initial earnings of immigrants starting with low- or high-paying firms, and whether the initial earnings gaps narrow with increasing length of residence in Canada. It further examines whether earnings returns to human capital among immigrants are larger if they start working in high-paying firms than in low-paying firms.

This paper uses data from the Canadian Employer-Employee Dynamics Database (CEEDD) developed by Statistics Canada. The analytical file for this study draws on four sources of administrative data: the T4 Statement of Remuneration Paid File, the T1 Personal Master File, the Longitudinal Employment Analysis Program (LEAP), and the Immigrant Landing File. The study sample includes about 420,000 immigrants who landed in Canada from 1998 to 2001, were aged 20 to 49 at time of landing, and had annual employment T4 earnings more than $1,000 (in 2012 Canadian dollars) in at least one year from 1999 to 2012.

The main outcome variable is the log annual employment earnings while the independent variable of main interest is the firm in which immigrants were initially employed after becoming permanent residents in Canada. This variable is divided into three groups according to firms’ annual median payment to employees: low-, medium-low- and high-paying firms. Low-paying firms include those with median employment earnings at or under the 25th percentile among all firms, medium-low-paying firms include those with median employment earnings in the 25th to 50th percentiles, and high-paying firms include those in the upper 50th percentile. The control variables include age at landing, marital status, immigration class, cohort, source region, education at landing, full- or part-time schooling, initial residential census metropolitan area (CMA) or province, mother tongue and official language, starting year of employment, industry, and firm size.

Results show that the first paid employment of immigrants either in low-, medium-low- or high-paying firms in Canada is a strong predictor of their long-term labour market outcomes. Immigrants starting in high-paying firms, in particular, had higher initial and long-term earnings than immigrants starting in low-paying firms, even after taking differences in individual demographic and human capital factors into consideration. This earnings advantage likely originated from a better matching between skills and job requirements and a higher selectivity in skills and abilities beyond general human capital among immigrants starting in high-paying firms, as well as the better opportunities these firms can offer new immigrants.

This study further finds that earnings returns to general human capital (education and host-country languages) were much larger both in the short and long term among immigrants starting in high-paying firms than among those starting in low-paying firms. Furthermore, immigrants with high levels of human capital starting in low-paying firms earned less than immigrants with low levels of human capital starting in high-paying firms in the first few years after landing. However, the earnings growth of the former group outpaced that of the latter group. This suggests that, in the long term, the effect of a high level of human capital outweighs the initial advantage of low-skilled immigrants who started in high-paying firms.

Capture d’écran 2016-06-02 à 08.36.11 Capture d’écran 2016-06-02 à 08.36.30

via Immigrants’ Initial Firm Allocation and Earnings Growth

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