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This study examines the dynamics of immigrant earnings inequality and earnings instability, using a unique dataset based on Canadian administrative and immigrant data. Our goal is to complement the existing immigrant literature, which mostly focuses on immigrant wage dynamics, by examining the second moments of the wage distribution. The key feature of the approach used in this study is that it allows for distinguishing between current and long-term inequality in a way consistent with the recent literature on general earnings inequality in Canada and the United States. The parameter estimates of a flexible econometric model obtained using a generalized method of moments method are used to construct the earnings inequality and earnings instability profiles for immigrant cohorts that arrived in Canada in the period from 1980 to 2000.
An important part of this study examines the role of foreign education, the ability to speak one of the official languages and immigrants' origins on immigrant earnings inequality. Our analysis sheds light not only on the overall impact of these variables but also on the changes in their relative importance as immigrants adjust to the labour-market demands in their new country.
The results of the study indicate the presence of cohort effects in earnings inequality: more recent immigrant cohorts generally experienced higher levels of earnings inequality than did older ones, particularly the cohort that arrived in Canada in the early 1980s.
The place of birth, which may be thought of as a proxy for cultural, religious and ethnic characteristics of immigrants, has the strongest impact on immigrants' earnings inequality; however, fluency in English or French, as well as a foreign education, also play important roles. There is also some evidence that the effect of a foreign education on earnings inequality is gradually increasing as immigrants adjust to the labour market in their new country. Yet, although language, foreign education and birthplace explain a large part of immigrant earnings inequality, most of it is not explained by these factors.
When immigrants enter the labour market, the total volatility of immigrants' earnings is largely determined by the short-term earnings volatility (earnings instability). After several years, however, inequality becomes a dominant factor. It should also be noted that, while immigrants' earnings instability generally decreases during the first several years of their careers, it also appears to be highly pro-cyclical—rising rapidly during the recession years in the early 1990s and falling in subsequent years. Although almost all cohorts in the sample were affected by the early- 1990's recession, the timing of its impact relative to the entry was different for all cohorts, making the cross-cohort comparison of instability more difficult. It appears, however, that those who entered the labour market in the mid-1980s generally experienced lower levels of earnings instability in the first several years of their working careers in Canada than those who entered the labour market in the mid-1990s.
Overall, taken together with previous studies of immigrants' labour market outcomes, the results seem to support the prevailing view in the immigrant literature that the economic fortunes of immigrants in Canada in the recent years have declined.
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