June 2002     Vol. 3, no. 6

Pensions: Immigrants and visible minorities

René Morissette

Several Canadian studies have examined differences in earnings between immigrants and Canadian-born individuals (Grant 1999; Baker and Benjamin 1997; Bloom et al. 1995), as well as between members of visible minorities and other individuals (Hum and Simpson 1998). However, an examination of differences in pension coverage, an important component of employee compensation, has not been undertaken before.

Using the Labour Market Activity Survey (LMAS) and the Survey of Labour and Income Dynamics (SLID), this article examines the extent to which registered pension plan (RPP) coverage of immigrants and members of visible minorities differed from that of other Canadians between 1988 and 1998 (see Data sources). The focus is on employees aged 25 to 54.  1 

RPP coverage of immigrants

In 1998, RPP coverage of immigrants was slightly lower than that of Canadian-born individuals. Of immigrant men, 53% had a pension plan in association with their job, compared with 57% of men born in Canada. The comparable percentages for women were 44% and 48% respectively.

Between 1988 and 1998, pension coverage among immigrant men fell from 59% to 53% (Chart A). Coverage also fell among men born in Canada. Most of the decrease was associated with the decline in unionization and employment shifts towards low-coverage industries (Morissette and Drolet 2001). In contrast, pension coverage changed very little among women, whether born in Canada or not.

The small changes in pension coverage among immigrant women mask offsetting trends between specific groups. Coverage fell substantially for recent immigrant women (those who arrived 1 to 10 years before the survey), dropping from 38% to 30%. However, it rose slightly among women who immigrated more than 20 years ago. Among men, coverage did not fall for recent immigrants but fell substantially for those who had been in Canada more than 10 years.

Does pension coverage increase with the number of years since migration?

Many of the studies mentioned previously have shown that earnings of immigrants increase with time spent in Canada. This could be the result of many factors, including their improved language skills and increased likelihood of developing networks to learn about labour market opportunities. Since well-paid jobs generally offer better pension coverage (Frenken and Maser 1992), one would expect a rise in the earnings of immigrants to be accompanied by an increase in pension coverage.

At first, the cross-sectional data appear to support this contention. For both men and women, pension coverage rises substantially with the number of years in Canada. In 1998, only 30% of women who had arrived in Canada during the previous 10 years had a pension plan, compared with 52% of those who had been in Canada for more than 30 years. Among men, the comparable percentages were 46% and 63%.

However, this positive association between pension coverage and years since migration in a single cross-section does not necessarily imply that RPP coverage of a given cohort of immigrants increases with the number of years spent in Canada. Instead, it could be that cohorts of immigrants who arrived in Canada more than 30 years ago simply have better pension coverage than cohorts who arrived more recently. It could also be that as workers get older, they are employed in jobs with better coverage.  2  To assess whether pension coverage of a given cohort increases with the number of years since migration, it is necessary to control for age and examine the cohort's pension coverage over time.

A simple way to do this is to compare RPP coverage of immigrants aged 25 to 54 in 1988 who arrived in Canada between 1979 and 1988 (1 to 10 years previously) with that of immigrants aged 25 to 54 in 1998 who arrived during the same time period (11 to 20 years previously). The results show that pension coverage of immigrant men in the 1979-1988 cohort rose from 44% in 1988 to 51% in 1998. This trend is particularly interesting since it occurred in a period when RPP coverage among Canadian-born men was falling. A priori, this suggests that coverage increased with the number of years since migration. A similar pattern was observed for immigrant women. Their RPP coverage rose from 38% to 44% between 1988 and 1998, even though coverage changed very little among Canadian-born women during this period.

However, a different pattern was observed for those who immigrated between 1969 and 1978. In this cohort, the pension coverage of men dropped from 58% in 1988 to 54% in 1998, while women's coverage remained unchanged at 49%.

How can the diverging patterns of the two cohorts be explained? One interpretation is that RPP coverage may increase after migration only to a certain level. The advantages associated with more time spent in Canada (developing networks to obtain better information about labour market opportunities, and so forth) could occur in the early years after arrival and then disappear.

Another possibility arises because the numbers presented for the two cohorts are based on fairly broad controls for age. Part of the increase in coverage for the 1979-1988 cohort could be because, on average, those in the 25 to 54 age group in 1998 were older than their counterparts in 1988.  3  Ideally, to control for this possibility, one would estimate for each cohort a logistic regression where the probability of being covered by an RPP would depend on age, and then calculate the resulting probability for a person with a given age. However, small sample sizes make the results of such an exercise unreliable. Therefore, using LMAS and SLID, it is unclear after controlling for age if pension coverage does in fact rise with the number of years since migration.  4 

Is there convergence in coverage?

Did RPP coverage rates of immigrants and Canadian-born workers tend to converge in the recent past? The answer is ambiguous. Among men, the evidence suggests a partial convergence, while among women, no evidence of convergence is apparent.

This can be seen by comparing men aged 25 to 44 in 1988 who immigrated between 1979 and 1988 with their Canadian-born counterparts (Chart B). The immigrant men saw their RPP coverage rise from 42% in 1988 to 56% in 1998 (when they were aged 35 to 54). In contrast, Canadian-born men experienced a more moderate increase, from 58% to 63%. As a result, the difference in coverage between the two groups decreased from 16 percentage points in 1988 to 7 percentage points in 1998, indicating some convergence.  5 

A different story emerges for women. Pension coverage of women aged 25 to 44 in 1988 who immigrated between 1979 and 1988 rose by only 4 percentage points between 1988 and 1998. However, the difference in coverage between these women and their Canadian-born counterparts did not decrease at all; instead, it rose from 8 percentage points in 1988 to 11 points in 1998.

Visible minority status

While pension coverage of immigrant men was slightly lower than that of Canadian-born men, pension coverage of men who belonged to a visible minority (most of whom are immigrants) was only 46% in 1998, much lower than the rate observed for other male employees (57%).  6  In contrast, pension coverage of visible-minority women was 45%, fairly close to that of other women (48%).

Among immigrants, the degree of coverage varied substantially by visible-minority status. In 1998, visible-minority immigrant men had substantially lower coverage than other immigrant men—45% versus 60% (Chart C).  7  This is observed not only among recent immigrants but also among those who arrived earlier,  8  and suggests that the gap does not result simply because visible-minority immigrant men generally have lived in Canada for less time than other immigrant men.

The difference in coverage is much less pronounced among immigrant women.  9  Among recent immigrants, visible-minority women appear to have lower coverage than other women. However, the difference is not statistically significant at conventional levels. Furthermore, among immigrant women who arrived in Canada more than 10 years ago, coverage appears if anything to be higher for visible-minority women.

Why is RPP coverage so much lower among visible-minority immigrant men than among other immigrant men? There could be at least four explanations. First, compared with other immigrant men, visible-minority men have lived in Canada for a much shorter period of time: 15.6 years compared with 25.8 years (Chart D). Second, visible-minority immigrant men are found less often in unionized jobs, which offer better pension coverage than non-unionized jobs. Third, they are less likely to be employed in large firms, which provide better coverage than small firms (Morissette 1991). Fourth, they are much more often employed in low-coverage industries such as consumer services. When these four factors are controlled for in a multivariate analysis, the gap in coverage drops from 15 to 8 percentage points.  10  This result suggests that these four factors account for roughly half of the difference in pension coverage between visible-minority immigrant men and other immigrant men.

What accounts for the remaining difference? Differences in level of education are unlikely to be a factor since visible-minority immigrant men have, on average, the same education level as other immigrant men.  11  Differences in employment by broad occupational groups do not appear to offer a plausible explanation either, since visible-minority immigrant men are found slightly less often in well-covered occupations such as professionals and managers.  12  Differences in field of study, language skills, or recognition of education credentials could play a role by influencing one's access to jobs with good fringe benefits. However, this cannot be examined, either because of sample size restrictions or because the information is not available in SLID.

Summary

In 1998, pension coverage of immigrant employees was slightly lower than that of their Canadian-born counterparts. And recent immigrants had lower coverage than those who came to Canada earlier. Immigrant men belonging to a visible minority had much lower coverage than other immigrant men. However, a similar pattern was not observed among immigrant women. While pension coverage does seem to increase with time spent in Canada—presumably as a result of improved language skills and a better knowledge of labour market opportunities—a thorough investigation of this question requires large data sets that would allow analysts to control for factors such as country of origin, ethnicity, and class of immigrant.

Notes

1. Workers under 25 were excluded, since potential changes in their coverage would probably have little effect on their retirement income, given the high probability of future job changes. Likewise, those over 54 were omitted because many may have taken early retirement and those still working may not be representative of the whole group. Statistical tests performed for this article take account of the complex design of the surveys.
2. The overrepresention of older workers in large firms is consistent with this notion.
3. For immigrant men aged 25 to 54 in 1998, the average age was 38.9 years, compared with 34.0 years for their counterparts in 1988. Corresponding numbers for women were 38.4 and 33.6 respectively.
4. A more promising avenue would be to take advantage of the Longitudinal Immigration Database (IMDB) and use matching methods. This would mean comparing the pension coverage of two immigrants of different ages from the same country, with the same level of education and intended occupation upon arrival, belonging to the same class of immigrants, and arriving in Canada during the same year. For instance, pension coverage would be compared for two men who immigrated to Canada in 1988, one aged 35 in 1988 and the other aged 35 in 1998 (25 in 1988). Since pension coverage of Canadian-born men did not rise between 1988 and 1998, the possibility could be rejected that an increase in pension coverage observed between these two immigrants during the 1988-1998 period was due simply to a general increase in pension coverage among Canadian men. Since the IMDB database contains no data on the current education level of an immigrant, an assumption would have to be made that the education level of the second immigrant had not increased between 1988 and 1998 in order to conclude that an observed increase in pension coverage had been caused by a greater number of years since migration.
5. Using a one-tailed test, the hypothesis that the difference in coverage did not change between 1988 and 1998 can be rejected at the 10% level in favour of the hypothesis that it fell during the period.
6. The difference is statistically significant at the 1% level (two-tailed test).
7. The gap in coverage is statistically significant at the 1% level (two-tailed test).
8. For both recent immigrants and those who arrived earlier, the difference in coverage is statistically significant at the 5% level (two-tailed test).
9. It is not statistically significant at the 5% level.
10. A linear probability model was used in which workers' pension coverage was regressed simply on union status, industry (8 major groups), firm size (4 categories), and years since migration (1 to 10 years, 11 to 20 years, more than 20 years). The sample included 1,041 immigrant men, 402 of whom belonged to a visible minority.
11. Among visible-minority immigrant men, 13% did not graduate from high school, 14% had a high school diploma, 47% had some postsecondary education, and 26% had a university degree. The corresponding numbers for other immigrant men were 14%, 13%, 48%, and 25% respectively.
12. Among visible-minority immigrant men, 32% were professionals and managers, 26% white-collar workers, and 42% blue-collar workers. The corresponding percentages for other immigrant men were 36%, 23%, and 41% respectively.

References

• Baker, M. and D. Benjamin. 1997. "Ethnicity, foreign birth and earnings: A Canada/U.S. comparison." In Transition and structural change in the North American labour market. Edited by M. Abbott, C. Beach and R. Chaykowski. Kingston, Ont.: IRC Press.
• Bloom, D.E., G. Grenier, and M. Gunderson. 1995. "The changing labour market position of Canadian immigrants." Canadian Journal of Economics 28, no. 4b (November): 987-1005.
• Frenken, H. and K. Maser. 1992. "Employer-sponsored pension plans: Who is covered?" Perspectives on Labour and Income 4, no. 4 (Winter): 27-34.
• Grant, M.L. 1999. "Evidence of new immigrant assimilation in Canada." Canadian Journal of Economics 32, no. 4 (August): 930-955.
• Hum, D. and W. Simpson. 1998. Wage opportunities for visible minorities in Canada. Survey of Labour and Income Dynamics Research Paper Series, no. 98-17. Catalogue no. 75F0002MPE. Ottawa: Statistics Canada.
• Morissette, R. 1991. "Are jobs in large firms better jobs?" Perspectives on Labour and Income 3, no. 3 (Autumn): 40-50.
• Morissette, R. and M. Drolet. 2001. "Pension coverage and retirement savings of young and prime-aged workers in Canada, 1986-1997." Statistics Canada Catalogue no. 74F0005XPE. Copy of an article from Canadian Journal of Economics 34, no. 1 (February): 100-119.

René Morissette is with the Business and Labour Market Analysis Division. He can be reached at (613) 951-3608 or perspectives@statcan.gc.ca.

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