Location of Study and the Labour Market Success of Immigrants to Canada

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by Jacques Ewoudou

Executive summary

Background

Prior research suggests that despite the increase in educational attainment levels among immigrants, a significant gap remains in their economic outcomes (employment ratios and earnings) compared to non immigrants with similar attributes (for Canadian studies, see for instance, Ferrer and Riddell, 2008; Picot, 2008; Picot, Hou and Coulombe, 2007; Frenette and Morissette, 2003; for international literature, see for instance Chiswick and Miller (2008; 2009) for the United States; Liebig (2007) for Australia; Stillman and Maré (2009) for New Zealand). This research also suggests that differences exist in how well internationally-educated immigrants are doing in host countries' labour markets.

These findings are puzzling for researchers and public policy makers given that the standard human capital model pioneered by Becker (1964) predicts that greater education will lead to higher labour productivity and employment earnings. Indeed, the available empirical evidence suggests a strictly positive relationship between educational investment and labour market outcomes (for Canada, see for instance Ferrer and Riddell, 2002; Finnie and Frenette, 2003; Hansen, 2006; for a review of international empirical evidence, see for instance, Psacharopoulos and Patrinos, 2002). Starting in the early 1980s, the Canadian economy has experienced an acceleration of technological change, mainly driven by computerization. This in turn has generated two opposite phenomena on Canada's labour markets: on one hand, a significant decrease in the demand for less-educated, less-skilled workers, while on the other hand, a strong increase in the demand for highly-educated, highly-skilled workers (Ehrenberg and Smith, 2002).

Following the seminal work by Chiswick (1978), a growing body of empirical immigration-based research explains intra-group variations in post-migration labour market outcomes of internationally-educated immigrants by differences in the international transferability of skills acquired via the education system in the source country. It has been increasingly argued that since each national school system has country-specific components, only some of which can be easily transferable to other country contexts, the success of a typical internationally-trained immigrant in the host country's labour markets will be determined by the relative importance of these two components in his/her pre-immigration education. In other words, immigrants with readily transferable training will quickly succeed economically in the destination country compared to those with training that is specific to the country of origin or graduation.

The current study

Building upon this hypothesis, this study examines from a multivariate perspective, whether and how the location of postsecondary study influences the relative labour market success of immigrant workers in Canada, i.e., their employment status, earnings and education-job match rates, relative to those for the Canadian-born. To proceed, we: (i) take advantage of information on location of highest educational attainment first collected by the Census in 2006; (ii) restrict our population of interest to people between 25 and 65 years of age; (iii) focus on locations of postsecondary study that make up 95% of our target population, i.e., Canada, the United States, the United Kingdom, the Philippines, India, China, Pakistan, Poland, France, South Korea, Romania, the Hong Kong Special Administrative Region, the Russian Federation, Germany and Iran; (iv) identify seven mutually-exclusive labour force statuses, i.e., not in the labour force, unemployed, self-employed, undereducated employee, correctly-matched employee, overeducated employee and school attendee.

Findings

Descriptive statistics by location of study reveal that the majority of our population of interest is overeducated. This result is not surprising since participation in postsecondary education has significantly increased in Canada during the last two decades while Canadian immigration policy became more selective, i.e., skill-focussed, starting in the early 1980s. We note however that most landed immigrants, especially very-recent immigrants, have much higher overeducation rates than the Canadian-born.

For example, more than half of very-recent immigrants who completed their highest postsecondary education in the Philippines (58%) or in India (53%) are considered to be overeducated relative to their jobs, compared to just over 41% of the Canadian-born. We argue that this could reflect, at least in part, additional changes that were made in the selection policy in the early 2000s in order to allow applicants in the skilled worker class to earn 40% of the points required for acceptance in Canada for their educational attainment. Simple descriptive statistics of employment income by location of study and immigration cohort indicate that the Canadian-born with a postsecondary education have, on average, higher employment earnings. They are better off than almost all immigrants, and far better off, on average, than immigrants with a postsecondary education completed in Pakistan, Iran, South Korean or the Russian Federation.

In order to adjust our descriptive results for potential differences in observables shown to predict employment prospects and earnings, we use a statistical methodology that treats labour market behaviour as an endogenous process and account for selection bias when estimating the earnings impact of an immigrant's location of postsecondary study. Everything else held equal, we show that, compared to the Canadian-born, landed immigrants are less likely to be in the labour force, to be paid employees or to be self-employed. The multivariate results also indicate that immigrants' labour market behaviour is determined by the origin of their highest postsecondary education: compared to the Canadian-born, for example, very-recent immigrants who completed their postsecondary studies in Pakistan and South Korea were, respectively, 27% and 22% more likely to be out of the labour force. In contrast, those who completed their highest postsecondary diploma or degree in the Philippines, India or the Russian Federation were on average, only slightly more likely than the Canadian-born to be out of the labour force, at +3%, +7% and +6%, respectively.

The results of the analysis indicate that in the absence of Canadian postsecondary schooling, not all highly-educated immigrants benefit from their length of time as permanent residents. Compared with the Canadian-born, for example, immigrants who completed their postsecondary education in Pakistan or South Korea were more likely to be out of the labour force and less likely to be paid employees even after they had been permanent residents of Canada for at least a decade.

Meanwhile, established immigrants who completed their postsecondary studies in the United States, the United Kingdom or France had, on average, the same probability as the Canadian-born of being undereducated employees or self-employed. This last pattern was also found for established immigrants whose highest level of postsecondary education was completed in Canada.

We also found that the average Canadian-born adult with a postsecondary education is likely to have an earnings advantage over his/her immigrant counterpart, the magnitude of which depends on both the location of study and immigration cohort. For example, a Canadian-born adult with a postsecondary education is likely to earn 62% more than a very-recent immigrant who completed his/her postsecondary studies in Pakistan or in the Russian Federation. Meanwhile, the earnings gap between the Canadian born and very-recent immigrants who completed their highest postsecondary education in Canada, the United States and the United Kingdom was 32%, 30% and 25%, respectively. An analysis of the sensitivity of our results to both the immigrant status bias and the optimal comparison group bias offered similar conclusions, as did a country-level analysis (see Appendix 11.5). That is, relative to the Canadian born with similar observed attributes, immigrants with a postsecondary education aged 25 to 64 are more likely to experience a wage disadvantage that varies with the country of postsecondary education completion and duration of residence in Canada.

Implications

Ferrer and Riddell (2008) argue that many employers seeking to hire workers may use the country of origin of skills acquired through the education system as a screening device for perceived skill levels because productivity-related information on internationally-educated immigrants is generally costly to obtain, especially as they first enter Canada's labour markets. Under this null assumption, in light of all of our results, we argue that a typical Canadian employer who uses education to sort labour market participants by potential productivity level may attach greater economic value to educational qualifications from countries that have linguistic, economic and socio-cultural similarities to Canada. Conversely, that employer may undervalue educational qualifications from other countries, especially those from China, Pakistan, South Korea, the Russian Federation and Iran. In other words, the average prospective employer may not understand very well, and so may not be in a position to evaluate, the properties of postsecondary credentials from Pakistan, Russian federation, China or South Korean for the productivity of prospective labour market participants.