Conclusions

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At the outset of the paper, we posed four questions related to immigrant skills and earnings. First, do the cognitive skills of immigrants differ from those of the Canadian born? Second, do immigrant – Canadian-born skill differences depend on where immigrant human capital was acquired? Third, do immigrants receive a different return to those skills than observationally equivalent Canadian-born workers? Fourth, can differences in levels and returns to cognitive skills help explain differences in earnings between immigrant and Canadian-born workers? Based on an examination of data that include both earnings and skill test scores for immigrants and the Canadian born, the answer to the first question is clearly yes. The Canadian-born cognitive skill distributions first order stochastically dominate the distributions for immigrants. This is not just a reflection of differences in observable characteristics such as education since immigrants have lower average test scores than observationally equivalent Canadian-born workers. These differences in measured skills may partially reflect host country language proficiency. As a result, the test scores should be interpreted as reflecting cognitive skills that are "usable" in the Canadian economy.

The answer to the second question is clearly yes. We find substantial differences in behaviour and outcomes between immigrants who obtained their education prior to arrival in Canada and immigrants with Canadian education. Foreign-educated immigrants have much lower skills and earnings than immigrants with Canadian education. Indeed, the latter group is in many respects more similar to the Canadian born than to foreign-educated immigrants.

The answer to the third question is a resounding no. There is no evidence that immigrants receive a lower return to the types of cognitive skills measured in IALSS than otherwise equivalent Canadian-born workers. If we rely on Becker's notion of discrimination (i.e., equally productive workers being paid unequally) this indicates that immigrant/Canadian-born earnings differentials cannot be explained by discrimination, at least in this dimension.

Cognitive skills have a significant impact on earnings. A 100-point increase in the literacy score (equivalent to approximately one and a half standard deviations in the literacy distribution) raises earnings of men and women by almost 30 percent. Introducing the average skill score into a standard earnings regression reduces estimated education differentials by about 10-20 percent for the Canadian born, and by substantially more for foreign-educated immigrants.

The result that cognitive skills have a significant impact on earnings implies that lower immigrant skill levels may help in understanding immigrant/Canadian-born earnings differentials. This is indeed the case. If immigrants had the same average skills as the Canadian born, the earnings differential between high school educated immigrants and native-born Canadians would narrow by about 13-16 percentage points. This change would turn the 11% earnings disadvantage of immigrant men with high school education into a 5% advantage, and would raise the advantage of high school educated female immigrants to almost three times that magnitude. Similarly, this change would reduce by half the immigrant earnings disadvantage among university educated men and would eliminate the 19 percentage point disadvantage among university educated women. It is worth noting, as well, that controlling for cognitive skills does not affect the relative patterns of returns to foreign and Canadian acquired experience. Thus, this important dimension of immigrant earnings patterns is not related to workers' cognitive skills.