Citizenship and the Economic Assimilation of Canadian Immigrants

One of the people I know at StatsCan flagged this recent IADB analysis of the impact of citizenship on earnings to me (the benchmark study, Dan DeVoretz’s The Economic Causes and Consequences of Canadian Citizenship, dates from 2005).

The paper assesses the impact of the increased citizenship residency requirements under the previous Conservative government (from three to four years) on earnings and concludes that a positive causal relationship between citizenship and earnings exists.

Presumably, the return to the previous requirements would show an improvement in earnings given one less year needed to become a citizen.

One can further extrapolate by considering the impact of the 2020 shutdown of the citizenship program and its only partial restoration (54,000 new citizens April 2020 to February 2021 compared to 238,000 for the same period 2019-20).

In other words, the government’s fixation on immigration targets at the expense of citizenship may harm the earnings of those whose citizenship has been delayed:

At the beginning of this paper, we asked whether citizenship acquisition improves migrants’ economic assimilation in Canada. Our empirical analysis shows evidence suggesting that other factors being equal, naturalized citizens earn higher wages than their non-naturalized counterparts (approximately 11 percent more). 

That under the Act, some migrants had to wait one additional year to claim citizenship, while others did not, was a “naturally” occurring sorting process. The enactment of the Act put exogenous variation into the likelihood of becoming a citizen that allowed us to simulate random assignment conditions as it would have happened in a randomized controlled experiment. We provide evidence of citizenship’s causal effects on economic assimilation with a clean identification strategy that ties an immigration policy to the behavioral responses of immigrants affected by it. 

Within that causal inference framework, we found that those immigrants able to acquire citizenship after living for three years in Canada were better positioned in the labor market than those who had to delay their citizenship applications an additional year because of the policy change. In the short term, both earning capacities and the likelihood of landing a job with deserved “job quality’’ were negatively affected by the Act. Our results also suggest that, because of those baseline differences in hourly wages induced by changes in the migration policy, the longer-term wage growth trajectory differs across the two groups, favoring naturalized migrants. 

Our results indicate that, on efficiency grounds, delaying citizenship acquisition can be costly for society: An initial 11 percent difference in earnings can result in a substantial portion of the migrant population being permanently below the threshold where tax contributions are above welfare transfers. On equity grounds, naturalization policy should provide a predictable and stable plan with clear and stable rules for all migrants. We have shown that society pays the price when policymakers manipulate elements of migration policy to favor their political clientele. Providing stable perceptions of fairness around migration policy may benefit members of society, beyond migrants. Suppose the objective is to compete efficiently with developed countries to attract the world’s most talented human capital. In that case, establishing an evidence-based time for naturalization eligibility, and committing to its stability through time, is a priority. 

Our analysis suggests that firms value the clear signal of migrants’ commitment that citizenship reveals. This signaling might be particularly important for those firms that heavily invest in their employees’ human capital because their associated risk of losing those investments is inversely proportional to that commitment. Lack of citizenship might have impacted hiring decisions and the timing and likelihood of promotions, with longer-term implications for wage growth. When migrants lack citizenship beyond a specific time threshold, they appear to become systematically disconnected from opportunities in the labor market for gaining access to well- paid, stable jobs and those characterized by steep growth in wages.

Source: https://publications.iadb.org/publications/english/document/Citizenship-and-the-Economic-Assimilation-of-Canadian-Immigrants.pdf

Immigration’s impact on Canadian economy cuts many ways for economists

Good summary of what the data shows, largely based on UBC economist David Green:

Are immigrants good for the Canadian economy?

Forty-five per cent of Canadians answer “yes” to this broad question, while 22 per cent say “no” and 33 per cent are not sure. There’s an argument to be made those who told Ipsos pollsters they don’t know are the most honest — and also the most realistic.

Most Canadians don’t follow the economists who track how immigration and temporary workers have an impact on Canada. If they did, they’d soon realize economists’ findings often conflict with the views championed by corporate executives and politicians.

Canada’s traditionally high immigration rates actually cut many unpredictable ways. The more than 300,000 immigrants and 700,000 temporary migrants recently arriving in the country help expand the overall economic pie. But to most economists that doesn’t mean much.

Economists, instead, mine data to discover whether average wages rise or fall because of migration, which types of migrants do best, whether a foreign education or offshore work translates to Canadian success and how much it matters to be proficient in English or French.

UBC economist David Green says it can be misleading to emphasize the gross domestic product. Yet I’d suggest it’s what almost half of Canadians are probably thinking about when they tell pollsters immigration is good for the economy.

“The size of the whole economy is not really what we care about. What we really care about is per capita income. We care about how much each one of us gets in income,” Green said in an interview.

“Think about whether you’d rather be living in India or living here, just in terms of your material wealth. India, in terms of GDP, is bigger than us. But in terms of GDP per capita we’re way ahead of them. So you’d rather be in a rich society than a big society.”

Designing immigration policies mainly to boost the GDP “makes little sense,” Green says. That is, unless you’re a business owner who wants a bigger market for your product (such as real estate or automobiles) and more choice in who you can hire.

Here’s a second lesson from economists: When it comes to what really matters for most Canadians — per capita wages — Green explains the impact of immigration is over time “very close to zero.”

The extreme boosters or critics of immigration, as a result, may have to tone down their rhetoric in light of findings by Green and others that, overall, immigrants neither “steal jobs” nor “magically grow them either.”

Here are eight other discoveries economists have made about migration:

New immigrants aren’t doing as well in Canada as in the 1980s

Historical graphs show immigrants’ earnings, compared to that of the native-born in Canada, were strongest in the 1980s and declined precipitously until about 2003, when they slowly began improving.

There are two reasons for this decline in the 1990s, says Green. One is that all new entrants to Canada’s labour market, including domestic-born, struggled with lower wages during that period. The other is that fewer immigrants came from Europe.

Language matters, a lot

Economic studies have consistently shown the most successful immigrants to Canada are those who are adept at English or French. “There is a positive correlation between language skills and earnings,” says Green.

Source country also makes a difference

“People from source countries where English or French is not the main language, or with different educational institutions, do less well in the Canadian economy … compared to immigrants from Northern Europe or the U.S.,” says Green.

When Australia introduced stricter language testing of immigrants, economist Andrew Clarke and others found immigrants earned higher incomes. But that could be because the new language demands led to more people going to Australia from Europe.

Foreign degrees not quite as valuable as Canadian degrees

Immigrants with a foreign degrees don’t always gain greatly from it, unless they’re literate in French or English, according to economist Joseph Schaafsma.

“The implication is that, on average, immigrants have lower returns on education because their education skills are not as productive in the Canadian economy,” says Green, who nevertheless adds it’s still valuable to select educated immigrants.

It might help if Canadian officials improved efforts to recognize the credentials of people trained outside the country, Green says, “but it won’t be a panacea.”

Offshore work experience doesn’t pay off as expected

This is a harsh reality for many new immigrants.

“Foreign-acquired work experience obtains a zero return in Canada,” both Green and Carleton’s Christopher Worswick discovered. Work skills that immigrants develop in their home countries might not be as useful in the Canadian labour market as they would like.

While it’s hard to pin down exactly why immigrants do not benefit greatly from work experience in a foreign land, Green says it could partly be attributed to “discrimination.” But it’s also a result of old-country experience not easily transferring to a new land.

There are winners and losers in migration

Although the across-the-board impact of immigration on Canadian wages is flat, some low-wage workers can get hit.

American economist Giovanni Peri is among those who have found that relatively recent immigrants can be financially hurt when a new wave of immigrants arrives soon after them.

Although U.S. evidence doesn’t translate easily to Canada, it suggests immigration can have a negative impact on the wages of lower-skilled workers, including both immigrants and the native-born. Some domestic workers adjust by moving into jobs that require strong English-language skills.

There can also be negative impacts on the wages of those in the host society when temporary workers come to Canada, says the University of Ottawa’s Pierre Brochu. The number of temporary workers in Canada, including the low-skilled, has roughly doubled since the 2015 election of Prime Minister Justin Trudeau.

Immigrants tend to pay less in taxes

Since immigrants start in Canada with earnings that are below the national average before they gradually catch up, Green says it “implies they will tend, on average, to contribute less to the public purse.”

Immigrants lean to self-employment and small businesses

Even though commentators point to the way immigrants appear slightly more likely than the native-born to “create businesses,” the trend is a bit more complicated.

“We find that immigrants are more likely to open firms, but they are much more likely to be spells of self-employment, rather than incorporated firms that employ others,” says Green. “And even the incorporated firms tend to be small.”

• • •

Although the financial data is not all rosy for immigrants to Canada, it doesn’t mean most don’t benefit from leaving their homeland.

Most economists agree nearly all immigrants gain tremendously by moving to a high-wage country such as Canada from their own countries, which typically offer lower wages and are often dysfunctional.

What’s more, the United Nations’ Happiness Report, co-run by UBC economist David Helliwell, finds that immigrants who move from “unhappy” countries (where residents report low rates of life satisfaction) to happier ones such as Canada soon end up as happy as the host society.

In addition, many immigrants make their life-changing move to a new land as part of a long game for their families, so their children can get better educations and grow up in more stable societies and stronger economies.

Indeed, Statistics Canada studies reveal the offspring of immigrants do far better than the native-born in both obtaining university degrees and high-skilled jobs. Says Green: “There are potential gains to Canada as whole from the second generation.”

Many people make sweeping generalizations for and against immigration, but instead of going with bombast, economists show the truth is in the details.

Source: Immigration’s impact on Canadian economy cuts many ways for economists

Study finds widening gender gap in wages among post-secondary graduates

Interesting study, with appropriately nuanced conclusions:

Eight years after graduating with university bachelor degrees in 2005, males were earning $27,300 more on average than females who graduated at the same time with the same degrees, says a comprehensive new study.

Among college graduates, the wage gender gap was almost as large — $23,600 — and even larger in percentage terms, according to the analysis done by the Education Policy Research Initiative (EPRI), a national research organization based at the University of Ottawa.

The study also debunked a common myth that some university programs have scant real-world value and prepare graduates for little more than low-paid jobs as baristas.

EPRI’s researchers linked student records for more than 620,000 graduates of the University of Ottawa and 13 other universities and colleges to income tax data between 2005 and 2013 to track their earnings. The study found that men who graduated from university in 2005 earned $2,800 more than women in their first year after graduation. By year eight, the earnings gap had widened to $27,300, meaning male graduates were earning 44 per cent more on average than female graduates.

The pattern held in all fields of study, though the gap was highest for graduates in business, engineering, social sciences and science & agriculture. It was smallest for humanities and fine arts graduates.  Women who graduated from health and humanities programs initially earned more than their male counterparts, but fell behind over time.

Among 2005 college diploma graduates, the gender wage gap was $5,500 in the first year. By year eight, men were earning 56 per cent more than female graduates, a gap of $23,600.

Further analysis could shed light on at least some of the complex reasons for the wage gap, said University of Ottawa professor Ross Finnie, EPRI’s director.

One might be that men and women are focusing on different things within the same broad area of study, and the areas that women choose don’t have as much earnings growth over time, Finnie said.

Another could be the life choices that men and women make, he said. For example, women are more likely to drop out of the workforce temporarily to have children, then work part-time afterward.

“They lose labour market experience and sometimes the labour market punishes people because of that.” And to some degree, “pure labour market discrimination” is likely part of the explanation as well, Finnie said. “It’s a combination of all those things.”

Source: Study finds widening gender gap in wages among post-secondary graduates

The Daily — Study: Immigrants’ initial firm allocation and earnings growth, 1999 to 2012

Immigrants’_Initial_Firm_Allocation_and_Earnings_GrowthThis study suggests limited mobility:

After arriving in Canada, immigrants whose first paid employment was in high-paying firms fared better in both the short and long-term than their counterparts whose first paid employment was in lower paying firms.

A new study uses Statistics Canada’s new Canadian Employer–Employee Dynamics Database to examine the differences in the earnings trajectories of immigrants, according to their initial allocation to low-, medium-low, or high-paying firms.

The benefit of initial employment in high-paying firms remained even after accounting for individual demographic and human capital factors.

For example, immigrant men first employed in low-paying firms earned almost $11,000 less in the first year after landing than their counterparts in high-paying firms. After 14 years in Canada, the earnings gap between these groups was $8,600 despite employment transitions during the intervening years. Similarly, the earnings difference between immigrant women initially employed in low-paying firms and those initially employed in high-paying firms was approximately $6,000 in the first year after landing and $5,500 in the 14th year after landing.

Furthermore, the returns of earnings to educational attainment and knowledge of English or French were larger in both the short and long-term among immigrants initially employed in high-paying firms than among those first employed in low-paying firms.

Source: The Daily — Study: Immigrants’ initial firm allocation and earnings growth, 1999 to 2012