Economic Assimilation of Immigrants to Canada over the 20th Century

8/14/2019 Economic Assimilation of Immigrants to Canada over the 20th Century

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Economic Assimilation of Immigrants

to Canada over the 20thCentury

May 1, 2013

Submitted to: Ben Sand

Empirical Labour Economics

ECON 5620

Submitted by: Marshall Boyd


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1. IntroductionImmigration has played always played an important role in Canadas history. Canadian

governments have always encouraged immigration as a way to bolster the population. For much

of the twentieth century immigration has been an important factor in Canadas labour policy and

starting in the mid-1960s Canada adopted an objective points system designed to bring in more

skilled immigrants and tailor immigration to the labour needs of the economy. The question of

how well do immigrants perform in the labour force compared to native workers has been a

question of much interest in both Canada and the United States. Over the past three decades

there has been much work trying to answer this question.

Chiswick (1978) began research into the earnings and labour market assimilation of

immigrants using the 1970 census to examine the effects on white, male immigrants in the

United States. His research supported his hypothesis that initial earnings of immigrants would

be less than native workers because skills are not perfectly mobile across countries. The returns

to immigration are expected to be higher for those that have unobservable skills, ability,

intelligence, or chutzpa; immigrants possessing these skills are expected to self-select for

immigration and have higher returns than native workers holding all other observable

characteristics. For this reason, over time, as skills are gained the immigrant is expected to earn

more quickly and catch up or surpass the earnings of native workers. Chiswick found that the

crossover period, when immigrants began to earn more than native workers, was between 10-15

years after immigration. This crossover effect is expected to be weaker if the self-selection is

weaker, such as when immigration is due to refugee status or for family reunification.

Borjas (1985) questions these results by examining the earnings of immigrants across

both the 1970 and 1980 census. The main critique by Borjas is that the estimate of the effect of


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years since immigration on earnings is biased by the changing quality of immigrants. Over time,

if immigrants are not doing as well in the United States they can emigrate back to the country of

origin where they will presumably perform better. This will improve the overall quality of

earlier immigration cohorts as they self-select to stay or re-migrate based on labour market

performance. A second bias can result from assuming that each cohort has the same quality of

immigrants to begin with. This may not be true depending on changing immigration policies or

political disturbances around the world. These critiques are addressed by splitting immigrants

into cohorts based on the period of immigration and measuring the cohort effect across time by

using the two censuses as semi-longitudinal data.

By looking at cohorts across time, Borjas finds that the earnings growth of immigrants is

greatly exaggerated by cross-sectional studies of immigrant earnings. The total growth of

earnings is much slower and the growth of immigrants earnings compared to native workers is

even lower and sometimes negative. This means that the crossover period will be much longer

than 10-15 years if it occurs at all.

This result is found to hold for Canada, as well, through the 1971, 1981, and 1986

censuses (Bloom, Genier, and Gunderson, 1995). Using the same empirical method as Borjas

(1985) to create semi-longitudinal data from multiple censuses, Bloom et al. find that the entry

level earnings and the rate of labour market assimilation of immigrants has eroded over time.

Earlier immigrants to Canada experience faster and more complete assimilation while more

recent immigrants start in a worse position and are unlikely to ever reach complete assimilation

in the labour market.


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These findings are supported by Baker and Benjamin (1994) who also use the 1971,

1981, and 1986 Canadian censuses to examine the labour market assimilation of immigrants.

They also note that immigrants will receive lower returns to education than native workers. This

has been found previously in studies of American immigration but has been explained by the

lower skills immigrants to the USA have relative to native workers. This explanation does not

work in Canada as immigrants have, on average, more education than native workers. The

decreased returns to education will counteract any assimilation into the workforce by

immigrants, guaranteeing that they will receive lower earnings for their working life.

In his 1995 paper, Borjas updates the findings of his 1985 paper by adding the 1990

census data to his analysis and finds that the trend in decreasing returns to immigrants continues

throughout the 1980s. Each successive cohort of immigrants starts off in a worse position and

improves less over time. In 1970 the average immigrant earned 1% more than a native worker

by 1980 this had become nearly 10% less and in 1990 16.5% less. Further, it is unlikely that

immigrant cohorts will ever reach parity with native workers and will spend most of their

working life earning 15-20% less than native counterparts (Borjas, 1995).

Grant (1999) uses the 1981, 1986, and 1991 Canadian censuses to look at continuing

trends in immigrant assimilation. She finds that immigrants in the 1980s experienced far higher

assimilation than earlier immigrants. She also found that immigrants in the later 1980s had

similar entry earnings to those in the later 1980s suggesting that the downward trend of entry

earnings may be ending.

In this paper I will be using the 1971, 1981, 1986, 1991, 1996, and 2001 Canadian

censuses to look at the assimilation of immigrants to Canada over time. Most studies have


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indicated a downward trend in immigrant earnings with Grant hypothesizing that this trend

ended in the 1980s, using data after this period I will ascertain whether this trend actually ended

or if the 1980s were simply an anomalous period.

2. ModelThe basic equation that will be examined in this paper is

, = +, + (1)

Where is the log of annual earnings of cohort i in period t as found by summing

wages and self-employment earning, is a vector of observable characteristics, ,is the cohort

effect for immigration cohort i in period t, and is an error term.

Lalonde and Topel (1992) define the error term as

, = , +, + (2)

The first component, ,is the cohort effect and measures the assimilation of the cohort i

in period t. This effect varies over time as the cohort gains human capital relevant to the

Canadian labour market. ,is a coefficient that measures all the unobservable macro effects that

are occurring in the Canadian labour market that would cause a change in earnings. The final

variable is a fixed variable that represents the quality of each cohort.

Equation (1) is estimated using the pooled data from the 1971, 1981, 1986, 1991, 1996,

and 2001 Canadian censuses to act as semi-longitudinal data. In each census there is no way to

track who is being surveyed but the immigration cohort is used to simulate longitudinal


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information. The immigration cohorts are immigrants before 1946, 1946-1955, and each five

year period thereafter.

Equation (1) is estimated as:

, =, + , (3)

From this we can estimate a cross-section of growth by taking the difference of cohort i

and cohort i+k using the same average level of ,for both cohorts. In this way the difference is

limited to only the change in ,and the unobserved ,. The difference in can be netted out to

, +,under the assumption that , +, = 0and + = 0. The first assumption

is easy to make since it relates the unobserved macro effects over a period of time. These effects

will affect both cohorts, though some might argue that a cohort that has been in the country

longer will be better able to weather negative effects and take advantage of positive effects

leading to a bias in this estimate. The second assumption is harder to make as it seems unlikely

that each cohort of immigrants will all have equal quality. Borjas (1985) argues that the quality

of cohorts has decreased but we see in Grant (1999) that the level of both education and

experience has increased in recent cohorts. Either way it reveals that there is some level of bias

(probably negative for Canadian immigration) in the level of assimilation of immigrants.

A quasi-longitudinal estimate of growth can be estimated by comparing the same cohort

across censuses. Using equation (3) again we take the difference between cohort i in time t and

t+k again using the same average level of ,so that the difference is again just in and . The

difference in can again be netted out to , ,+with the assumptions , ,+ = 0and

= 0. The second assumption is easier to make since we assumed to be a fixed cohort

quality; however, over time the cohort quality could easily change as the less skilled and less


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successful immigrates migrate back to their country of origin or some other country with the

hopes of success. The first assumption is definitely not true as the unobserved macro effects on

the economy will undoubtedly be changing over time.

The difference in potential earnings using equation (3) can be decomposed following

Borjas (1985) method:

,+, = (, ,) + (, +,) (4)

The first term on the right hand side of equation (4) is the within cohort growth of

earnings of cohort i. This is the change in earnings for cohort i across two censuses. This is

what Grant (1999) refers to as the true assimilation. The second term is the across cohort

growth. This is the change in earnings of cohort i in year t-k compared to the earnings of cohort

i+k in year t; this compares the earnings of cohorts after spending the same number of years in

Canada.

3. ResultsEquation (1) is estimated controlling for the observable characteristics weeks worked in

the reference year (the year prior to the census year), hours worked in the reference week (the

week prior to being surveyed), marital status, years of schooling, experience, experience squared,

and the period of immigration into Canada. The dependent variable is found by taking the log of

earnings, wages and self-employed earnings, in the reference year.

Table 1 shows the estimated return to immigration for each immigration period. From

this table we can see that earlier immigration cohorts, those arriving before 1965 performed

much better in the Canadian labour market. We cannot see what the entry level earnings


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Table 2

Decomposed Effects of Returns to Immigration

1971/1981 1981/1986 1986/1991

Period of

Immigration

Cross-

Section

Within

Growth

Across

Growth

Cross-

Section

Within

Growth

Across

Growth

Cross-

Section

Within

Growth

Across

Growth

Pre 1946 0.064 0.017 0.048 -0.027 -0.067 0.040 -0.139 -0.079 -0.060

1946-1955 0.062 -0.021 0.082 -0.020 -0.009 -0.011 -0.003 0.033 -0.0361956-1960 0.032 0.003 0.028 0.044 0.044 0.000 -0.353 0.016 -0.368

1961-1965 0.086 -0.035 0.122 0.053 0.029 0.024 0.392 0.412 -0.020

1966-1970 0.117 -0.002 0.118 0.065 -0.021 0.086 0.095 0.073 0.022

1971-1975 - - - 0.039 -0.003 0.042 0.037 0.042 -0.005

1976-1980 - - - 0.172 -0.008 0.180 0.049 0.044 0.005

1981-1985 - - - - - - 0.151 0.167 -0.016

1986-1990 - - - - - - - - -

1991-1995 - - - - - - - - -

1991/1996 1996/2001

Cross-Section

WithinGrowth

AcrossGrowth

Cross-Section

WithinGrowth

AcrossGrowth

Pre 1946 -0.308 0.183 -0.491 0.112 0.094 0.017

1946-1955 0.392 0.352 0.040 0.086 -0.325 0.411

1956-1960 -0.002 -0.042 0.040 -0.043 -0.019 -0.0241961-1965 0.027 -0.393 0.420 0.026 0.022 0.004

1966-1970 0.052 -0.028 0.080 0.034 0.023 0.011

1971-1975 0.102 0.015 0.087 0.076 0.041 0.035

1976-1980 0.050 -0.049 0.100 0.095 0.068 0.028

1981-1985 0.108 -0.051 0.159 0.069 0.023 0.046

1986-1990 0.145 -0.008 0.153 0.075 0.062 0.013

1991-1995 - - - 0.042 0.132 -0.089

Assimilation is reported across two censuses. The change is broken down into growth within the cohort, true assimilation,

and growth in returns compared to a cohort that spent the equal number of years since migration.


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4. DiscussionThe returns to immigration seem to follow a boom and bust cycle. In some periods

immigrants experience very little or negative assimilation, the bust, and in others all immigrants

experience periods of increased assimilation. The overall assimilation rate is quite low with

gains made during a boom often being lost during a bust. The highest rates of assimilation are

for the immigrant cohort spending its first five years in Canada during a boom. The initial rate

of assimilation is quite high for those cohorts and they better weather the following bust period.

This finding of a boom and bust cycle corresponds with and ties together the findings of

both Baker and Benjamin (1994) and Grant (1999). Baker and Benjamin examined the censuses

from 1971, 1981, and 1986, all periods of a bust, and found that rates of assimilation ranged

between -3 and 3%. Along with this low rate of assimilation, they found deteriorating entry level

earnings. Grant used the 1981, 1986, and 1991, the last belonging to a boom period, censuses

and found that for the immigration cohort 1981-1985 the rate of assimilation was much higher

and that the entry level earnings of the following cohort, 1986-1990, had not fallen below the

levels of the 1981-1985 cohort. From these findings she predicted that entry level earnings had

levelled off and immigrants were beginning to perform better in the Canadian labour force.

By taking a longer view and using more recent data, I have corroborated the results from

both of these papers and found a slightly different trend. The entry level earnings of immigrants

is continuing to deteriorate but during boom periods entry level earnings will improve or remain

constant between immigration cohorts. Baker and Benjamin used data from a bust period and

found a downward trend in return to immigrants to Canada. Grant added data from a boom

period and found rightly that immigrant earnings and rate of assimilation improved over this

period. However, it didnt remain at this level; the period of 1991/1996 shows another sharp


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decline in entry level earnings and rate of assimilation. The following period, 1996/2001, was a

boom period and while the entry level earnings of immigrants improved it did not return to the

levels of the 1986/1991 boom period.

The boom and bust periods do not necessarily correspond to the macro-economic boom

and bust cycles of the economy. These booms and busts are related only to the level of earnings

of immigrants. The boom could be caused by an immigrant cohort that is more highly endowed

with some unobservable characteristic that allowed them to garner higher earnings. It could also

be some specific effect of particular periods that favours immigrants over native Canadian

workers.

Based on these findings, current immigrants to Canada can expect to spend at least 20-25

years of their working lives earning less than native Canadians. Low rates of assimilation

coupled with deteriorating entry level earnings means more recent immigrants may never reach

parity with native Canadian counterparts.

There are many potential causes to why the earnings of more recent immigrants are so far

below native Canadian workers. Since the 1960s when changes were made to the Canadian

immigration system there has been less emphasis placed on the skills immigrants have and more

emphasis placed on family reunification.1 The emphasis on skills now applied mainly to the

independent class of immigrants but not to families. By placing less emphasis on skills and more

on family reunion it could be that more recent immigrants are lacking in the unobserved

qualities, ambition, talent, etc., that allow immigrants to assimilate into the work force more

fully. The changes to immigration in the 1960s also changed the ethnic composition of

1Bloom, Grenier, and Gunderson, 4-5.


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immigrants. There were fewer immigrants from the UK and Europe and more immigrants from

Asia and Africa. Discrimination on the part of employers could be the cause that immigrants are

earning less than native Canadians. Newer immigrants could also just be placing less emphasis

themselves on earnings. The definition of success or the motivating factors for working could be

different between earlier and more recent immigrants and so the level of earnings is not as

important.

Regardless of what causes the differential in earnings, it will be interesting and important

to continue monitoring the earnings of immigrants. The immigrant population continues to rise

and is a very important piece of Canadian labour policy. If the earnings of immigrants continue

to fall in the future this key policy may be in jeopardy as immigrants will choose to live in other

countries that can offer them a better return. It is also important that as the labour market is

made up of more immigrants the decreased earnings does not have larger adverse effects on the

economy.


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Economic Assimilation of Immigrants to Canada over the 20th Century