IMMIGRATION IN CANADA: CONTEXT, ASSIMILATION AND LABOUR MARKET IMPACTS Mary Lela Grant A thesis submitted in conforrnity with the requirements for the degree of Doctor of Philosophy Graduate Department of Economics University of Toronto O Copyright by Mary Lela Grant 1999 National Library Bibliothèque natio~le 1*1 of Canada du Canada Acquisitions and Acquisitions et Bibliographie Services services bibliographiques 395 Wellington Street 395. me Wellington OttawaOfU KlAON4 Ottawa ON K1A CiN4 Canada CaMda The author has granted a non- L'auteur a accordé une licence non exclusive Licence allowing the exclusive permettant à la National Library of Canada to Bibliothèque nationale du Canada de reproduce, loan, distribute or sel1 reproduire, prêter, distribuer ou copies of this thesis in microfonn, vendre des copies de cette thèse sous paper or electronic formats. la forme de microfiche/fiIm, de reproduction sur papier ou sur format électronique. The author retains ownership of the L'auteur conserve la propriété du copyright in this thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantid extracts fiom it Ni la thèse ni des extraits substantiels may be printed or otheMrise de celle-ci ne doivent être imprimés reproduced without the author' s ou autrement reproduits sans son permission. autorisation. Immigration in Canada: Context, Assimilation and Labour Market Impacts Doctor of Philosophy, 1999 Mary L. Grant Department of Economics, University of Toronto Abstract In Chapter 1, 1 introduce the reader to immigration in Canada. This includes the contextual environment. immigration policies and brief reviews of three types of immigrant studies: those on assimilation, those on take-up rates of transfer payments and those on the labour market impact of immigration on native-born Canadians, In Chapter II, 1 investigate the economic assimilation experienced by immigrants over the 1980s. Previous studies of the labour market experience of male immigrants to Canada have uncovered two disturbing trends: declining entry earnings for successive new immigrant cohorts, and low assimilation rates. These findings suggest that many cohorts may never assimilate. The 1991 Census provides a first look at the immigrant cohorts arriving in the 1980's. These immigrants appear to avoid the plight of their predecessors; entry earnings have stopped falling, and those immigrants arriving between 198 1 and 1985 experienced a 17% assimilation rate. 1 am unable to explain this tumaround based on the observable characteristics recorded in the census data- In Chapter III, I explore the economic impact of immigrants' presence within the Canadian labour market on the wages of native-born Canadians and earlier immigrants. Most of the existing evidence on this question uses data from the United States and finds no impact. In this paper 1 estimate the impact of immigration on native wages using Canadian data, paying close attention to the important econometric issues, such as the potential endogeneity of immigrants' choice of location upon amival. The "iabour market" is defined by occupations. Two important innovations are the use of immigrant source-country charactenstics and immigrants' intended occupation at entry as instruments in predicting immigration flows to the labour market. My results consistently point to no evidence of adverse effects of immigrants on the labour market outcomes of native-born Canadians. This chapter also contains an andysis of the impact of immigration on educational and age wage differentials. Larger impacts are found on the wage differential between young and older workers. Lastly, 1 find some evidence that natives exit labour markets that immigrants enter and that new immigrants may be confined to lower paying occupations. iii Acknowledgrnents First, 1 wouId like to thank my family and friends for their support and patience throughout this process. Second, 1 would like to thank Michael Baker and Dwayne Benjamin. Without their help, this dissertation would not have ken possibie. They are true models of genius and compassion. Third, 1 would like to acknowledge Morley Gunderson and Charles Beach for their help with the final dissertation defense. Fourth. 1 would like to thank the Institute for Policy Analysis for generous f'ûnding during the last three years. Lastly, I would like to thank my fellow students and wish them luck in al1 their pursuits - they deserve it. TABLE OF CONTENTS Chapter 1: Context 1. 1 Introduction 1. 2 Immigration Policy a) Classes 1.3 Economics of Immigration a) Assimilation b) Transfer Payments c) Wage and Employment Impacts Table 1.1 Immigration by Year. 1906-96 Table 1.2 Point System Table 1.3 'Top' Refugee Source Countries, 1995-98 Table 1.4 'Top' Skilled Source Countries, 1995-98 Figure 1.1 Immigrant Source Countries, 1955-96 Figure 1.2 Immigration by Class, 1980-94 Chapter II: Evidence of New Immigrant Assimilation in Canada II. 1 Introduction 11.2 Data 11.3 Models 114 Results a) Quasi Panel b) Years Since Migration 11.5 Interpretation Table II. 1 Native, Immigrant, and Immigrant Cohort Economic and Demographic Means Table 11.3 Relative Log Wages of Immigrant Cohorts Table 11.3 Quasi Panel - Decomposition of Cross-Section Growth in Immigrant Earnings into Within Cohort Earnings Growth and Across Cohort Eamings Growth for Full Year Full Time Males Table 11.4 YSM - Entry, Assimilation, and Cohort Effects Table 11.5 Quasi Panel - Decomposition of Weighted Cross-Section Growth in Immigrant Eamings into Within Cohort Earnings Growth and Across Cohort Earnings Growth for Full-Year Full-Time Males Table 11.6 Percentage of immigrants in Each Entry Class Figure II. 1 Real Immigrant Earnings for Full-Year Full-Time Males 1980 and 1985 Figure 11.2 Real Immigrant Earnings for Full-Year Full-Time Males 1985 and 1990 Figure 11.3 Difference in Log Real Earnings Growth Rates (Full-Year Full-Time Males) Between New and Old Workers Appendix II Base Specification for the Eaniings Regession and Variable 58 Definitions Table II-Al Cohort Sarnple Sizes 60 Table 1I.M Real Earnings (1 990 dollars) 61 Table II.A3 Estimates of Eamings Function (Quasi Panel) 62 Table II.A4 Estimates of Eamings Function (YSM) 63 Chapter III: Do immigrants Affect the Wages of Native Workers? Evidence from Canada 111.1 Introduction III .2 The Theoretical Frarnework a) Complications 111.3 The Ernpùical Context and Previous Research 111.4 Data and Empirical Frarnework a) Cross Market Analysis i) The Instrument b) Factor Proportions Analysis 111.5 Results a) Cross Market Analysis i Ordinary Least Squares ii) Instrumentai Variable Analysis iii) Native Mobility Across Occupations iv) Other Issues b) Factor Proportions Analysis Table III. 1 Characteristic Means of Natives. New Immigrants, and Earlier Immigrants Table 111.2 Immigrants in the Canadian Labour Force, 1985-90 Table 111.3 Individual Level Results Table 111.4 Two Stage Least Squares Estimates Table 111.5 Effect of Mobility on Immigration Estimates Table 111.6 Effect of Immigration on Natives by Education. Gender, and Age Table 111.7 Distribution of Immigrant and Native Workers: 1985-90 (Percentage Shares) Table III.8A The Effect of Immigration on Labour Supplies of High School(l1- 1 3 Years) and University Equivalents, 1985-90 Table II1.8B The Effect of Immigration on Labour Supplies of High School Dropouts (41 years) and Al1 Other Workers, 1985-90 Table III.8C The Effect of Immigration on Labour Supplies of Younger (25-34) and Young Workers, 1985-90 Table III.9A Estimated Contribution of Immigration to the Change in the High School ( t 1-1 3)/University Log Wage Differential, 1985-90 Table III.9B Estimated Contribution of Immigration to the Change in the High School Dropout (-41 years)/All Other Workers Log Wage Differential, 1985-90 Table X9C Estimated Contribution of Immigration to the Change in the Younger (25-34)Noung Log Wage Differential, 1985-90 Figure 111.1 Occupationai Labour Market Figure 111.2 Occupational Labour Market with an Exogenous New Immigrant Inflow Figure 111.3 Occupational Labour Market with Simultaneous Movement of Labour Supply and Labour Demand Figure 111.4 Occupational Labour Market with Native Mobility Figure 111.5 Wages and Immigration by Occupation (Natives) Figure 111.6 Wages and Immigration b y Occupation (Earlier Immigrants) Figure 111.7 Actual and Predicted New Immigrant Presence by Occupation (Natives) Figure 111.8 Actual and Predicted New Immigrant Presence by Occupation (Earlier 1mmigrants) Table MA1 Immigrant Occupational Presence (5%) Table III.A2 Individual Level Results (1 985/9O) Table III.A3 Occupation Results (Original and Instrumental Variables) Table MA4 individual Level Results ( 1985/9O) Table III.AS Individual Level Results (Natives 1985 and 1990) Table III.A6 Individual Level Results (Earlier Immigrants 1985 and 1990) Table III.A7 1-Digit Immigrant Occupational Presence (%) Table III.A8 Effect of Immigration on Natives by Education, Gender, and Age Table III.A9 Estimated Contribution of Immigration to the Change in the High School(11- 13)lUniversity Wage Differential Found in Bar- Or et. Al (1995), 1985-90 IV. References 130 vii 1. Context 1. 1 Introduction Currently, there are 100 million people living outside their country of origin (Friedberg and Hunt 1995). Inevitably, such statistics precipitate debate in countries that are the primary recipients of these migrants. The focus, understandably, is on the perceived negative impacts of immigration. The relevant questions are: whether immigration leads to lower wages andor