New evidence provides plenty of reason to be optimistic about the future labour market outcomes of newcomers
Immigrant underemployment has been a longstanding challenge in Canada, but recent evidence runs in contrast to the negativity that often surrounds this subject.
While it is true that many immigrants are working below their paygrade, which according to a recent report by the Royal Bank of Canada costs the economy an estimated $50 billion in annual GDP, Statistic Canada data shows considerable progress is being made on this front.
A Perfect Scorecard
When assessing various immigrant labour force metrics, everything that we want to be happening is actually occurring: More immigrants are in the labour market and are employed, fewer of them are underemployed, and their wages are on the rise.
Among core-aged workers (those between the ages of 25-54), the participation rate of Canada’s newcomers (those in Canada for five years or less) stood at 78 per cent in 2018 compared with 74 per cent in 2006.
This is a positive finding because it suggests that newcomers today are integrating into the labour market more quickly than their predecessors (the participation rate represents the percentage of people within a specific cohort that are working or are looking for a job).
The newcomer employment rate (the share of a worker cohort with a job) has also improved — it was 71.3 per cent in 2018 compared with 65.2 per cent in 2006.
Similarly, immigrants who have been in Canada between 5 and 10 years have seen their employment rates rise significantly to 79.5 per cent in 2018 compared with 75.6 per cent in 2006.
The unemployment rate (the share of a worker cohort looking for a job) has declined. Among newcomers, it stood at 8.6 per cent in 2018, which may seem high, but is a marked improvement compared with what it stood at after the 2008-09 recession (14.7 per cent) and back in 2006 (11.5 per cent). It has also dropped among other immigrant cohorts—it stood at just 5.3 per cent in 2018 for immigrants that have been in Canada between 5 and 10 years compared with 7.3 per cent in 2006.
Immigrant wages are also rising. A 2018 Statistics Canada report noted that “immigrants admitted to Canada in 2015 earned the highest entry wages of any cohort admitted since 1981.”
Moreover, core-aged immigrants with a university degree saw their wages increase by 3.5 per cent in 2017 compared with the previous year (the Canadian-born cohort saw a 0.9 per cent increase).
Two Factors at Play
The first major factor that can explain the better performance of immigrants is Canada’s tightening labour market.
With more baby boomers retiring, Canadian employers are increasingly counting on immigrants to fill the void. According to a Conference Board of Canada study, all 9.2 million baby boomers will retire over the next decade, which means that employers will need to become even more reliant on immigrants.
Reforms to Canada’s immigration policy are the second factor. These include reforms to selection policies as well as expanded efforts to support newcomer settlement and integration.
Expression of interest systems launched by the federal government (Express Entry) and provinces across Canada are likely contributing to improved immigrant outcomes. By ranking applicants against one another based on human capital factors such as age, work experience, education, and language ability, the federal government and provinces are now giving preference to the highest-scoring immigrants.
This marks a departure from Canada’s previous system where immigrants were selected so long as they met a certain points threshold, even if there were other candidates waiting behind them who had higher scores.
Canada’s Provincial Nominee Program (PNP) is also likely contributing to the improvements. An evaluation by Immigration, Refugee, and Citizenship Canada (IRCC) noted that the vast majority of PNP arrivals become established economically, with high employment rates, and earnings that increase over time.
More temporary residents are now transitioning to permanent residents under Express Entry and the PNP (“two-step migration”). This is sound policy as Statistics Canada research has shown that immigrants who previously worked or studied in Canada initially have a large earnings advantage over those without prior experience living in Canada.
The federal government and provinces and territories fund settlement supports for immigrants such as language training, employment services, among others. IRCC is the largest funder of such services and has increased its annual settlement budget fivefold over the past two decades to $1.5 billion today.
It is likely that this increased investment is contributing to the labour market improvements immigrants have recently enjoyed.
Room for improvement and reasons to be optimistic
At the same time, they are doing better in the labour market, which is probably due to baby boomer retirements and refinements to immigration policy.
These two factors will continue, which should leave us feeling optimistic that immigrants will continue to enjoy stronger labour market outcomes.