Immigrant Underemployment is Costly for Canada, CIBC Says

English: Tour CIBC in Montreal. (Photo credit: Wikipedia)

By Nirmala Menon


Bloomberg
A worker at an auto-parts plant in Ontario. A CIBC economist argues that changes to Canada’s immigration model could help productivity.
Immigrants in Canada are underemployed and paid less than Canadian-born workers, a phenomenon that’s costing the economy over 20 billion Canadian dollars in forgone earnings, and is probably  a significant factor in Canada’s productivity gap with the U.S., according to a report from CIBC World Markets.

Newcomers to Canada may be more educated now, but they only earn about 60 cents on the dollar relative to their Canadian-born counterparts. That compares with 80 cents on the dollar earned by those who arrived in the 1970s, the report says. The earnings gap is also narrowing at a much slower pace.

The crux of the issue is a mismatch between the skills that an immigrant brings and those the country needs, according to the report’s author, Benjamin Tal. Furthermore, immigrants are arriving with less proficiency in English or French, Canada’s official languages.

“This is not an efficient market,” Mr. Tal, who is deputy chief economist of CIBC World Markets, said in an interview.

He says Australia is doing a better job of narrowing the discrepancy between its native-born and immigrant populations, noting that the earnings gap is 50% smaller than in Canada. He says mandatory pre-immigration English language testing introduced in the 1990s is probably the key factor for the advantage that Australian immigrants enjoy. There’s also more coordination between government and the professional bodies responsible for licensing, so immigrants have a greater chance of success in their fields, he says.

Although many recent changes in Canadian immigration rules are modeled on Australia, Mr. Tal worries that Canada may be focusing too much on short-term needs.

“We should be taking a long term view,” he says.

The earnings disparity between immigrants and those born in Canada doesn’t bode well for the country’s lackluster productivity. Mr. Tal points to estimates that suggest some 20% of the increase in the productivity gap with the U.S. over the last decade can be attributed to immigration.

“Without a significant increase in immigration-based productivity, the aging profile of the Canadian population will work to reduce the standard of living all Canadians,” Mr. Tal writes.

http://blogs.wsj.com/canadarealtime/2012/08/13/immigrant-underemployment-is-costly-for-canada-cibc-says/