Temporary Foreign Workers and Canada s Labour Market

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1 Temporary Foreign Workers and Canada s Labour Market The federal government presents the Temporary Foreign Worker (TFW) program as a solution to alleged shortages of labour and skills in Canada. However, it is doubtful whether such shortages exist and whether extensive use of TFWs is an appropriate solution. As currently structured, the TFW program worsens unemployment and lowers wages in Canada. Does Canada Have Labour Shortages? Claims of labour shortages are largely anecdotal. While employment is growing, it is not growing as fast as Canada s working-age population. Statistics Canada classifies 1.4 million workers as unemployed, down from a peak of 1.6 million during the worst of the recession but still well above the pre-recession level of 1.1 million. 1 There are almost six unemployed workers for every unfilled job in Canada. Even the provinces supposedly suffering from the worst labour shortages Alberta and Saskatchewan have two unemployed workers per available job. The existence of vacancies does not indicate a labour shortage. At any given point in time, some jobs will be vacant because of turnover. Statistics Canada reports a job vacancy rate of only 1.5% nationally and of no more than 3% in any province. 2 Recent analysis by Human Resources and Skills Development Canada (HRSDC) concludes, With limited incidence of imbalances between labour demand and supply in recent years, and with the projections showing similar levels of job openings and job seekers for each broad skill level, no major imbalances by skill level are projected over the next decade. Of course, imbalances are always possible within particular occupations. HRSDC projects that, over the coming decade, occupations representing 60% of employment have a balanced outlook. Occupations representing 25% of 1 Statistics Canada, Labour Force Survey, March Statistics Canada, Job vacancies, three-month average ending in December 2012

2 employment will have surplus labour. Shortages are projected only for the remaining 15%. 3 TD Economics recently reported, There is no lack of headlines underscoring the difficulties that employers have in finding people with the right skills [but] official data including job vacancies and the quarterly Bank of Canada survey on the per cent of firms facing a labour shortage point to a far-lessworrisome story.... The fact that some of the most highly demanded occupations in the job market chief among them trades, technicians and many professional groups have not recorded above-average wage increases is at odds with the perception that there is a large-scale skills mismatch in Canada s labour market. 4 Are Temporary Foreign Workers the Solution? To the extent that skills shortages may exist, the long-term solutions are for more local residents to acquire the necessary skills or for workers with those skills to permanently relocate to where they are needed. Vacant jobs and better wages attract people to pursue training and/or relocate. But the TFW program allows employers to quickly fill vacancies without providing apprenticeships or raising wages. University of Calgary economist Herb Emery writes, If the policy objective is to develop labour supply to meet longer-term growth targets, rather than distributing short-term rents to employers, then TFWs should not be part of the province s labour-market strategy. TFWs undermine long-run labour-market adjustment and skills capacity by dampening the wage signals that would lead to higher numbers of permanent in-migrants and more Saskatchewan residents choosing to invest in skills that are in demand. 5 Last year, Canadian Public Policy published an econometric study of the TFW program. The authors explain, We investigate whether the expansion of the Temporary Foreign Worker Program in Canada has contributed to maintain wider disparities in regional unemployment rates than without it. We do find 3 Human Resources and Skills Development Canada, Imbalances Between Labour Demand and Supply (Canadian Occupational Projection System) 4 Derek Burleton, Are Medium-Skilled Jobs in Canada Experiencing a Hollowing Out, U.S.- Style?, TD Economics Special Report (February 26, 2013). 5 Herb Emery, Labour Shortages in Saskatchewan, University of Calgary, School of Public Policy Research Papers, Vol. 6, Issue 4 (January 2013).

3 that it has, suggesting that policy constraints for hiring temporary foreign workers are not strong enough to avoid adverse labour market effects. 6 TFWs may appear to be a quick fix for perceived skill shortages. But the easy availability of TFWs ultimately worsens imbalances in the labour market by discouraging investment in training and longer-term migration within Canada as well as through the regular immigration system. Where Are Temporary Foreign Workers Used? Before the recession, two-thirds of Canada s TFWs were in British Columbia, Alberta and areas of Ontario outside Toronto. This geographic pattern reflected the traditional use of TFWs in Ontario s commercial agriculture and their more recent use in western Canada s resource boom. The number of TFWs in these regions has continued to grow modestly. However, most of the increase in Canada s temporary foreign workforce since 2008 has occurred in Toronto, Quebec and Atlantic Canada, regions with unemployment rates above the national average. Between 2008 and 2012, the number of TFWs increased by 80% in Atlantic Canada, 71% in Quebec and 60% in Toronto. Indeed, there are now more TFWs in Toronto than in the rest of Ontario. Regional Distribution of Temporary Foreign Workers, 2008 and 2012 Unemployment Rate(s) in 2012 Temporary Foreign Workers Present Increase Atlantic 9.0 % % 6,055 10,913 4, % Quebec 7.8 % 25,857 44,115 18, % Toronto 8.6 % 40,079 64,285 24, % Sub-Total Above Average 71, ,313 47, % Manitoba- Sask. British Columbia 4.7 % % 9,600 14,921 5, % 6.7 % 58,151 74,216 16, % 6 Dominique Gross and Nicolas Schmitt, Temporary Foreign Workers and Regional Labour Market Disparities in Canada, Canadian Public Policy, Vol. XXXVIII, Issue 2 (2012), 234.

4 Alberta 4.6 % 57,545 68,319 10, % Rest of Ontario 7.2 % 50,723 55,614 4, % Sub-Total Average or 176, ,070 37, % Below Canada 7.2 % 249, ,189 88, % Note: Canada exceeds both sub-totals because it includes hundreds of TFWs in the territories and thousands reported by Citizenship and Immigration Canada as Province/territory not stated. Even if one accepted that labour shortages exist in some regions and that TFWs were an appropriate solution, the current program has not allocated them to regions of low unemployment. In fact, most of the post-recession increase in Canada s temporary foreign workforce has occurred in regions where unemployment exceeds the national rate. This increase reflects additional TFWs arriving each year and many remaining in Canada for multiple years. Larger numbers of new entrants are being brought to regions of high unemployment. In 2008, two-thirds of new TFWs came to British Columbia, Alberta and areas of Ontario outside Toronto. But by 2012, the number of arrivals had risen by 47% in Quebec and by 30% in Toronto and Atlantic Canada. Indeed, more incoming TFWs were bound for Quebec than for Alberta in Regions with average or below-average unemployment accepted slightly fewer TFWs in 2012 than they had in All of the increase in entries went to regions with unemployment rates above the national average. Therefore, the program does not appear targeted to perceived labour shortages. New Entries of Temporary Foreign Workers by Region, 2008 and 2012 Unemployment Rate(s) in 2012 Entries of Temporary Foreign Workers Change Quebec 7.8 % 24,230 35, , % Atlantic 9.0 % % 5,581 7, , % Toronto 8.6 % 25,789 33, , % Sub-Total Above Average 55,600 76, , %

5 Manitoba- 4.7 % % 7,792 9, , % Sask. British 6.7 % 46,838 49, , % Columbia Rest of Ontario 7.2 % 39,858 37, % 1,953 Alberta 4.6 % 38,990 35, % 3,375 Sub-Total Average or 133, , % Below 1,475 Canada 7.2 % 190, , , % Note: Canada exceeds both sub-totals because it includes hundreds of TFWs in the territories and thousands reported by Citizenship and Immigration Canada as Province/territory not stated. What is the Effect on Canadian Unemployment and Wages? Of course, we cannot be sure how unemployment and wages might have evolved with a different TFW program. Economic theory suggests that expanding the labour supply, without an offsetting expansion of demand, increases unemployment and/or decreases wages. Because TFWs are not permitted to permanently settle in Canada and often remit earnings to their home countries, they are unlikely to contribute as much to Canadian consumer demand as to labour supply. Since the recession, Canada s temporary foreign workforce program has mainly been expanded in regions with above-average unemployment. With the exception of Toronto as well as Newfoundland and Labrador, wages in these regions are below the national average. 7 Adding more workers to weak labour markets is especially likely to adversely affect unemployment and wages. There is no way of knowing how many of the jobs now filled by TFWs might have been filled by Canadian residents were it not so easy for employers to import labour from abroad. However, it is noteworthy that Canada s temporary foreign workforce of over 300,000 is the same size as the gap between prerecession and post-recession unemployment. As a matter of arithmetic, 7 Statistics Canada, Labour Force Survey and Survey of Employment, Payrolls and Hours.

6 replacing TFWs with existing residents would reduce official unemployment to pre-recession levels. In addition to increased labour supply, specific features of the TFW program undermine Canadian wages. Allowing employers to pay TFWs up to 15% less than the prevailing wage clearly undercuts prevailing wages. The fact that TFWs are beholden to their employers makes them vulnerable to exploitation and less able than Canadian residents to negotiate wage improvements. Conclusion There is little evidence that Canada suffers from labour or skills shortages. If such shortages exist, using TFWs as a Band-Aid solution reduces the incentives for training, apprenticeships, internal migration and regular immigration. Scholarly research based on data up to 2007 concludes, The expansion [of the TFW program] in Canada to all low-skill occupations without limit has had an adverse effect on the Canadian labour market. 8 Since the program s subsequent growth has been concentrated in regions with above-average unemployment, there is reason to fear that these adverse effects have worsened. 8 Dominique Gross and Nicolas Schmitt, Temporary Foreign Workers and Regional Labour Market Disparities in Canada, Canadian Public Policy, Vol. XXXVIII, Issue 2 (2012), 252.

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