Immigrants outperforming Canadian-born citizens in labour market participation, finds report

Earnings gap between immigrant, Canadian-born workers drops to lowest level in 2 decades

Immigrants outperforming Canadian-born citizens in labour market participation, finds report

The earnings gap between immigrants in Canada and Canadian-born citizens stood at 1.0% in 2023, the lowest in two decades, according to a recent report from the Royal Bank of Canada (RBC).

That gap has continuously dropped in the past four years:

  • Just under 4% in 2019
  • A little over 3% in 2020
  • Just under 3% in 2021
  • Just under 2% in 2022
  • 1.0% in 2023

In the past 17 years, the gap was at its biggest at just under 6% in 2014.

“A recent report from Statistics Canada (StatCan) cited several factors driving these improvements including changes to the immigration selection process since the early 2010s, and a relatively robust labour market backdrop in the late 2010s and 2022,” said RBC in its report.

“Immigrant workers’ nominal wages are still lagging those of Canadian-born workers for most occupations. But, in specific fields such as natural and applied sciences and art, culture and recreation, they are earning higher hourly wages.”

The federal government has been creating programs to bring more immigrants to work in Canada, and even spending millions to boost capacity for foreign credential recognition.

What is the relationship between immigration and labour force growth in Canada?

One factor that is narrowing the wage gap between immigrants and Canadian-born citizens is the increasing participation of the former and the decreasing participation of the latter in Canada’s labour force, according to RBC.

By late 2020, the share of immigrants participating in the labour force surpassed that of the Canadian-born population. And in early 2024, the participation rate of immigrants outperformed Canadian-born workers by 2%, according to RBC.

Part of the immigrant outperformance is driven by the fact that they are on average younger, according to the report. Also, immigrants aged 55 and above have a much higher participation rate compared to those in the same age bracket who are born in Canada. 

“The average retirement age among immigrant workers over the last decade is around 66, according to our calculations. That’s two years older than the average retirement age of 64 for Canadian-born workers,” said RBC.

Canada’s aging workforce

Canada has an aging workforce, with the number of Baby Boomers nearing retirement, according to a previous StatCan report.

And RBC expects that Canada’s labour force participation rate will drop by more than 2% over the next decade to 63.3% in 2035 – the lowest level since late 1970s – and to 62.6% by 2050. 

“Against that backdrop, rising participation among immigrants – as they are set to take up an increasingly larger share of a shrinking labour force – will continue to help mitigate those challenges facing the economy,” said RBC.

The federal government recognizes the invaluable contribution of immigrants to Canada’s economy.

“Immigrants contribute to our economy, not only by filling gaps in our labour force and paying taxes, but also by spending money on goods, housing and transportation,” it previously said, noting that “immigrants deliver and improve Canada’s health and social services.”

Still, immigrants face challenges when they arrive in Canada for work. Many Canadian immigrants report to “less qualified” Caucasian managers at work, according to a previous report. And some low-wage employers are “exploiting” some streams under the Temporary Foreign Worker Program (TFWP), according to the Alberta Federation of Labour (AFL).

Will immigration solve labour shortage issues?

RBC also warned that “immigration won’t be able to solve labour shortage issues in the longer run, as immigrants will also boost overall consumption and lead to more demand for workers”.

“While labour shortages have been easing over the last year as the economy buckles under the weight of elevated interest rates, they are set to come back as the economy recovers,” it said. “

“Our forecast is for the Canadian economy to start rebounding over the second half of this year as interest rates start to move lower and households move beyond the shock of higher borrowing costs.”

There is low optimism among business executives when it comes to Canada’s economic outlook this year, according to a recent PwC report.

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