Decomposing the Declining Earnings of Recent Immigrant Cohorts: Cohort Effect and "Assimilation" Effect

Peter S. Li
University of Saskatchewan

Abstract

The literature has suggested that recent immigrant cohorts to Canada earned less than earlier entry cohorts relative to the earnings of the native-born. This claim is based on findings based on (1) pooled data from the 1971, 1981 and 1986 census; and (2) tax data from IMDB which allow comparing the earnings of various types of immigrants of a given tax year to that of all Canadian tax filers for the same year. Analyses of these two types of data suggest that immigrants’ earnings have eroded over time, and that there are concerns that immigrants may continue to fall behind the earnings of Canadians despite the greater emphasis of immigrant selection in recent years.

Using tax data from IMDB, this study decomposes the earnings difference between the immigrants of an entry cohort for a given tax year and the Canadian tax filers of the same year in terms of two effects: the entry cohort effect and the "assimilation" effect. Preliminary analysis suggests that while the entry earnings of more recent cohorts have declined relative to Canadian tax filers, the annual "catch-up" rate of more recent entry cohorts is higher than earlier cohorts so that the number of years it takes immigrants to catch up with the average Canadian earnings in fact has been declining since the 1990s. Based on this findings, the claim about the poor economic performance of recent immigrants cohorts relative to that of Canadians needs to be revised.

The study is not complete yet, but the initial findings are promising. The remaining objectives of the study are to (1) verify the formula to calculate the "catch-up" rate; (2) calculate the "catch-up" rate of every sub-group of immigrants in each entry cohort; and (3) develop a model to explain why some immigrant groups can catch up faster than others despite lower entry earnings.