One of the major goals of Canada’s immigration system is to integrate newcomers into the economy.
Economic class principal applicants are the only group of newcomers who must demonstrate to Canadian government authorities they are capable of economic integration. Section 12 (2) of the Immigration and Refugee Protection Act (IRPA), Canada’s main immigration law, states “A foreign national may be selected as a member of the economic class on the basis of their ability to become economically established in Canada.”
Economic class principal applicants are the newcomers who are assessed by the federal government, as well as provinces and territories, on their human capital characteristics. While each economic class program has its own criteria, the menu of characteristics includes the likes of age, education, language skills, work experience, Canadian experience, having a Canadian job offer, family or friends in Canada, settlement funds, among others.
When Canada first introduced its points system in 1967, the process for assessing principal applicants was relatively straightforward, with one caveat. As long as the principal applicant met the federal government’s points threshold, and passed an in-person interview at the local Canadian embassy, they would likely gain permanent residence (assuming they also received health, security, and criminality clearance). The caveat was the interview, which was the most subjective part of an otherwise largely objective process. Interviews continue to exist, such as for immigrant entrepreneurs, however Canada has largely done away with them mainly due to the enormous application volumes it now deals with, plus the desire to be as objective as possible in the selection process.
As we shall see below, Canada has a tremendous amount of data to inform how we determine whether a principal applicant is capable of economically establishing. What is also interesting is Canada continues to use its own discretion in selection criteria to predict one’s ability to economically establish. That is, the country employs a mix of data-driven selection processes in parallel with more discretionary ones. The discretionary approaches are largely a function of Canada’s immigration policy goals expanding so significantly over the past 25 or so years, resulting in an increased desire to cater to as many domestic economic development constituencies as possible.
Which immigration selection factors best predict the earnings of economic principal applicants?
Statistics Canada periodically authors studies looking at which selection factors best predict principal applicant earnings. One thing that is very important to stress is that immigrant earnings are largely influenced by the state of the economy upon their landing. Generally speaking, immigrants who land during a recession are at an earnings disadvantage compared to immigrants who land when the economy is strong. Nonetheless, Statistics Canada research is still very beneficial in informing Canada’s economic class selection criteria.
In 2015, it released the findings of a seminal study which informed the development of Express Entry’s Comprehensive Ranking System (CRS). Essentially, the research conducted regression analyses between a host of variables and the earnings of principal applicants upon landing as permanent residents in Canada. Introduced in January 2015, the CRS continues to remain in place, and rewards candidates who are younger in age, and who have strong education, work experience, and language skills.
In 2020, Statistics Canada released an updated version of the study which drew similar conclusions. The longitudinal data at their disposal allows them to consider how variables such as education, language, age, years of pre-landing Canadian work and study experience, having a spouse and the human capital of the spouse, can help policymakers predict the earnings of principal applicants in Canada. The discussion below is a summary of the 2020 Statistics Canada study.
Short-term
Pre-landing Canadian work experience was the most important earnings predictor in the first two years after gaining permanent residence. Language was the other variable that had substantial predictive power, but the authors note its impact was much lower.
Medium-term
Pre-landing Canadian work experience was also the best predictor 5-6 years after landing. Language skills and age at landing also contributed to the predictive power of immigrant earnings.
Long-term
Age at landing and pre-landing Canadian work experience were the best predictor of long-run earnings, defined as 10-11 years after landing. The influence of pre-landing Canadian work experience on earnings waned over the long-term, while education, language, and whether one had a spouse all contributed small amounts to Statistic Canada’s predictive model.
What these findings mean
The findings demonstrate the advantage immigrants have in working in Canada as temporary residents before transitioning to permanent residents. Gaining such experience gives them a head start since they have more time to get their skills and credentials validated by the Canadian labour market. Time spent in Canada may also help improve their English and/or French language skills, and certainly strengthens the social and professional networks key to career progression. Who you know, is often just as, if not more important, than what you know.
Age is also a strong predictor since newcomers who land younger have more time to find their way in the Canadian labour market. Even if a young newcomer arrives with a disadvantage, they are well-positioned to eventually catch up since they have time on their side to improve their language skills, build social and professional networks in Canada, and gain Canadian work experience.
One of the common discussion points in Canadian immigration discourse is how immigration impacts living standards, with GDP per capita being the main marker of analysis. There are various reasons why immigration does not lift GDP per capita, which is perhaps a topic for another day. However, if Canada one day chose to truly devote efforts to improving GDP per capita via immigration, Statistics Canada research would provide the roadmap.
Essentially, Canada would need to be even more cerebral in its selection criteria. It would need to primarily select young principal applicants with Canadian work experience. This would come at the expense of older applicants and those applying from overseas. However, maximizing the earnings of immigrants is not the only goal of Canada’s selection policies, which is why we have well over 100 different economic class pathways. These pathways are a reflection of the many additional immigration goals Canada has chosen to pursue over the past 25 years.
We want to promote immigration to communities across the country. We also want to offer economic class pathways based on humanitarian need. We want to strengthen francophone communities outside of Canada. We want to welcome more workers in various sectors, with examples being STEM fields, health, transport, agri-food, skilled trades, among many others. Achieving all of these goals necessitates discounting Statistics Canada research to an extent. We’re seeing this right now with Express Entry. There are many young candidates with Canadian work experience and very high CRS scores currently sitting in the Express Entry pool. We have data that suggests they will earn well if Immigration, Refugees and Citizenship Canada (IRCC) invites them for permanent residence. IRCC, instead, has chosen to invite candidates with far lower CRS scores to address other goals.
Canadian immigration and Wayne Gretzky
Hockey is a useful analogy to help us understand how federal and provincial policymakers think about immigrant selection. When building a winning hockey team, you want players who are talented enough to score many goals. But what happens if you build a team purely of goal scorers? You might not be good enough in other common attributes needed to win in hockey, such as passing, defending, goaltending, checking, and mental toughness. The best teams are able to find a mix of players that possess these attributes.
Similarly, rightly or wrongly, Canadian policymakers have decided to employ a comparable approach to immigrant selection. Rather than simply selecting the highest goal scorers (i.e., those with the highest points), they also choose to select immigrants with other attributes, such as French-language proficiency, occupational backgrounds in-demand, and a desire to live in smaller regions and communities. That is not to say such immigrants are less talented or capable of contributing to Canada, but rather that policymakers have determined Canada needs to achieve other policy goals via the economic class, even if it comes at the expense of immigrant earnings and GDP per capita.
Moreover, the economy is constantly evolving and so policymakers have determined the need to use judgment calls to ensure that selection criteria is reflective of evolving labour market conditions. According to them, Canada must “skate to where the puck is going to be”, as Wayne Gretzky once said, to ensure that immigrants can support the economy of tomorrow.