The impact of skill matching on the returns to foreign human capital of immigrants in Canada

Abstract

Using the Longitudinal Survey of Immigrants in Canada for 2001-2005 the effects of matching pre-immigration and post-immigration occupational skills on immigrant entry earnings are analyzed, with a focus on the return to foreign experience. The main purpose of this research is to explore whether matching pre- and post-immigration skills can explain poor transferability of foreign work experience of recent immigrants in Canada. We employ factor analysis and obtain three broad skill factors from 44 occupational characteristics provided in the HRSDC’s Career Handbook. The survey contains rich information on immigrants’ last occupation before immigration to Canada and employment history after immigration. Using occupational information we assign each immigrant a skill-portfolio, which contains pre- and post-immigration factor scores for “intelligence”, “motor skills” and “strength” obtained in the factor analysis. A match for each of the three skill factors is constructed using normalized factor scores and is a dichotomous variable. We then use these match variables in regression analysis to examine direct and indirect effects of successful matching on immigrants’ log weekly wages. The indirect effects are analyzed through returns to foreign work experience and foreign schooling for immigrants who match their pre- and post-immigration skill factors. As well the effects of ability in English and French on the returns to foreign human capital conditional on matching pre- and post-immigration skill factors are studied. We first conduct cross-sectional regression analysis. Then we expand the analysis and rerun regressions for a set of pair-wise immigrant sub-samples. We reach a conclusion that controlling for pre- and post-immigration skill match does not help in explaining poor portability of foreign work experience of recent immigrants to Canada. Although, we find that immigrants who obtain a match in “intelligence” or “motor skills” receive substantially higher earnings than immigrants who do not obtain any match. Immigrants who obtain a match in “strength” factor have a very small and often insignificant advantage in earnings. We also find that male immigrants who obtain a match in “intelligence” factor in wave 3 receive a moderate positive return to foreign experience, which together with the baseline return to foreign experience still results in zero total effect. The regression analysis gives some interesting insight into returns to foreign human capital for immigrant sub-samples in wave 3. Male immigrants employed in professional occupations as well as male immigrants who are not visible minorities have almost zero return to foreign experience instead of negative. The baseline return to foreign experience holds negative for other sub-samples. Matching some of the skills slightly improves the returns to foreign experience for some sub-samples, but the total effect is often negligible.