The earnings of one-step and two-step economic immigrants in comparison to their year of arrival in Canada has been evaluated in Statistics Canada’s latest Economic and Social Reports publication.
The January 24 report found that two-step immigrants have consistently higher annual earnings than one-step immigrants within the same admission class when the comparison started from their initial arrival year rather than the year they became permanent residents.
These earnings differences, albeit reduced, remained substantial after sociodemographic differences between the two groups and after 10 years of initial arrival were accounted for.
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What is the Two-Step Immigration Process?
In the two-step immigration process, economic immigrants are chosen from the pool of temporary foreign workers (TFWs) and international students with some Canada work experience.
One-step immigrants are economic immigrants without any Canadian work or study experience before obtaining permanent residency.
The percentage of economic principal applicants who were selected with pre-landing Canadian work experience went from 12% in 2000 to roughly 60% in the late 2010s, going up to 78% in 2021 due to COVID-19.
StatsCan called the expansion of this process a major development in the way economic immigrants are selected in Canada, as it was the driving factor behind the improvement in immigrant economic outcomes at landing since 2000.
Two-Step Immigrants Have Better Labor Market Outcomes Than One-Step Counterparts
Immigrants who had high-paying/high-skilled jobs during their time as TFWs (two-step immigrants) had superior post-migration labor market outcomes than comparable immigrants selected directly from abroad (one-step immigrants).
The same result is not applicable to low-wage or low-skilled two-step immigrants.
StatsCan wrote that two reasons are behind two-step immigrants outperforming one-step immigrants who have otherwise similar characteristics such as education, official language ability, and source region.
The first explanation is the concept of a multiple selection process. Two-step selection can improve the match between immigrant skills and labor market demands as employers can “directly assess TFWs’ skills and intangible qualities.”
According to Statscan, the adjusted earnings difference observed in the study is consistent with this hypothesis.
These foreign workers can experience life in Canada before actually making the commitment to become Canada permanent residents (PRs). Those who excel as TFWs have a lower likelihood of encountering challenges pertaining to skill transferability, which is an issue one-step immigrants may face.
The second explanation is the advantage gained by getting a head start in Canada work experience, which is a strong potential of immigrants’ earnings.
Two-step immigrants have already gained such experience before securing permanent residency, allowing them to hold an advantage over one-step immigrants without prior exposure to working in Canada.
Two-Step Immigrants Earn More Than One-Step Immigrants
When in the same admissions program, two-step immigrants had higher earnings than one-step immigrants, both in the first few years and a decade after arrival.
This pattern remained true for the FSWP, PNP, and other economic programs; furthermore, the result held for unadjusted (actual) and adjusted earnings when sociodemographic differences between the groups are considered.
The earnings gaps somewhat narrowed across many successive arrival cohorts. From the 2000-to-2009 cohort to the 2010-to-2014 cohort, the earnings gaps between two- and one-step immigrants in the initial years following arrival narrowed in the FSWP and PNP.
This change is due to a shift in the types of programs through which two-step immigrants were admitted.
The earnings differences between two- and one-step immigrants in the FSWP diminished further from the 2010-to-2014 cohort to the 2015-to-2019 cohort. This reduction was due to the introduction of a mandatory pre-migration educational credential assessment in 2013, which caused a significant improvement in one-step immigrants’ earning potential.
The authors wrote that while two-step immigrants have better earning potential than one-step immigrants with similar human capital factors, the sustained success of the two-step selection process is contingent on the skill level of immigrants from the pool of TFWs.
Previous research says that TFWs working in low-skilled or low-paying jobs generally have lower earnings and slower earnings growth than one-step immigrants.
Moreover, the rising presence of TFWs and international students in the labor force poses challenges, such as vulnerability to substandard working conditions.
A large TFW supply could also push down the wages of domestic workers and reduce incentives for employers to enhance productivity through technology and capital investment.
“Employers seeking low-cost labour may prioritize short-term demand over long-term competitiveness. Consequently, employer-sponsored programs may not effectively address the long-term needs of the labour market and the broader economy.”
“These considerations suggest the need for a careful examination of the benefits and potential challenges of two-step immigration selection.”
The analysis uses the Longitudinal Immigration Database and focuses on economic principal applicants aged 25 to 54 in the year of arrival.