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The economic case against low-wage temporary foreign workers

Real wage growth in Canada’s low-skill labour markets will be undermined by a plan to ease business access to low-wage temporary foreign workers.
par Fabian Lange, Mikal Skuterud, Christopher Worswick

Canada is unique in its broad public support for high immigration levels, and for good reason. A world with fewer migration barriers can boost living standards in all countries by moving workers where they are most productive. But easing employer access to low-wage temporary foreign workers, a key piece of the federal government’s recently announced Workforce Solutions Road Map, risks undermining real wage growth and increasing income inequality.

Proponents of increased immigration levels argue that immigration is essential to grow the economy. But what matters is not the total size of the economic pie but the size of the average slice and how it is divided. Increasing low-skilled immigration to increase the overall size of the economy risks driving down average living standards in Canada. The economic growth literature is clear: raising GDP per capita through immigration requires prioritizing skilled immigrants to raise the average skill level of the labour force and harness capital investments, especially in new technologies.

The high-skill streams of Canada’s temporary foreign worker programs, such as the global skills strategy, have much potential to strengthen Canada’s position in the global war for talent. These programs allow employers to identify foreign talent and provide growing businesses with a fast and responsive system for recruiting foreign workers. By temporarily binding temporary foreign workers to employers, businesses are ensured that they will retain this talent over a period of time, thereby incentivizing them to invest in talent search, while migrants are assured fast and seamless transitions to permanent residency through the express entry system. The benefits to Canada’s economy have the potential to be broad.

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The same benefits do not arise from low-wage temporary foreign worker streams. Published lists of employer approvals in the low-wage stream of Canada’s temporary foreign worker program reveal that these are overwhelmingly jobs requiring no more than short periods of on-the-job training. Low-wage temporary foreign workers are therefore not filling skill gaps and they compete for jobs with Canada’s most vulnerable workers, especially recent immigrants, including refugees. Evidence shows that binding temporary workers with limited marketable skills to specific employers creates a power imbalance, which opens the door to abuse.

For these reasons, Canada’s low-wage temporary foreign worker program has been controversial. Media coverage in 2013-2014 documented reports of employer program misuse, including by Tim Hortons and McDonald’s franchises in areas with high unemployment rates. The federal government’s response in 2014 to this controversy was twofold. First, it curtailed growth by imposing a fee on the labour market impact assessments businesses are required to undergo to ensure adequate efforts have been made to fill jobs domestically. It also limited the share of temporary foreign workers to 10 per cent of employers’ workforces, and it restricted hiring of temporary foreign workers in areas where the local unemployment rate exceeded six per cent. Second, it broke off the component of the program not requiring labour market impact assessments and renamed it the international mobility program.

Figure 1 provides our best estimates of how employer reliance on temporary foreign workers has become entrenched in Canada’s labour markets. After briefly declining following the 2014 reforms, the program has continued to grow, which almost entirely reflects growth under the less-scrutinized international mobility program. This persistent growth is evidence that the program has grown beyond its objective of being a temporary measure for businesses to fill temporary labour shortages to becoming a permanent business strategy to minimize labour costs.

The true temporary foreign worker employment share is no doubt bigger as the data does not include foreign students, who have the right to work in Canada and have increased five-fold since 2000. However, neither the government nor Statistics Canada tracks the employment of foreign students. The simple and troubling reality is that we don’t know what percentage of Canada’s low-wage jobs are currently being done by foreign students, but an analysis of census data performed by one of us suggests it has increased. It is likely that the imperative for foreign students to work has increased along with the tuition fee premiums they are required to pay.