Implicit Contracts and Immigrant Wages in Canada

This thesis contains three research chapters concerning the determinants of wages of both the native born and immigrants in Canada The role of implicit contracts on wages is examined both for the native born and for immigrants. Specifically, using panel data from the Survey of Labour and Income Dynamics (SLID), these chapters examine Canadian workers' response in their wage earnings to contemporaneous and past labour market conditions. In addition, the wages at arrival in Canada and the subsequent wage growth of the immigrants are analyzed by immigrant arrival growth using the native born as a comparison group.;The second research chapter focuses on analyzing the role of macroeconomic risk on earnings outcomes of immigrants within the context of an implicit contracts model. Again, using a pooled sample of data from the SLID over the period 1993 to 2006, we investigate the labour market performance of immigrants in Canada taking into account both current and past business cycle fluctuations. Three macroeconomic measures are incorporated into the standard wage models to test whether immigrants' wages follow a spot market view or an implicit contracting view. For the first time not only the implicit contract effect on the immigrant group is examined but also extensions have been made to test for differences in the wage responses to business cycles between immigrants and the native born. The empirical evidence suggests that an implicit contract model dominates the spot market model in terms of explaining immigrant wage outcomes. Further, the contract wage effect differs by gender among immigrants. Female immigrants are found to be less sensitive to the labour market conditions than are male immigrants. We also explore the role for job tenure on the wages of immigrants using the longitudinal nature of the data to control for unobserved heterogeneity.;In the third research chapter, we investigate the earnings outcomes of nine cohorts of immigrants arriving between 1960 and 2004, to see whether these groups of immigrants have experienced wage differences compared to their native-born counterparts at the time of immigration, and whether they will eventually integrate into the local labour market with time. The empirical results show a decline in cohort quality (captured by weaker wage performance) and little evidence of wage assimilation. Using age as a proxy for actual work experience leads to an enlarged immigrant-native wage gap relative to analyses that employ actual reported work experience. In models that include controls for job tenure, we find a decline of approximately two to three percent of the entry wage gap between immigrants and their native-born counterparts, as well as a drop in the wage growth rate. Therefore, failing to control for tenure, results in biased estimates of both cohort effects and the rate of assimilation. Moreover, we extend the model to include controls for macroeconomic conditions at different stages of the job tenure. The innovative approach by integrating the implicit contract literature into the immigrant wage cohort-assimilation literature enable us to test not only the impact of business cycle on immigrants' wage growth paths, as well as immigrant-native differentials in wage returns to various macroeconomic measures. Again, we find support for the implicit contract view as well as a poorer economic performance of immigrants in comparison with that of the native born in business downturns. In addition, the cohort wage effect is found to differ by gender among immigrants: male immigrants are at a greater wage disadvantage (relative to the native born) than are female immigrants.;In the first research chapter, we investigate whether the standard spot market view or the implicit contracting view dominates Canadian real wages for the native born. Using data taken from several SLID panels for the years 1993 to 2006, we found evidence that an implicit contract model with costless mobility is more consistent with the wage outcomes than is either the spot wage model or an implicit contract model with costly mobility in determining wages in the Canada labour market. By introducing differences by gender, industry and age into the wage model, evidence suggests that labour market conditions have differing impacts on wage dynamics between males and females, across industry groups and by age. Compared to men, women are found to be more affected by current macroeconomic conditions than by past macroeconomic conditions. Differing magnitudes of the implicit contracting effect are witnessed in the wage movements across industries. We also find that, unlike non-union workers who have wage responses consistent with an implicit contract model with costless mobility, union workers seem to be insulated from most of the wage effects of macroeconomic variation.