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Conditions for an Efficient Canadian Temporary Foreign Worker Program: The Case of Quebec.

INTRODUCTION

A country opens its economy to temporary foreign workers to satisfy deep shortages of labour in industries or occupations. When there is free access to the world labour supply, employers are likely to give priority to foreign workers in jobs, in part because they could pay lower wages to them than to resident workers. Thus, a temporary foreign worker program must impose constraints on domestic employers' actions in order to protect local workers' access to jobs. If there is imperfect information and constraints are not closely monitored, employers may have incentives to overuse the program and, as a consequence, there can be negative effects on resident workers as well as on temporary foreign workers. This paper describes the required economic context and the needed regulatory constraints so that employers do have incentives to give priority to resident workers for jobs in the short-term. In addition, balanced labour markets must be re-established in the medium term. It is analysed whether the province of Quebec, like Canada, experiences some negative effect from the program and whether the temporary foreign worker program is efficient enough to ensure economic growth.

In general, temporary foreign workers (TFWs) get a working contract for a fixed period, with a specific employer, and must return home at the end of a determined period. There are three stages in the process at which potential problems can arise: hiring, employment and end of the contract. During the hiring process, local workers must not be affected by the fact there is a TFW program; specifically, access to jobs must not be made more difficult or eliminated. During their employment period, the TFWs must be treated under the same conditions as local workers, and thus, must not be exploited. Finally, when there is no access to permanent residency, the TFWs must return home at the end of their job contract and not become illegal residents. This paper focuses on the first stage, i.e., hiring of TFWs with potential impacts on resident workers. The goal is to identify the characteristics of efficient economic hiring and to determine how TFW program requirements ensure that we avoid adverse effects domestically. It is worth noting that access to permanent residency does not modify the conditions. A statistical analysis shows that negative effects have been generated in the province of Quebec especially in relation to low-skilled young people. The main issue is the lack of general required features for the efficient implementation of a TFW program with the most important being very good occupational labour market information.

The remainder of this article is organised as follows: First is a description of what economically leads to the need of a TFW program with potential consequences, followed by another description focused on the main characteristics of the Canadian program and the additional features for the Province of Quebec. Next is a statistical illustration of the labour market situation in Quebec which leads to evaluating potential negative consequences. Finally, included is a section that describes missing features and offers suggestions to make the program efficient, followed by a brief conclusion.

WHY HAVE A TEMPORARY FOREIGN WORKER PROGRAM?

When there is a short supply for some workers, employers must increase wages to attract applicants either from other regions or from other occupations. However, if the unemployment rate across the country is very low, wages would have to rise drastically and there will still be no guarantee for employers to attract suitable workers. Hence, a TFW program goal is to ensure that firms can find suitable workers for their job vacancies at reasonable wages so that their production of goods or services is not slowed down or even interrupted. It is a purely demand-driven immigration.

The goals of labour market flexibility and production stability can be adopted for specific cases (Abella 2006). Strategic firms may be supported because they face constant labour shortages due to their activities. With limited variety in production goods or services and strong competitiveness, some firms can experience high turnover rates and offer little job promotion. The government may want to support them because of their link with other firms as suppliers of inputs or because they provide revenues to communities. Industries contributing innovations are often supported with TFWs to ensure their international competitiveness. Imposing TFW contracts with defined employer and location may be a tactic that the TFWs use to maintain jobs in given regions and avoid displacement of local workers, in part because permanent immigrants are unlikely to stay in some regions. Finally, TFWs are usually less costly for social programs because they often do not bring their families to their host country.

Historically, TFW programs have been developed in countries with full employment. Throughout the 1960s and 1970s, in several European countries, many firms could not find workers at all. At the time, national unemployment rates were extremely low. For example, the unemployment rates were less than 1% in Switzerland, 1.4% in Germany, 1.8% in Austria and 2.3% in France (OECD 1999, Table 2.15). So, the programs ensured that post-war economic growth was not limited. However, there is now evidence of long-term negative impacts that were not predicted (Martin 2001; Martin and Miller 1980). Some industries became fully dependent on TFWs due to relative low costs. As consequences, depressing wages contributed to the deterioration in working conditions for low-skill workers; there has been no incentive for restructuring of the labour force; and decreases in costs of production did not generate rationalization of processes and improvement in technology. So, the basic principle of a TFW program is to ensure more labour market flexibility and production stability in the short term. But, over time, the supply of domestic workers must adjust so that labour shortages are eliminated and the economy is competitive.

Based on the economic theory, a number of principles must be fulfilled for a program to ease economic growth temporarily without penalizing local workers on annual jobs. First, by definition, the job contract must be of short limited length since workers are "temporary". Contracts should not extend over a large number of years and employers must not use such program to fill permanent jobs (Dustmann, Bentolila, and Faini 1996). Second, wages paid to TFWs must be adequately determined. If TFWs can be hired from any country of the world, some can be ready to accept jobs abroad at a much lower wage than the one paid to resident workers with identical skills. This is particularly the case for low-skill workers coming from relatively poor countries where finding jobs is difficult and the standard of living very low. A wage, even below the local minimum wage in the rich country, may still be attractive for them if they leave their families in their home country by choice or legal obligation. Then, much of their earned income is saved to improve their family's standard of living. The Philippines, for example, has a program which stimulates export of temporary workers to generate remittances and lower poverty (see for example, Ruiz 2008). Offering to TFWs a much lower wage than the one paid to resident workers potentially generates long-term problems. The labour supply by residents does not increase and firms become dependent on TFWs. In addition, since employers minimize costs of production or services, lower wages for TFWs can give them the incentive to lay off employed local workers and substitute them with TFWs. Not only must wage levels offered to TFWs be regulated, but the rule must ensure that jobs remain attractive for resident workers. Finally, access to the TFW program must be available only if employers have actively searched for candidates regionally to fill their job vacancies and have not found any. There must be a true shortage of the needed type of workers in a broad geographical area.

In short, a TFW program is efficient only if its goal is to give firms a quick access to needed types of workers, for a short period of time, and not at a cost inferior to hiring local workers. This requires a program with specific hiring conditions relatively quickly fulfilled by employers, easily controllable and strongly monitored.

THE TEMPORARY FOREIGN WORKER PROGRAM IN CANADA AND QUEBEC

Historically, Canada has been a settlement country with supply-driven immigration in which permanent immigrants search for jobs once they settle in the country. In the long run, they do contribute to economic growth, but in the short run, their skills may not match labour shortages. Hence, Canada has developed a TFW program (see Fudge and MacPhail 2009, and Nakache 2013, for details). It started in 1973 as the Non-Immigrant Employment Authorization Program (NIEAP) and, initially, was applicable only to seasonal agricultural workers (SAWs), live-in caregivers (LCs), and some high-skill occupations with no possibility for status changes. Over time, the program has changed substantially and today, it covers all occupations. Some are in specific streams with various rules like students, asylum seekers, SAWs and LCs, but most skilled and low-skilled occupations have very similar hiring regulations.

Following European countries' experience, there are two main models to ensure residents' protection in employment (Castles 2006; Martin and Miller 1980; Ruhs 2006); both have been implemented in Canada and Quebec. The first one involves a Labour Market Test (LMT) which proves that there is no suitable domestic worker to fill vacancies. The LMT can be done by a government agency like in Germany (OECD 2013) or impose a number of constraints that employers must fulfill to obtain an authorization to hire TFWs from a government agency. Canada has chosen the latter. Employers had until July 2014 to file a Labour Market Impact Assessment (LMIA), named Labour Market Opinion (LMO), in which they were required to confirm and prove that they have actively searched for local workers and could not find any.

The second model involves a list of eligible occupations for TFWs established by the government for which there are less administrative constraints, i.e., employers may not have to file an LMT and the process is shorter in length. The government sets up the list based on its information about supply of and demand for workers in local occupations and must revise it regularly. The Canadian government has implemented a similar model twice in the past. The first one was in British Columbia and Alberta from September 2007 to April 2010 as a pilot project with a list of 33 skilled and low-skilled occupations. The project was the Expedited Labour Market Opinion (E-LMO) (see Gross 2014, for details). The second one was the Accelerated Labour Market Opinion (A-LMO) started in April 2012 in all provinces for managers and skilled occupations. It was suspended in April 2013 and later eliminated. In both cases, employers were first determined eligible for the program, and if they still had to file LMOs they were accepted within 5 to 10 days instead of 5 months.

Following several anecdotes of strong adverse impacts on access to jobs by resident workers, constraints to file the LMIA were reinforced in June 2014 (ESDC 2014c). Nevertheless, not all TFWs are required be hired through the LMIA process as many can come through the International Mobility Program. If workers contribute to Canadian interest, are in intra-firm transfers or are from a country with an international agreement like the North America Free Trade Agreement (NAFTA), employers do not need to first search locally and prove they could not find anybody (CIC 2013c). There is no constraint to ensure priority to resident workers.

According to the objective of the TFW program stated by Citizenship and Immigration,"[t]emporary foreign workers (TFWs) are intended to help meet acute and short-term needs in the labour market that could not be filled by the domestic labour force; they are to complement, rather than substitute, the labour force" (Elgersma 2014, 8). Yet, there is growing evidence that there were political forces in its implementation. Rheault (2013) shows that, between 1996 and 2011, corporate lobbying was an important factor influencing the level of temporary foreign workers admitted to Canada, and only 38% of variance in foreign workers is explained by unemployment (Table 7, 717). Politicians have been affirming that the E-LMO pilot project was implemented to address growing shortages of labour. Yet, there is evidence that it was satisfying employers' pressures for cheaper access to low-skill workers (Foster 2012; Fudge and MacPhail 2009). Barnetson and Foster (2014) study the validity of statements made by government members in Alberta and the qualitative analysis shows that, between 2000 and 2011, the statements did justify TFW policy to make labour cheaper, not to fill labour shortages.

The TFW program is set up by the Canadian federal government, but the province of Quebec can implement some specific conditions under Ottawa's approval. So, employers must file a request for hiring TFWs to the provincial government through a Certificate of Acceptance (MICC 2011). Since April 2015, employers who want to hire TFWs in low-skill occupations are encouraged to send their application at the federal level for confirmation before making a request at the provincial level (ESDC 2015b; MIDI 2014a). In addition, on February 24, 2014, Employment and Social Development Canada (ESDC) in the federal government and the Quebec ministry of immigration signed an agreement for a simplified process when hiring TFWs in some skilled occupations. There is a list of 42 occupations which must be revised yearly (ESDC 2014a; MIDI 2014b). Then, employers can file an LMIA without advertising the job vacancies and without proving they have searched for resident workers. Since April 2013, the federal TFW program requires that employers advertise job vacancies for a minimum of four weeks (Gross 2014). So, the Quebec agreement is a standard second model for TFWs with a significant weakening of the constraints to ensure priority of resident workers.

TFWs IN THE PROVINCE OF QUEBEC

Since 2002, when all occupations became available for TFWs, the number of foreign workers has risen quite drastically. From then until 2012, TFWs present in Quebec, on December 1st, have increased by 219% compared to 234.5% for Canada (Table 1). The largest increase has been in Western Canada with 371.3% and the lowest in Ontario with 137.6%. In Quebec Montreal has the largest share of TFWs with 77% but the rise has been smaller than outside the city (209.6% vs 254.7%).

Figure 1 shows unemployment rates and TFW annual entry rates to the province of Quebec from 2002 to 2013. Since TFWs can only have jobs for which there is no available resident worker, we can expect that their entry rate increases only when unemployment is relatively low and decreases. From 2003 to 2008 the unemployment rate decreased quite slowly from 9.2% to 7.2% while the entry rate increased from 4.35 to 6.24 TFWs per one thousand employees. In 2009, the financial crisis made the unemployment rate suddenly rise to 8.5% and the TFW entry rate rose to reach 7.25. By 2013, unemployment had declined a little (7.8%) and the entry rate reached 9.27. So, overall, the unemployment rate has not changed much, and has not been very low, suggesting there has not been much growth in the demand for labour. Yet, the TFW entry rate has almost doubled to fill jobs during the same period. This may appear a bit surprising; but the provincial aggregate information does not provide a clear picture about occupational labour shortages locally. So, more detailed statistics must be considered.

The demand for TFWs is first illustrated by the number of TFW positions required and approved by LMOs. Figure 2 shows the evolution of the annual numbers confirmed for the province of Quebec from 2005 to 2013. Seasonal agricultural workers (SAWs) and live-in-caregivers (LCs) are distinguished from skilled and low-skilled workers because of their specific stream regulations. While confirmed SAW and LC positions declined from 2009 to 2012 (-43.5% and -38.9% respectively), the other confirmed positions increased by 13.5%. Moreover, between 2008 and 2009, the level of confirmed TFW positions clearly accelerated (+28%) when the recession was hitting the province of Quebec and unemployment was rising drastically.

The National Occupation Classification System (NOC-S) differentiates occupations in five classes and four are based on education levels (ESDC 2014b). In class A, occupations require university education; in class B, college, vocational education or apprenticeship training; in class C, secondary education or occupation-specific training; and in class D, on-the-job training is usually provided. Group (A + B) represents skilled workers and group (C + D) low-skilled workers. The fifth class is the Management occupation class (0) with no reference to education. The evolutions of these three groups are shown in Figure 3. In 2005, the share of low-skilled confirmed TFW positions through LMOs was low with 12.6%. Since the 2008 crisis, this proportion has increased substantially and by 2013 it represented 51.6%. Management positions decreased slightly but their share has been very small (average of 3.5%).

If the TFW program is efficient, these statistics suggest that employers have had rising difficulties in finding low-skilled workers in the province or even in the whole country since the 2008 economic crisis. It must however be considered that once requirements through LMOs/LMIAs are confirmed by the government, visas are allocated to TFWs who applied for the jobs by Citizenship and Immigration Canada (CIC) and the final decision of acceptance is made by cross-border agents. Generally it took about 4 to 6 months for employers to get the confirmation for a LMO (Nakache 2013). So, given the economic evolution over several months, they can decide to hire less TFWs. Generally, around 70% of confirmed TFWs through applied requests eventually come to the country. As a proxy, between 2010 and 2012, the number of TFW entries as a share of confirmed LMOs in the province of Quebec was on average 73.4% and at the time of the economic crisis, 2008-2009, it was 63.9% (ESDC 2015a; MIDI 2014c; MIDI 2014d). So, there is a small difference between confirmed TFW requested positions and actual entries.

Regarding entries, as described in the previous section, not all hired TFWs have followed an authorization from LMOs/LMIAs proving labour shortage. So, TFWs for whom an authorization is required must be distinguished from the others. From 2009 to 2013, on average, 32.5% of TFWs came to the province of Quebec under confirmation of LMOs (CIC 2014). Figures 4 and 5 show both types with unemployment rates for skilled and low-skilled occupations. In the case of skilled (A+B) occupations, the unemployment rate has been relatively low since 2011: between 5.5% and 6% (Figure 4). However, since the economic crisis it has not fallen back to the 2007 level of 5.1%. The total number of TFW entries has increased from 7,758 in 2007 to 11,121 in 2013 (+43.3%) and most of it occurred through TFWs without requested LMOs. Its proportion has systematically increased, as it was 60.5% in 2007 and reached 70.9% in 2013. The vast majority of skilled TFWs have been hired without the constraints of the labour market test which is meant to ensure labour shortages. However, it is likely not to have created a negative effect because the actual unemployment rate was quite low.

For low-skilled workers, the evolution has been quite different (Figure 5). Since 2007, the unemployment rate in the province of Quebec has never been below 10%--that is 167,000 people--and, in 2013, it was still above 11%. Yet, during the whole period there has been a large rise in TFW entries (+83.9% between 2007 and 2013, without including SAWs and LCs). Moreover, the share of TFW entries without requested LMOs has been small and has declined. It was 22.3% in 2007 and dropped to 16.8% in 2013. Thus, the large majority of low-skilled TFWs have been hired with employers obtaining support of their claim for shortages through LMOs while the unemployment rate was above 11%. These evidences suggest that numerous authorizations are given by government agencies despite the fact that there is a potential supply of workers in the province for low-skilled occupations. Employers' proofs of unsuitable unemployed people are accepted or the advertised jobs are not attractive. So, who are these unsuitable unemployed people?

Figure 6 shows unemployment rates from 2002 to 2014 for young people and adults with lower education (i.e., no degree, certificate or diploma; high school diploma; and some post-secondary schooling). Two important facts are shown. First, young people (aged 15 to 24) have much higher unemployment rates than adults (aged above 24) at the same levels of education. The unemployment rate for young people without a degree, certificate or diploma is systematically above 20.2% while the maximum is 13.5% for adults. Also, the average unemployment rate from 2002 to 2014 for young people with some post-secondary schooling is 10.9%, and for adults, 7.6%. Second, adult workers have hardly been affected by the 2008 crisis while young people experienced a significant rise in unemployment (around 3 percentage points). With little education, young people are, thus, less attractive than adults. One interpretation of these facts is that employers needing low-skilled people prefer adults as they have more work experience. This confirms that, if there is access to TFWs, employers are looking for resident applicants immediately ready for the jobs, i.e., fully productive, at any level of education. It is reinforced by the fact that more than 60% of TFWs who entered the province of Quebec between 2008 and 2013 were aged from 25 to 44 (MIDI 2014c, Table 1). Thus, employers have no incentive to train young people if they can hire immediately productive TFWs at relatively low wages. Until April 2012, employers had to pay the median wage in the region which is lower than the one received by 50% of employed residents in similar jobs. From April 2012 until April 2013, they could pay even less, as the new rule supported legally, wages 5% lower than the median wage if still above the provincial minimum wage (Gross 2014).

What would have been the state of the labour market without a TFW program for low-skilled workers? Assuming that young people with a low level of education, either a high-school diploma or some post-secondary schooling, had been hired instead of the low-skilled TFWs under LMOs, their unemployment rate would have been between 2.0 and 3.9 percentage points lower from 2007 to 2013 (Table 2). Moreover, if young people with some post-secondary education had been chosen, their unemployment rate would have been below that of adult workers in 2013 (6.1% versus 7.5%).

Hence, for the province of Quebec, there is some evidence that the TFW program has had an adverse impact on local workers and especially on less-educated young people. It is therefore not protecting local workers, and shortcomings must be addressed.

CONDITIONS FOR AN EFFICIENT TFW PROGRAM

The goal of a TFW program is to not penalize resident workers in regards to access to jobs during the short term as stated by Citizenship and Immigration. Moreover, employers' incentives must be such that there will be balanced labour markets in the medium term. Hence, in addition to giving priority to resident workers in jobs, employers must ensure that the labour supply will adjust in the near future to match growing demand. For such success two characteristics are required: clear information about the local state of occupational markets; and residents' incentives to be interested in those jobs.

Information about labour markets in Canada

Clear information about present states of occupational labour markets and their short-term potential evolution are necessary conditions for implementing TFW programs. The government agency must establish accurate eligible occupation lists and/or must verify statements by firms in labour market tests, like LMIA, quickly and correctly. Moreover, employers must have a relatively rapid way to know if suitable resident workers are available; and workers looking for jobs must have clear information about present job vacancies. Information about future labour market evolution is also necessary. The OECD confirms that the lack of information about job vacancies generates uncertainty and weakness in labour supply adjustments through training and education (OECD 2014). Hence, regional supply of and demand for labour by occupations must be well known by all people presently and for the near future.

Years ago, information on the Canadian labour market has been officially identified as totally inadequate (Advisory Panel on Labour Market Information 2009). Since then, few changes have occurred. On the supply side, the labour force survey (LFS) from Statistics Canada is the source of information. It covers a sample of 100,000 people monthly but cannot provide detailed information on occupations. The Canadian National Occupation System (NOC-S) has four category levels. From the most aggregated to the least, there are: 10 broad occupational categories ( 1 digit); 40 major groups (2-digit); 140 minor groups (3-digit); and 500 unit groups (4-digit; Statistics Canada 2012a). There are no statistics on 3- and 4-digit lists and incomplete statistics for the 2-digit list. The reason is that a confidential constraint prevents estimated numbers below 1,500 for Quebec to be made public (Statistics Canada 2014b). Consequently, the number of unemployed people is not available per occupation, locally; and regarding the Quebec list of 42 specific occupations with a simplified way of hiring TFWs (MIDI 2014b), there is no suitable unemployment information. It has been shown that this has allowed some firms to affect resident workers looking for jobs in Alberta and British Columbia under the E-LMO pilot project (Gross 2015). There was a list of 33 eligible occupations set up by the federal government. The purpose of the pilot project was for firms to get their LMO approval within 5 days instead of 5 months. The consequence has been a sharp rise in TFW hiring which increased unemployment for skilled and low-skilled occupational groups in some specific sectors claimed with huge shortages, in both provinces.

On the demand side, the needed information is about job vacancies by occupations. Since 2011, Statistics Canada has been collecting some numbers through the Business Payroll Survey by asking if they have vacancies (Statistics Canada 2012b). The survey covers 15,000 firms out of 900,000, that is, 1.7% (Statistics Canada 2014c). Because of the relatively small number of covered firms, useful statistics are available only for total vacancies across provinces or in wide industrial sectors at the national level. In 2013, the job vacancy rate in Quebec was 1.3% versus 1.5% in Canada (in September 2014, 1.3% versus 1.6%; Statistics Canada 2014a, Table 284001). Rates are also computed by the Canadian Finance Minister based on advertised jobs on the Internet and they are vastly different. For 2013, the rate was 4% for Canada and 3% for the province of Quebec (Department of Finance Canada 2014, 32). Moreover, Burleton et al. (2013) provide descriptions of data collections for job vacancies in the province of Quebec. It is shown that in 2012 and 2013, rates were equal for occupations with a perception of shortage of workers and of excess supply of workers (2.6% in 2012 versus 2.3% in 2013). Information about job vacancies is clearly not precise enough.

Additionally, information about the future of the labour market is necessary. ESDC provides forecasts through the Canadian Occupational Projection System (ESDC 2014d). The lack of validity for the occupational projections has been criticized for decades (Foot and Meltz 1992; Smith 2002). Recently, Lefebvre, Simonova, and Wang (2012) showed the limited availability of predictions for shortages of skilled labour by occupations in provinces because of lack of statistics for unemployment at those levels.

In short, necessary information about the state of the labour markets at occupational levels locally is necessary and does not exist in Canada. Lemieux and Nadeau state about their initial study focus: "The lack of disaggregated data on labour demand and labour supply at the regional and local level prevented us from achieving this original goal" (2015, 1). In Quebec, the rising entries of low-skilled TFWs (excluding SAWs and LCs) since 2009 despite an unemployment rate above 11% are consistent with a lack of information about supply of and demand for workers at occupational levels. Only a specific empirical study could confirm this cause but it has been shown that TFW entries in all skill levels across Canadian provinces since 2002 have slowed down the adjustment of the inter-provincial relative unemployment rates (Gross and Schmitt 2012).

Examples of efficient information

TFW policy features in several OECD countries confirm that clear information is a basic essential condition. Information on job vacancies and the number of unemployed people is ensured to make present hiring efficient and future labour market developments well predicted. Employers face lower costs to search and give priority to regional workers; wages evolve adequately to attract resident workers; and youth training is consistent with future available jobs.

Regarding information about job vacancies, several sources are used as it is shown that employers' advertisings do not reflect all available jobs (Farm 2003). Some countries, like Canada, add questions in an existing firms' survey but do it in a more detailed way. For example, in Switzerland, the sample of covered firms is 63,500 out of 458,000, that is, 14%. The survey is run quarterly with several questions on the nature of vacancies (i.e., required level of education), and the firm's difficulties in filling present and future labour needs. In addition, employers must provide prospects of their future changes in hiring (increase or decrease) with a given magnitude for the coming future quarter (OFS 2013; OFS undated). Other countries like Australia, Germany, Sweden and the Netherlands run a specific survey for job vacancies (OECD 2012, Annex 1.A2).

To determine firms' needs, TFW programs are incorporated in labour market policies. It is not just an immigration policy. For example, in Austria, Italy, Norway and the Netherlands, employers must do labour market tests and submit them to the local public labour agency (Chaloff and Lemaitre 2009, 19). The approval of the request for TFW hiring is thus done by a government agency, the main activity of which is to match resident unemployed people to firms' job vacancies. In Germany, the visa requirements by foreigners are submitted to the Central Agency for Foreign Placements which has been created by the Ministry of Labour running the Federal Employment Agencies. If a labour market test is needed, the local Employment Agency will do it and decide whether the demand for TFWs must be rejected because of the large enough number of local job seekers or if there should be first a 7- to 14-day advertising. The Agency can also send local candidates for interviews to the employer (OECD 2013, Chapter 4).

In June 2014, the Canadian government reinforced some constraints that employers must fulfill to prove there are labour shortages when filing a LMIA. They are basically additional statements which include the following: the number of Canadian workers who applied for the job, the number of interviewed applicants and the reasons why they were rejected (ESDC 2014c). In addition some LMIAs for low-wage TFWs in regions with the unemployment rate above 6% may be automatically rejected. These conditions might improve the efficiency of the existing program. However, in order to confirm the validity of the new constraints and get regional unemployment rates, the government agency still needs precise information about labour shortages and available resident workers per occupation. The government did approve more financing to Statistics Canada to extend the survey of firms. It is planned that about 100,000 firms will be covered, hence a rise from 1.7% to 11% for the covering sample (ESDC 2014c). But the limited published numbers will still make occupational information inaccessible. If there are no more questions about vacancies for better projection of future employment and no better information about available resident workers in occupations, these changes will not be much more effective.

Incentives to generate future local supply

Clear information is necessary to avoid wrong shortage claims by employers and to improve and, possibly, accelerate the authorization process by government agencies. Both potentially decrease the risk of abusing the program. However, it will still not guarantee a future equilibrium between supply and demand in occupations with present shortages. Access to the world supply of workers through the TFW program provides employers with an immediate access to people with qualifications that match exactly their needs of skilled or low-skilled workers. So, it is attractive to use the program to fill jobs for as long as possible, especially if the working permit duration is relatively long. In February 2007, the initial working permit length for low-skilled workers was extended from one to two years. It was justified by stating that "The change acknowledged that employers often needed such workers for longer than one year and provided greater stability for them as well as the workers themselves" (CIC 2013a). It is now back to one year but in April 2011, the total length of the working permit with renewals was fixed to four years (CIC 2013b). These clearly incentivize employers to hire TFWs in permanent jobs which they are not supposed to obtain. If, in addition, the legally paid wages are relatively low, over time, wages for occupations with TFWs will not rise anymore. Then, the supply of local labour for these occupations will not adjust and the restoration of equilibrium with demand will not occur. In addition, when permanent jobs are filled with TFWs immediately productive, employers have little incentive to train young people or local workers, even with close qualifications, to fill those jobs. There are higher costs for firms to make local workers fully suitable.

Hence, the relative cost of hiring TFWs with respect to resident workers can determine the choice of applicants by employers. Gross and Schmitt (2012) show that persistence in some unemployment rates in Canada has been caused by increased availability of TFWs. One possibility is shown to be the relative low hiring cost for TFWs compared to resident workers who have to come from other regions. For low-skilled TFWs, employers have the obligation to pay return plane tickets between the source country and Canada. Since the beginning of full access to low-skilled TFWs in 2002, there has been a relative decline in their travel costs compared to Canadian resident workers' costs and this has caused part of the inter-provincial relative unemployment rises. So, when there were no local applicants, employers had some financial advantages to hire TFWs rather than residents from other provinces.

While this is an important factor on average in Canada, an interesting question is whether it has little or a lot of importance, in particular in Quebec. Thus, resorting to the same regression model as in Gross and Schmitt (2012), the impact of TFW hiring costs on relative provincial unemployment to national rates was estimated for four Canadian regions including Quebec and this, for the two periods before and after the extension of the TFW program to low-skilled workers. According to Table 3, the impact of consideration for costs has increased nationally with the new program (from -0.79 to -0.98) while different evolutions took place in the various regions. In the regions where it is comparatively low, that impact increased somewhat between the two periods in the East while it never played a role in Ontario. By contrast, in the regions where it is comparatively high, it increased substantially between the two periods in Quebec (from -0.95 to -1.52) so as to come close to the value estimated for British Columbia (-1.67) which was barely unchanged from the one estimated for the first period. Thus, potentially, hiring costs can have a strong impact on employers' decisions to hire residents rather than TFWs. However, between 2002 and 2007, the relative cost of hiring TFWs compared to workers from other provinces decreased in the Quebec province by 10.7%. As a consequence, relatively cheaper access to low-skilled TFWs has contributed to increased unemployment in Quebec with respect to the national level. So, clearly the relative hiring cost of TFWs has been too low to ensure priority for resident workers not living strictly locally.

In short, when there is access to TFWs at relatively low costs, employers have strong incentives to hire them. This is especially the case when, in addition to hiring costs, the TFW legal wage is relatively low and local workers do not fit perfectly the required qualifications or have no work experience. Permanent jobs are then occupied by TFWs as employers have no incentive to train local workers. Over time, wages for these occupations remain low and young people lose interest in these jobs.

CONCLUSION

A TFW program may be necessary in today's world of strong international competition. It must allow firms to hire quite rapidly foreign workers with desired qualifications to ensure steady production of goods or services in some firms or regions. However, such a program must not penalize resident workers in the short run or affect industrial evolution.

Since the beginning of the 21st century, the TFW program has had negative impacts on local workers in Canada and probably also in the province of Quebec. The main reasons for undesirable effects from the economic viewpoint are a lack of clear information on the state of local, occupational labour markets (job vacancies and unemployment) and low relative hiring costs for TFWs relative to residents. So, it has been easy for employers to state that they could not find especially low-skilled workers, even though there were high unemployment rates. The political motivation was to support business pressures for easy access to low cost workers, thereby stimulating the weaknesses of the program. Modifications introduced in the summer of 2014 can improve the program, but they will not be fully effective as long as there is a lack of clear information about the state of present and future labour markets.

Generally, a TFW program must not degenerate employers' incentives to train youth for occupations with on-going shortages of labour or avoid medium-term restructuring of the labour force. In addition, rather than steady reliance on TFWs, there must be incentives for technological changes which will lower production costs and make firms highly competitive in a global economy. With clear information and adequate costs, employers who are truly in need of TFWs will obtain them rapidly for the short-term; there will be little abuse of the program and the economy will evolve competitively.

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DOMINIQUE M. GROSS is Professor of Economics at the School of Public Policy, Simon Fraser University. In her research, she specializes in the potential impact of international migration on host countries' labour markets. She also has interest in the nature of the decisions by foreign investments with respect to business and labour market policies. Her current research interests are about non-permanent immigrants such as temporary foreign workers in Canada and cross-border workers in Switzerland. And she is investigating people's perception of the effect of the free mobility of workers in Europe on a country's economy. She has published in academic journals, in edited books and produced studies for the ILO, the IMF, the World Bank and policy studies for the CD Howe Institute, Toronto.
TABLE 1. Total TFWs in Canada and its regions, 2002 and 2012

          Canada     West       Ontario               Quebec
                                           Total      Montreal


2002      101,098     33,417     50,470     13,834     10,977
2012      338,221    157,480    119,903     44,125     33,990
% change      234.5      371.3      137.6      219.0      209.6

              Rest of
              province        East

2002            2,857         3,075
2012           10,135        10,913
% change          254.7         254.9

Source: CIC (2011. 2012).
Note:
- West = British-Columbia + Alberta + Saskatchewan + Manitoba
- East = New Brunswick + Nova Scotia + Prince Edward Island +
Newfoundland and Labrador

TABLE 2. Unemployment rates (%) with and without access to TFWs,
Canada, 2007 to 2013

              High school                                Some
              diploma                                    post-secondary
                                                         schooling
              Youth                      Adults          Youth
              15-24 years                24+             15-24 years
                                         years
Year  Total   Without      Gain in       Total    Total  Without
              TFWs         unemployment                  TFWs
              (computed)                                 (computed)

2007  11.1      9.1           2.0            6.5    9.1   6.8
2008  11.3      8.7           2.6            6.6    9.3   7.1
2009  14.9     11.8           3.1            7.9   12.2   9.2
2010  14.6     11.3           3.3            7.4   11.3   8.3
2011  14.1     10.4           3.7            7.5   10.5   7.3
2012  10.9      6.7           4.2            7.2   12.0   8.6
2013  12.4      8.7           3.7            7.5   10.0   6.1

                       Adults
                       24+
                       years
Year    Gain in        Total
        unemployment

2007         2.3        6.4
2008         2.2        6.8
2009         5.2        6.9
2010         3.0        7.3
2011         3.2        9.3
2012         3.4        7.4
2013         3.9        7.5

Source: Statistics Canada, 2014a, Table 2820209.

TABLE 3. Canada-wide and region-specific impacts of relative TFW hiring
cost on deviation of provincial unemployment rate with respect to
national rate, 1991-2001 and 2002-2007

                                  Period
                     1991-2001           2002-2007

Canada              -.791 (3.3) (**)    -.982 (4.6) (**)
Regions
--West             -1.720 (5.2) (**)   -1.670 (6.2) (**)
--Ontario            .499 (1.8)          .387 (1.3)
--Quebec            -.949 (3.2) (**)   -1.520 (5.2) (**)
--East              -.348 (1.0)         -.701 (2.0) (*)

Notes:
--For definition of regions, see note to Table 1.
--Significance levels: (*) : 1%; (**) : 5%.
--Results for Canada are the average national impacts identified in
Gross and Schmitt (2012). For this paper, a modified model has been
estimated to identify specific regional impacts. The complete results
of estimations are available from the author upon request.
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