The Human Capital Model of Selection and Immigrant Economic Outcomes
| Author | Garnett Picot,Feng Hou,Hanqing Qiu |
| Published date | 01 June 2016 |
| Date | 01 June 2016 |
| DOI | http://doi.org/10.1111/imig.12235 |
The Human Capital Model of Selection and
Immigrant Economic Outcomes
Garnett Picot*, Feng Hou** and Hanqing Qiu**
ABSTRACT
This article examines the trends in the economic advantage that highly educated immigrants
hold over less educated immigrants in Canada, focusing on the differences between short-run
and longer-run outcomes. Using data from the Longitudinal Immigration Database covering
the period from the 1980s to the 2000s, this study finds that the relative entry earnings advan-
tage that higher education provides to new immigrants has decreased dramatically over the last
30 years. However, university-educated immigrants had a much steeper earnings trajectory
than immigrants with trades or a high school education. The earnings advantage among highly
educated immigrants increases significantly with time spent in Canada. This pattern is
observed for virtually all immigrant classes and arrival cohorts. The results suggest that short-
run economic outcomes of immigrants are not good predictors of longer-run results, at least by
educational attainment. The implications of these findings for immigration selection policy are
discussed in the conclusion.
INTRODUCTION
In Canada, the points system used to select economic immigrants throughout the 1990s and the
early 2000s was based largely on the human capital model of immigration. This model posits that
selecting immigrants with high levels of human capital is particularly advantageous in the long run.
Higher educational levels allow immigrants both to bring the skills needed in a “knowledge-based
economy”and, perhaps more importantly, to adjust better to both cyclical and structural changes in
the labour market than lower educational levels. This model of selection takes a broader and
longer-run view of desirable human capital characteristics than, for example, a selection model
based on the need to meet occupational skill shortages. While immigrant selection in the Federal
Skilled Worker Program (FSWP) continues to be based largely on the human capital model, other
immigrant selection programmes have been introduced that focus more on meeting short-run labour
market needs and skill shortages. This shift in focus was also designed to improve immigrants’
labour market outcomes at entry.
In the wake of the recent significant changes in immigrant selection in Canada, this article asks
to what extent the basic premise of the human capital model held for immigrants to Canada in the
last three decades: were higher levels of education associated with better long-run labour market
outcomes? Our analysis focuses on within-cohort changes in the earnings advantage that highly
educated immigrants hold over their less educated counterparts. Both short- and long-run earnings
are examined for immigrants with different educational levels: high school, trades, bachelor’s
* Institute for Research in Public Policy, Montreal
** Statistics Canada, Ottawa
doi: 10.1111/imig.12235
©2016 The Authors
International Migration ©2016 IOM
International Migration Vol. 54 (3) 2016
ISSN 0020-7985Published by John Wiley & Sons Ltd.
degree, and master’s/doctorate. We also examine whether the pattern of within-cohort earnings
growth by education has changed across arrival cohorts. This objective is different from those of
previous studies which examine the general decline in entry earnings across cohorts (e.g. Aydemir
and Skuterud 2005; Frenette and Morissette 2005; Hou 2013).
RECENT CHANGES IN CANADIAN IMMIGRATION SELECTION POLICY
Since its introduction in 1967, Canada’s points system for selecting immigrants has always
included human capital characteristics, such as age, education and language proficiency, among its
critical components. In the early 1990s the points system was modified to increase the importance
of human capital factors, particularly education, in immigration selection. The commitment to the
“human capital model”was renewed in the 2002 Immigration and Refugee Protection Act (IRPA),
which introduced changes to the FSWP. At that time, the points for educational attainment were
further increased, points for specific occupations were eliminated, and language evaluation was
strengthened.
In the 2011 Citizenship and Immigration Canada (CIC) evaluation of these changes, the authors
noted that “the FSWP introduced with IRPA was based on a human capital model, without consid-
eration of occupation. The programme was intended to maximize the long-term potential of eco-
nomic immigrants in an increasingly complex labour market and knowledge-based economy by
focusing on human capital attributes.”(CIC 2011, p. 21). The authors also noted that, whereas the
focus was previously on skill shortages in specific occupations, “this approach was altered in
favour of a broader lens of selection whereby the selection factors and points allocated better reflect
an applicant’s ability to move from job to job as the labour market changes”(p. 21).
The move to the human capital model in the 1990s resulted in more changes to the educational
characteristics of entering immigrants than to other human capital attributes such as work experi-
ence or language. The share of economic principal applicants with a university degree rose from 31
per cent in 1990 to 78 per cent in 2002, and fell marginally to 67 per cent in 2011. The increase in
the share of immigrants with advanced degrees was significant. Fully one-quarter of principal appli-
cants had a master’s degree or a doctorate in 2011, while only nine per cent did so in 1990. The
effect of these changes was not restricted to economic class principal applicants (those who are
evaluated using the points system). Among immigrants as a whole, the share with a university
degree rose from 18 per cent to 42 per cent between 1990 and 2011.
While the human capital model took on increasing prominence in the Federal Skilled Worker
Program, other immigrant selection programmes have recently been introduced to focus on shorter
run goals, such as meeting emergent skill shortages and improving immigrant entry earnings. The
increase in the number of temporary foreign workers is also part of this movement, as is the rising
number of immigrants selected through the Provincial Nominee Program (PNP).
Among the programme changes in the 2000s, the rise in PNP is probably the most significant.
The percentage of economic immigrants arriving in Canada as Provincial Nominees rose from less
than one per cent in 2000 to 19 per cent in 2010, and further increased to 25 per cent in 2012. The
balancing of immigrant selection between the FSWP and the PNP resulted in a shift in the charac-
teristics of entering immigrants. In 2010, about 80 per cent of new FSW immigrants had a univer-
sity degree, while this was the case for 47 per cent of provincial nominees. These differences show
up in the “intended occupation”declared by entering immigrants. Roughly 90 per cent of FSWs
entering in 2011 declared a professional or technical occupation as their intended occupation, while
this was the case for roughly 50 per cent of provincial nominees.
Since the PNP is relatively new in most provinces (except Manitoba where it has been in place
since 1996), it is not possible to examine long-run economic outcomes among a large group of
74 Picot, Hou and Qiu
©2016 The Authors. International Migration ©2016 IOM
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