The Impact of Imperfect Information on the Wages of Native-Born and Immigrant Workers: Evidence from the 2006 Canadian Census

This paper empirically examines how imperfect information about wage offers and reservation wages among employees and employers respectively impacts on the wages of Canadian born and immigrant workers. We estimate these effects from 2006 census data using a two-tier stochastic wage frontier. Our main contributions are: first, the use 2006 census data allows us to examine how the international transferability of immigrant human capital (or the lack of it) impacts on worker and employer information - this could not be done with earlier censuses, but is a critical factor that separates the labour market experience of immigrants (especially newcomers) from that of native-born Canadians; second, we adopt a more general approach to information gaps by re-parameterizing the frontier model to incorporate the impact of individual differences on labour market information; and third, we allow worker and employer information gaps to vary due to industry fixed effects. Our findings show that Canadian-born and immigrants with similar characteristics tend to experience quite similar wage gaps in the aggregate. While those gaps show significant variation across some industries for both immigrants and Canadian-born workers, and wage gaps due to worker imperfect information are also similar both groups, wage gaps driven by employer imperfect information are much larger among immigrants. As well, the results show that the variability in the amount of information that workers and employers possess is clearly more substantial among immigrants, thereby pointing to greater uncertainty about their wage outcomes. Our analysis of immigrants shows that while the effects of acquiring their degree prior to migration increases the size of wage gaps due to employer and worker imperfect information, these impacts are relatively modest when compared to those arising from a lack of language skills.