The Temporary Foreign Workers Program has always provoked questions about wages for domestic workers and the rights of foreign workers. In 2002, the government added a stream to the program that permitted employers of “low-skilled workers” to start recruiting abroad. Upon arrival in Canada, these workers’ visas – like those admitted under some other streams — were tied to one employer and making a change to their employment circumstances presented bureaucratic difficulties for all concerned.
Media critiques of the program ranged from fears of worker exploitation to wage suppression in the labour market. In a new working paper published by the National Bureau for Economics Research, labour economist Professor Kory Kroft of the Department of Economics and his co-authors (Isaac Norwich and Matthew J. Notowidigdo of the University of Chicago and Stephen Tino of TMU) studied one aspect of the program to determine how workers with closed permits fared by comparing those who gained permanent residency (PR) status earlier to those who gained it later.
Using administrative data from Statistics Canada, which links the Canadian Employer–Employee Dynamics Database (CEEDD) with the Longitudinal Immigration Database, Kroft and his co-authors tracked workers from the time they arrived as temporary foreign workers until after they become permanent residents.
“We see a big jump in job transitions once workers get permanent residency,” Kroft said. “They’re much more likely to move to other employers, and that mobility drives a sharp increase in their earnings at that time. These earnings gains persist over three years, and our evidence is consistent with workers moving to higher‑wage firms and higher‑paying sectors. That’s where the largest gains come from.”
Kroft and the team used the same data to estimate a job search model, simulate the long-run effect of PR on earnings (finding a 50 percent larger increase) and run a series of counterfactual simulations to evaluate several policies and how they impact foreign workers, domestic workers, and the businesses they work for. The policy counterfactuals were stylized and rely on specific model assumptions, so Kroft cautions their potential implications should be interpreted cautiously.
In one simulation, Kroft and the team assessed what would happen if all closed permits were converted to open permits. This was motivated by recent policy proposals being discussed in Canada which would allow TFWs to freely switch between employers within the same sector.
“We asked, what happens if you bring in the same workers but let them move freely between jobs right away, essentially giving them PR immediately,” Kroft said. “With open visas, we found an overall improvement in social welfare defined as the sum of wages and profits. The TFW program segments the labour market,” he explained. “You effectively have one labour market for immigrants and another for domestic workers, and there’s a lot of selection into which firms hire TFWs. Opening visas reduces that segmentation and allows for greater worker mobility across firms. If that mobility leads to better sorting of workers to firms and more productive matches, it will increase overall output and efficiency. Not surprisingly, the temporary workers do better, but domestic workers fare slightly worse (especially low-wage workers) because they now face more competition, so there’s a trade‑off in terms of distributional impacts.”
Kroft and the team also considered a policy simulation which raised the application fee employers pay to access the program and bring workers into Canada. This test was motivated by similar real-world policies, such as the $100,000 fee imposed on firms who hire H1-B workers in the United States.
“Increasing the application fee increases domestic wages and reduces firm profits in our model,” he said. However, it reduces foreign worker wages due to lower demand for their services.
The simulations assess the effects of policies governing how the Temporary Foreign Worker Program operates, and provide evidence for policymakers and decisions makers. For scholars, they are a pathway to defining more questions.
“There hasn’t been much academic research on how the government should allocate temporary visas across firms. Given the real‑time changes happening to the program, economists have something to contribute,” Kroft said. “We can offer a systematic framework for thinking about this allocation problem.”
Return to the Department of Economics website.
Scroll more news.