Temporary Foreign Workers do not Deflate Average Wages (Updated)

On April 20, 2011, the Vancouver Sun published an article by David Green titled “Are there too many Foreign Workers?”

The article notes that from 2004 to 2008, the number of Temporary Foreign Workers admitted to Canada increased from 112,543 to 192,281.  (In 2010 the number was 182,322.)

I take issue with numerous aspects of the article, including:

• It completely ignores the causation between the introduction of the Post-Graduation Work Permit and the increase in the number of Temporary Foreign Workers.  Prior to 2006, foreign students in Canada could not apply for an open work-permit upon graduation.  This is no longer the case, and many of the over 150,000 foreign students in Canada each year apply for and receive these permits.

• It incorrectly states that Temporary Foreign Workers do not have future prospects for immigration.  As I have previously written in this blog, there are numerous immigration programs available for temporary foreign workers to become permanent residents.  The Canada Experience Class and the numerous Provincial Nomination Programs all facilitate the switching from temporary residence to permanent.

• The article does not mention that temporary foreign workers who decide to become permanent residents are likely more able to integrate than those who simply enter on a Family Class or Federal Skilled Worker Program visa.  The reason is simple.  Temporary foreign workers are already established, have already began to integrate into Canadian society, and have developed a network within Canada.

However, the biggest issue that I have with Mr. Green’s article, and the main objective of today’s post, is to address the misconception that Temporary Foreign Workers are hired because employers do not want to pay higher wages to Canadian citizens and permanent residents.

The Commonly Held Belief

Mr. Green asserts the commonly held belief that the main cause of the increase in temporary foreign workers is that companies are not willing to increase the wages that they pay.  He writes:

… real wages for high school or less educated workers starting a new job declined by approximately 20 per cent between 1980 and the mid-2000s. Why would we embark on a policy that exacerbates this trend? The economy will not stop if their wages rise. This part of the policy seems to be more about keeping wages down than generating economic growth.

What about the skilled TFWs, where one might make an argument that there is a gap that needs filling? Here, too, we need to ask hard questions before interfering in the operation of the market. Bringing in pipefitters and carpenters reduces the return to investing in those occupations. At a time when we want to encourage young people to invest in skills, it seems odd to expect them to do so while sending them the message that if wages in their occupation ever rise, we will bring in TFWs to stop it.

The expansion of TFWs is a Harper government initiative that breaks with past policies. Looking at it closely reveals a policy direction that is heavily focused on business interests to the detriment of workers’ wages.

Foreign Workers are Paid Average or Above Average Wages

As shown in the pie chart above, in the first 3 quarters of 2010 the top source countries for temporary foreign workers to Canada included the United States, France, the United Kingdom, Australia, Germany, and Japan.  These top source countries accounted for almost 75% of all temporary foreign workers.  Do we really think that individuals from these countries would come to Canada on a temporary basis to earn less than Canadians?

The truth is that most employers of temporary foreign workers are required to obtain a Labour Market Opinion prior to obtaining their work permit, and that in order to do so they have to show that they will be paying a wage that is either average or above average for the foreign worker’s occupation in the geographic area of Canada that the foreign worker will be living in.  Even temporary foreign workers that don’t require a Labour Market Opinion, such as those admitted as Provincial Nominees or Intra-Company Transferees, have to show that they will be making an average or above average wage.

The standard for determining what average or above average is is the Labour Market Information website.  This website breaksdown every job in Canada by occupation and geographic area.  It lists the low, average, and high hourly wages for a job.

Some samples for Vancouver include:

While these wages are not particularly high, I certainly have several friends that would likely look at those average and wonder why they’re making less than a temporary foreign worker in the same position.

It is also important to note the distinction between “plumber” and “plumbing supervisor”, and how a slight change in job duties can often results in Service Canada determining that higher wages have to be paid.  This happens quite frequently, as based on a LMO rejection letter that a recent client showed me during an initial consultation.

So in reply to the assertion that the presence of temporary foreign workers deflates wages my response would simply be that the Temporary Foreign Worker Program requirements simply do not allow for that to happen.

[UPDATE] 

Some people have commented that Service Canada’s announcement that high-skilled foreign workers can be paid up to 15% less than prevailing wage is proof that foreign workers deflate wages.

It’s not.  Every employer continues to be required to pay temporary foreign workers the same wage that they are paying their Canadian workers for doing the same job in the same location. Foreign workers can only be paid less than prevailing wage if they can show that all of their Canadian employees earn the same amount.   Indeed, the Service Canada website shows the following scenarios:

The median wage (prevailing wage) for welders, a higher-skilled occupation, in Fort McMurray is $35/hour.

1) I employ 10 Canadian welders at $35/hour. Can I pay my foreign welders 15% less ($29.75/hour)? If no, why not?

No, you are required to pay your temporary foreign worker welders a minimum of $35/hour because this is what you pay your Canadian and permanent resident welders.

2) I employ 10 Canadian welders at $40/hour. How much do I have to pay my foreign welders, and why?

You are required to pay your temporary foreign worker welders $40/hour because you must pay temporary foreign workers the same wage that you pay your Canadian and permanent resident workers.

3) I do not employ Canadian welders. Can I pay my foreign welders 15% less than the median wage ($35/hour)? If so, how?

No, you are required to pay the temporary foreign worker welders at least the median wage of $35/hour because you do not employ any Canadian or permanent resident welders and, therefore, cannot demonstrate that you pay Canadian and permanent resident welders $29.75/hour.

4) I employ Canadian welders at $25/hour. Can I pay my foreign welders the same wage? If no, why not?

No, you cannot pay higher-skilled temporary foreign workers more than 15% below the median wage ($35/hour).

As the above makes clear, the 15% below the prevailing wage threshold is not deflating wages.