Temporary Foreign Workers in Canada: Are They Really Filling Labour Shortages?

• Published in: Commentary - C.D. Howe Institute no. 407; p. 0_1
• Main Author: Gross, Dominique M
• Format: Journal Article
• Language: English
• Published: C.D. Howe Institute 01.04.2014
• Subjects: Charitable foundations; Economic conditions; Employers; Employment; Foreign labor; Hiring; Labor market; Labor shortages; Occupations; Passports & visas; Pilot projects; Productivity; Studies; Temporary employment; Unemployment; Workers; Canada
• ISSN: 0824-8001; 1703-0765

In September 2007, under rising pressure from employers in western Canada, HRSDC introduced the "Expedited Labour Market Opinion (E-LMO) Pilot Project" in Alberta and British Columbia (CIC 2013a). The goal was to reduce backlogs in certain occupations and to accelerate the processing of LMO applications. The time to obtain an LMO was shortened from about five months to five days, but to ensure fast processing, employers first had to prove eligibility by stating that their applications were consistent with their business, and that they had been operating for at least twelve months with one employed worker; they also had to confirm their statements by phone, and agree to be subjected to a compliance review (HRSDC 2008a). The expedited process was available initially for 12 selected occupations, and was increased to 33 occupations in January 2008.10 The pilot project was terminated in April 2010. A similar policy modification, the "Accelerated Labour Market Opinion (A-LMO)," was introduced in April 2012 for managers and skilled occupations across Canada, whereby employers who meet the eligibility criteria may obtain a positive A-LMO within 10 business days based on "the genuineness of the job offer; the wage offered; and whether the job offer is likely to fill a labour shortage" (HRSDC 2013d, 1). Finally, in addition to changes to the labour market test, an important modification introduced in April 2002 concerned the wages paid to TFWs. Before that date, employers were required to pay "the median wage for an occupation in a specific region" (HRSDC 2013e), but the use of such a benchmark meant that TFWs might have been paid more than some Canadian workers since, statistically, 50 percent of workers are below the median value. The federal government estimated that paying TFWs the median wage was preventing the excess demand for labour from being filled and thus was slowing down the economic recovery. Under the new rules, employers were allowed to offer high-skilled TFWs up to 15 percent less than the median wage and low-skilled TFWs 5 percent less as long as it remained above the minimum wage.11 The financial cost of hiring TFWs consists of wages and additional administrative costs that the regulations impose. In the absence of a TFW program, a local shortage of labour would force employers to raise wages substantially to attract domestic workers, possibly from other regions or occupations. For this reason, many countries impose high fees on employers wanting to hire TFWs. The United States, for example, charged up to $2,325 per application in 2013 for the appropriate visa; part of the fee is used to train domestic workers, which thus contributes to rebalancing labour markets. In Singapore, companies must pay skillsspecific and industry-specific monthly levies for each employed TFW. In both countries, fees are higher for employers that depend heavily on TFWs; fees also vary by firm size.17 Naturally, a financial charge must be combined with the employers' obligation to pay at least the same wage to TFWs as they do to domestic workers so that the cost is not passed on to workers. Moreover, in case of long TFWs' contracts, such as the four-year contracts in Canada, it is important that policy stimulates the rebalancing of labour markets. Thus, wages should not be kept low over many years. High specific and possibly time-dependent fees would create incentives for employers to raise wages while searching for domestic workers.