The relationship between immigration and unemployment: Panel data evidence from Canada

Abstract

Using provincial level panel data from the Statistics Canada, this paper examines the impact of permanent international immigration on the unemployment rate in Canada. In the empirical analyses, this study utilizes panel econometric techniques such as FMOLS, DOLS, and panel VECM. The results suggest that, in the short run, immigration has a significant positive impact on unemployment rate and that the unidirectional short-run causality runs from immigration to the unemployment rate. The results further suggest that, in the long run, immigration has a negative but insignificant impact on the unemployment rate. Though Canada attracts highly skilled immigrants, but generally Canadian employers do not recognize foreign education and foreign experience. Consequently, initially, immigrants face difficulties in the job market leading to an increase in the unemployment rate. Overtime, immigrants receive Canadian job experience and in many cases, Canadian education and training. All of these improve immigrants' employment prospect and consequently, in the long run, the adverse impact on unemployment rate is eliminated.