Canada Attracts the Talent. But Is Its Economy Creating the Jobs?

Canada has spent decades developing an immigration system designed to attract human capital. The system has been remarkably successful by this measure.

The educational profile of recent immigrants shows this clearly. According to the latest Census, 55 percent of recent immigrants aged 25 to 64 held a bachelor’s degree or higher in 2021, compared with 33 percent of Canadian-born people aged 25 to 34. More recent Labour Force Survey data confirm that newcomers continue to arrive with very high levels of education. 

Yet what happens after these workers arrive tells a different story.

Among recent immigrants with university degrees, only 44 percent were working in occupations that matched their education in 2021. The corresponding figure among Canadian-born workers aged 25 to 34 was 64 percent. More than one-quarter of university-educated recent immigrants were substantially overeducated for their jobs.

We have Focused on the Immigrant. Perhaps we Should Focus More on the Economy.

Much of the policy response to immigrant underemployment has concentrated on the barriers facing newcomers themselves. Governments and settlement organizations have invested in credential recognition, bridging programs, résumé workshops, networking programs, language training and other initiatives designed to help immigrants navigate the Canadian labour market.

Yet these interventions have not fundamentally resolved the problem. Labour market outcomes for new immigrants deteriorated for decades, beginning in the early 1980s, before improving modestly around the mid-2010s. Some of that improvement reflects changes in how Canada selects economic immigrants, particularly the growing importance of two-step migration, through which many immigrants now acquire Canadian educational credentials and work experience before becoming permanent residents. Recent immigrants are therefore more likely to enter the labour market with Canadian credentials and experience than earlier cohorts. Even with this shift, however, substantial gaps in earnings, occupational attainment and the utilization of immigrants’ skills remain.

The Missing Part of the Immigrant Underemployment Debate is Demand.

There are two different explanations for immigrant skill underutilization.

The first is a matching problem: jobs requiring immigrants’ skills exist, but immigrants are not getting them. Their foreign credentials or experience may not be recognized, employers may prefer Canadian experience, professional licensing may restrict entry, or discrimination and hiring practices may prevent otherwise qualified immigrants from accessing available positions.

The second is a demand problem: there simply are not enough jobs requiring the skills that immigrants bring. In this case, even if foreign credentials were fully recognized and hiring barriers disappeared, there would still not be enough appropriate positions to employ the high-skilled workers that Canada has attracted.

There is evidence that this is more than a theoretical possibility. Between 2001 and 2016, Canada added 1.7 million university-educated workers, but only 857,000 additional workers were employed in jobs requiring a university degree. In other words, only about half of the growth in university-educated labour was absorbed into university-level jobs. Recent immigrants bore a disproportionate share of this structural imbalance, becoming increasingly concentrated in jobs requiring lower levels of education.

Yet, most research and policy attention has focused on the first problem: why high skilled immigrants are not matched to appropriate job openings. Much less attention has been paid to the second: whether the Canadian economy is creating enough high skilled jobs in the first place.  Better credential recognition and fairer hiring can improve who gets access to existing opportunities. They cannot, by themselves, increase the number of those opportunities.  Here the success of Canada’s immigration system runs up against the country’s longstanding innovation and productivity problem.

Canada has many of the key ingredients needed for a high-performing innovation economy. Nearly 65 percent of working-age Canadians hold a tertiary qualification, among the highest rates in the OECD. Canadian research is highly regarded internationally: Canada remains among the world’s leading producers of academic research and ranks well on measures of research impact. Yet Canada has been much less successful at translating these advantages into commercial innovation.  Business R&D accounts for only about 1 percent of Canada’s GDP, compared with 2 percent across the OECD. The OECD also identifies weak technology adoption and difficulties translating Canada’s strength in basic research into commercialization and large-scale applications.  The result is not simply an abstract productivity problem. It shapes the kinds of jobs available in the Canadian labour market.

Firms Need Talent to Scale. But Talent Also Needs Firms to Scale.

Immigration and innovation are usually discussed as though the causal relationship runs in one direction: Canada needs highly skilled immigrants because innovative firms require talent.

While this is true, the relationship also runs in the other direction: Highly skilled immigrants need innovative firms.  Engineers, scientists, technology specialists, managers and other professionals require organizations in which their specialized human capital can be productively deployed. A country can recruit extraordinary amounts of human capital, but without enough sophisticated employment, much of that talent may go underutilized.

This creates a virtuous—or vicious—circle.

Innovative firms at scale create sophisticated, highly skilled jobs. Those opportunities attract and retain specialized workers. Concentrations of talent, entrepreneurship and capital in turn support innovation and firm growth, creating further demand for highly skilled workers.

But the reverse can also occur. When an economy creates too few high-productivity jobs, highly educated workers may be pushed into lower-skilled, lower-productivity activities. An abundant supply of labour for those activities may, in turn, reduce incentives for firms to invest in technology, reorganize production and move toward higher-value-added activities.

The risk is a self-reinforcing cycle of weak productivity growth and underutilized human capital, which may also make it harder for Canada to retain the talent it attracts.

From Talent Attraction toTalent Utilization

This suggests that Canada’s approach to immigration needs a broader objective.

Canada should continue improving the recognition of foreign credentials and experience and move hiring away from crude proxies such as “Canadian experience” toward demonstrated competencies. But Canada also needs to address the demand side. Increasing business R&D, accelerating technology adoption, improving commercialization, supporting firms as they scale, strengthening innovation clusters and using procurement strategically to create domestic demand are not usually described as immigrant-integration policies, but perhaps they should be.

More fundamentally, Canada needs to be more strategic about connecting immigration policy to its broader economic objectives. Decisions about the skills we recruit should be informed not only by current labour shortages, but by where Canada wants to build productive capacity, develop industries and create high-value employment over the longer term. Talent policy and economic strategy cannot operate on separate tracks.

There is an opportunity to make that connection now. The federal government has recently placed much greater emphasis on investment, infrastructure and scaling Canadian firms, including a goal of catalyzing $1 trillion in investment over five years, accelerating major projects and introducing new incentives for business investment. The next step should be to connect this emerging economic strategy more explicitly to immigration. If Canada is making strategic choices about where to build productive capacity, immigration policy should consider how the skills we recruit complement those investments, and how those investments can create opportunities for the talent we have already attracted.  With an aging population and immigration driving labour-force growth, Canada cannot afford to squander the human capital on which its future depends.

---

Editor’s Note: This article draws on the author’s participation in Canada’s Talent Advantage, the third roundtable in the CIC National Dialogue Series, presented in partnership with the Konrad Adenauer Foundation (KAS) Canada. The series examines the choices Canada must make to exercise influence in a fractured world.