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April 24, 2014 – Changes to the Temporary Foreign Workers (TFW) program between 2002 and 2012, which made it easier to hire foreign workers, accelerated the rise in unemployment in Alberta and British Columbia, according to a new C.D. Howe Institute report. In “Temporary Foreign Workers in Canada: Are They Really Filling Labour Shortages?”, author Dominique M. Gross finds that easier access to foreign labour can generate undesirable incentives on the part of employers and prospective workers. She recommends changes to the TFW program.

“A well-functioning TFW program allows employers to hire foreign workers only if there is no available resident, for a short period of time, and if the conditions of employment do not undermine the rebalancing of the labour market,” says Gross. However, “between 2002 and 2012, Canada eased the hiring conditions of TFWs several times, supposedly because of a reported labour shortage in some occupations, especially in Western Canada. By 2012, the number of employed TFWs was 338,000, up from 101,000 in 2002. These policy changes occurred even though there was little empirical evidence of labour shortages.”

Gross finds that recent federal changes to the TFW program are “welcome but probably not sufficient, largely because adequate information is still lacking about the actual state of the labour market, and because the current uniform application fee employers pay to hire TFWs does not increase their incentive to search for domestic workers to fill job vacancies.”

The author recommends reforms to provide good information about the state of the labour market, the nature of vacancies (demand) and the availability of domestic workers (supply). Professor Gross also discusses fees, and is careful to point out that these should depend on criteria such as the size of the firm and the intensity of its TFW use, to avoid penalizing small firms that need TFWs. Finally, a cap on annual TFW entries would influence firms’ and workers’ search efforts until better information and a different fee structure was put in place.

Gross argues that an ideal TFW program should offer employers access to an indispensable temporary workforce until domestic workers become available. “Employers should regard such foreign workers as a temporary fix as opposed to a way to circumvent the search for and hiring of domestic workers,” she says. Further, a successful TFW program would encourage employers to attract and train domestic workers for jobs that are permanent so that the labour market exhibits a better balance in the medium term. She concludes that the current Canadian program, however, still falls short of this goal.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.

Click here for the full report.

For more information contact: Dominique Gross, Professor, School of Public Policy, Simon Fraser University; or Colin Busby, Senior Policy Analyst, C.D. Howe Institute  416-865-1904; E-Mail: jfleming@cdhowe.org.