ARCHIVED – Social Capital and Wages - Outcome of Recent Immigrants to Canada

Li Xue
Research and Evaluation
Citizenship and Immigration Canada
May 2008

This paper studies the interactions between social capital and immigrants’ wages, drawing upon the Longitudinal Survey of Immigrants to Canada (LSIC). The paper attempts to deal with some of the difficulties faced by previous studies on returns to social capital. Taking advantage of the longitudinal nature of the LSIC, the paper takes into account unobserved individual heterogeneity by using panel data models: random effects, fixed-effects, Hausman-Taylor (HT) and instrumental variable (IV) models for panel data. The suspected correlation between social capital and unobserved individual ability motivates the study to treat social capital as endogenous. The estimator proposed by Hausman and Taylor (1981) is used to take into account this endogeneity. This estimator is then shown to be efficient and consistent, and it is favoured over other panel data estimators, including the IV ones. The results show that social capital adds to human capital and has important effects on immigrant wages during their first years in Canada. Strong ties such as family networks and friends dominate weak ties such as organizations in helping immigrants get better jobs in terms of higher wages during their first four years in Canada. This is true especially for those who are disadvantaged with respect to their human capital. Meanwhile, the ethnic diversity of the workplace network is the most influential factor within social capital that affects wages for both male and female immigrants.

Acknowledgement: I would like to express my sincere appreciation to my thesis supervisor, Prof. Gilles Grenier, for his valuable insights, guidance and suggestions through the work for this paper. I am very grateful to Prof. Pierre Brochu, Prof. Chris Worswick, Prof. Ravi Pendakur and Prof. Catherine Deri Armstrong for their helpful feedback on the earlier drafts and presentations. This paper has benefited from the financial support and comments from the Research and Evaluation Branch, Citizenship and Immigration Canada. Specifically, special thanks to Martha Justus, Eden Thompson, and Jessie-Lynn MacDonald who provided great continued support for completing my PhD dissertation. In addition, I am so grateful to my colleagues at CIC, especially Stan Kustec, Colleen-Marie Dempsey and Jun Zhao who gave very helpful suggestions and comments on the earlier versions of the paper and relevant presentations.

Social Capital and Wages - Outcome of Recent Immigrants to Canada
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Table of contents

• 1. Introduction
• 2. Literature Review
  • 2.1. Wages and social networks
  • 2.2. Social capital effects on wages of immigrants
• 3. Data and Methodology
  • 3.1. Data
  • 3.2. Methods
• 4. Theoretical and Empirical Framework
  • 4.1. Theoretical framework
  • 4.2. Estimation framework and model specification
• 5. Descriptive Statistics of the Estimation Sample
• 6. Empirical Results
  • 6.1. Social capital effects
  • 6.2. Differential social capital effects
• 7. Discussions and Conclusions
• 8. References
• 9. Appendix

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