Ali Bargu
Alexander Hijzen
Reviving Productivity Growth in Canada
The Role of Worker-Oriented Policies
Abstract
To fully reap the benefits of migration for productivity growth the integration of migrants in the labour market is key. This chapter complements those on skills policies and policies to support job mobility with a specific focus on migrants. It starts by documenting stylised facts related to the integration of migrants in the labour market and the use of their skills. It then proceeds by discussing how policies can foster the integration of migrants.
Findings and recommendations
Immigrants can contribute to higher productivity growth, but the gains from immigration do not materialise automatically. Many immigrants enter the labour market in low value‑added activities and face persistent barriers to upward mobility. Immigrants with foreign degrees, in particular, experience much higher rates of overqualification than their Canadian-educated counterparts. While this partly reflects international differences in programme quality and training content, limited opportunities for job mobility, barriers to credential recognition and narrow pathways into regulated professions are also likely to play a role.
Strengthen the alignment of immigration selection tools with employment and licensing requirements. Improve co‑ordination between immigration selection systems and labour market needs by integrating assessments that reflect occupational readiness and professional licensing requirements.
Reduce barriers to professional licences for immigrants with foreign qualifications. Expanding mutual recognition agreements and strengthening complementary measures, such as bridging programmes, occupation-specific language training or mentorship, can further support faster and more effective labour market integration.
Canada has traditionally relied on international immigrants as a source of labour, given population objectives and the integration potential of different migrant groups. While this could support economic and productivity growth, these benefits do not arise automatically and depend importantly on the extent to which migrants are employed in high value‑added activities, and their skills are effectively used. To some extent these issues – access to jobs in high productivity firms and the use of skills of the workplace – are relevant for all workers. However, they gain particular salience in the case of migrants due to the interplay between migrant selection and integration policies on the one hand and skills and employment policies on the other.
The objective of this chapter is to provide an introduction to these issues by documenting key stylised facts related to the integration of migrants and providing a discussion of the key policy issues. In doing so, it acknowledges the importance of migration when discussing the role of skills and employment policies in reviving productivity growth. However, the chapter does not provide a general discussion of the role of migration for productivity growth (see Chapter 2 for a short discussion), nor does it provide an in-depth discussion of the role of migration, employment and skills policies for the integration of migrants. Given the complexity of the topic, this would warrant a review of its own.
As discussed in several places of this Review, the benefits of migration are unlikely to materialise by focussing on supply side measures alone without measures that promote investment, competition and business dynamism.
5.2.1. It takes time to integrate immigrants in high value‑added activities
When immigrants enter the host country labour market, they earn significantly less than native‑born workers of the same age and gender (OECD, 2025[1]). New analysis presented in the OECD International Migration Outlook 2025 shows that at labour market entry, migrants earn 38% less than native‑born in Canada, 35% in Europe, 34% in New Zealand and 29% in the United States (Panel A).1 About half of this gap reflects the fact that new immigrants are disproportionately employed in low paying firms and industries (the dark and medium blue bars). After five years, the gap in earnings is significantly smaller in all countries, but the overall gap remains the largest in Canada at 25%, compared with 24% in Europe, 11% in the United States and 4% in New Zealand. One reason why the gap in Canada is relatively persistent is that immigrants move slowly to higher value‑added activities in higher paying firms and industries.2 More generally, the fact that the integration of immigrants in the labour market takes time and their contribution to high value‑added activities only materialises slowly suggests that it is important to provide longer-term pathways to temporary immigrants as well as effective policies to support the integration of immigrants in the labour market.3
Gap in earnings between immigrants and the native‑born in the year of entry in the host country labour market (Panel A), five years after entry (Panel B) and the change in the gap (Panel C)
Note: The earnings measure corresponds to monthly real earnings, except for Canada, Norway, and the United States where it corresponds to annual earnings. The average for Europe refers to an unweighted average across Austria, Germany, Denmark, Spain, Finland, France, Italy, the Netherlands, Norway, Portugal and Sweden.
Source: OECD (2025[1]), International Migration Outlook 2025, based on Canadian Employer-Employee Dynamic Database and national linked employer-employee data.
Immigrants with foreign credentials are more likely to be overqualified
Effectively integrating immigrants into the labour market is essential for improving Canada’s productivity performance. While immigration accounts for a significant share of Canada’s labour force growth, many newcomers face persistent barriers in finding employment that matches their qualifications (OECD, 2019[2]).
Immigrants with foreign degrees experience much higher rates of overqualification than their Canadian-educated counterparts. In 2023, 54% of immigrants with foreign degrees were overqualified compared with 40% of immigrants with Canadian degrees and 36% of the Canadian-born population (Figure 5.2. ). While overqualification is higher in Canada than in the OECD on average for all groups, the difference is particularly striking for immigrants with foreign degrees. Overqualification can reduce both individual welfare and labour productivity. One study suggests that overqualified immigrants earn 46% less than comparable workers, indicating significant underutilisation of their productive capacity (C.D. Howe Institute, 2025[3]). However, it is important to note that measures of overqualification do not fully account for differences in educational quality across countries, unobserved skills or genuine training gaps. As such, the raw statistics may overstate the extent of lost productivity and welfare (see Annex Figure 3A5). Nonetheless, the available evidence points to challenges in making full use of immigrant skills, underscoring the importance of policies to improve credential recognition.
Share of employed individuals with the highest qualification above the required qualification for their job, 2023
Note: OECD average is a weighted average of: Austria, Flemish Region (Belgium), Canada, Czechia, Denmark, England (United Kingdom), Estonia, Finland, France, Germany, Ireland, Italy, Japan, Korea, the Netherlands, Norway, Poland, the Slovak Republic, Spain, Sweden and the United States. See the Annex of Chapter 3 for details on the methodology used to calculate the overqualification rate.
Source: 2023 Survey of Adult Skills.
5.3.1. Bridge gaps between immigrant selection and employment requirements
Canada’s foreign credential recognition system is relatively complex. While immigration is a shared responsibility between the federal government and the provinces and territories, the latter have jurisdiction over education and the regulation of professions. As a result, recognition policies and processes vary considerably by region and occupation.
The Canadian model of skilled labour migration is a points-based system that prioritises immigrants based on the skilled needs of employers. The main federal programme for the administration of applications for permanent residency by economic immigrants is Express Entry. It is complemented with the Provincial Nominee Programmes (PNP) to address specific regional labour market needs.
As part of the Express Entry programme, applicants are required to go through an Educational Credential Assessment (ECA). ECAs are conducted by designated organisations to assess the educational equivalence of foreign qualifications. This determines the points applicants get based on their foreign qualifications and influences the chances of being granted permanent residency. It also helps prospective employers and licensing bodies understand the level and authenticity of qualifications obtained abroad. However, it is limited to the recognition of academic qualifications and does not guarantee employment or the recognition of their qualifications by licensing bodies.
The main responsibility for the recognition of foreign credentials, including work experience obtained abroad, lies with the provinces and territories. The recognition of foreign credentials is crucial for immigrants looking for work in a regulated profession as well as those wishing to continue their studies. However, it also matters for immigrants looking for work in unregulated professions as it helps employers understand the value of qualifications and particularly work experience obtained abroad. As discussed above, the limited recognition of immigrant skills obtained abroad results in widespread overqualification and severely restricts the contribution of immigrants to the economy. To enhance the recognition of foreign skills, nine provinces have established oversight entities to monitor regulatory bodies’ processes and methods, and several provinces have strengthened legal requirements, including timelines for the assessment and recognition process.
While there is no single national system for the recognition of foreign credentials, the federal government is involved in several initiatives to enhance the recognition process. As part of the 2009 Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications, it collaborates with Provincial and Territorial Governments under the Forum of Labour Market Ministers to promote principles of fairness, transparency, timeliness, and consistency. The Federal Government also provides funds to improve recognition processes through the Foreign Credential Recognition Program (FCRP). However, to reduce overqualification among immigrants with foreign credentials, the assessment of foreign credentials should be more closely aligned with actual employment requirements. This could involve paying more attention to work experience and professional qualifications in the assessment of credentials (ECA) and strengthening co‑ordination between credential assessment bodies and occupational regulators. Greater consistency and transparency across provinces would also help ensure that immigrants’ skills are recognised and put to productive use more effectively.
Going forward, the Government of Canada intends to further strengthen its efforts to enhance the recognition of foreign credentials. Budget 2025 announces the establishment of the Foreign Credential Recognition Action Fund to work with the provinces and territories to improve the fairness, transparency, timeliness, and consistency of foreign credential recognition, with a focus on health and construction sectors (Government of Canada, 2025[4]).
Reduce barriers to professional licenses for immigrants with foreign qualifications
Barriers to accessing regulated professions remain a significant obstacle to the labour market integration of foreign-educated immigrants. Occupations in areas such as medicine, nursing, engineering, and law require licences issued by provincial and territorial regulatory bodies (see section 4.2 and 4.3). Regulatory bodies frequently impose additional requirements for internationally trained professionals, (e.g. exams, supervised practice, or Canadian work experience) – that can be difficult for internationally trained individuals to meet due to factors unrelated to professional competence, such as language challenges or high examination costs.4 At the same time, these exams and additional requirements may reveal real gaps in training. Many International Medical Graduates lack postgraduate residencies recognised under Canadian standards and therefore must complete remedial or additional training to be licensed (Wang et al., 2023[5]). This dual nature of barriers implies that while certain requirements may unfairly exclude qualified professionals for reasons unrelated to their core skills, others serve as necessary safeguards. Striking the right balance is essential.
Extending the use of mutual recognition agreements could support faster access to regulated professions for people moving to Canada. Examples include Québec’s bilateral agreements with France and Switzerland, as well as provisions under the Canada – EU CETA agreement that facilitate the recognition of professional qualifications. Further development of such agreements, alongside improved integration between immigration, education, and licensing systems, could help reduce barriers and enhance the productivity contribution of skilled immigrants. Robust monitoring and evaluation will be essential to ensure that these initiatives are effective and adaptable.5
Expanded settlement services and targeted training can also help to reduce qualification mismatch. Strengthening access to bridging programmes,6 occupation-specific language training, and micro-credentials can help immigrants acquire Canadian-relevant skills and certifications more rapidly. Mentorship initiatives and clearer, more accessible labour market information can further support newcomers in navigating job opportunities and licensing pathways. Co‑ordinated investments in these services would help maximise the use of immigrant skills (OECD, 2025[6]; OECD, 2023[7]).
Retaining top talent is critical for sustaining productivity growth. In Canada, however, retention remains a challenge. This box discusses a number of factors that affect the retention of talent in Canada.
There is evidence that part of the gap in GDP per capita between Canada and the United States can be attributed to a “brain drain”, wherein highly skilled Canadian workers move to the United States after completing their studies (MacGee and Rodrigue, 2024[8]). Highly qualified Canadians are considerably more likely to relocate to the United States or other countries offering higher wages and stronger career opportunities than other workers. Among Canadian applicants for permanent residency in the United States in 2024, 76% held at least a bachelor’s degree and 31% held a master’s or doctoral degree, compared with 39% and 13% for Canada as a whole (Statistics Canada, 2025[9]). Moreover, Canadian migrants to the United States were overrepresented in computer and mathematical occupations (33% of those applying for permanent residency) (Hou, Yang and Lu, 2025[10]).
Domestic labour market conditions. Canada’s labour market does not reward top talent as strongly as in peer countries. Chapter 3 shows that high-skilled workers earn substantially more in the United States than in Canada, with gaps widening at the top of the earnings distribution. These differences, linked in part to Canada’s lower share of large firms and weaker returns to advanced skills, reduce the incentives for top performers to build their careers in Canada. Moreover, persistent barriers to recognising qualifications – whether earned in other provinces or abroad – continue to prevent some individuals from working in their trained professions (more discussion in this chapter).
Fiscal policy. Canada’s overall tax wedge on labour (about 32%) is close to the OECD average, but top marginal personal income tax rates exceed 53% in some provinces, compared with around 37% in the United States (OECD, 2023[7]). Simulations suggest that narrowing this gap could reduce outward migration of highly skilled workers (Hunt and Mueller, 2007[11]). Related OECD work highlights that taxation is increasingly considered in individual and family migration decisions, particularly among high-skilled or returning migrants, though robust causal evidence remains limited (OECD, 2024[12]).
Maximising the productivity benefits of international migration requires a better integration of skilled immigrants into high-value activities. Strengthening the alignment between immigration selection tools and labour market and licensing requirements, improving credential recognition processes and reducing barriers to professional licensing can help address overqualification. Expanding mutual recognition agreements and complementary supports such as bridging programmes or occupation-specific language training can further accelerate the effective integration of immigrants into the labour market and support productivity growth. However, it also requires enhancing opportunities for job mobility through measures that support investment, competition and business dynamics. Indeed, supply side measure focussed on the integration of migrants will have limited effects on productivity without parallel increases in the demand for advanced skills.
References
[3] C.D. Howe Institute (2025), Harnessing immigrant talent: Reducing overqualification and strengthening Canada’s economy by Mahboubi & Zhang, https://cdhowe.org/publication/harnessing-immigrant-talent-reducing-overqualification-and-strengthening/.
[4] Government of Canada (2025), Implementation of Bill C-5: One Canadian economy.
[10] Hou, F., M. Yang and Y. Lu (2025), “Recent trends in immigration from Canada to the United States”, Economic and Social Reports, https://doi.org/10.25318/36280001202500700006-eng.
[11] Hunt, G. and R. Mueller (2007), The Migration of Highly Skilled Individuals Within and Between Canada and the United States, https://people.uleth.ca/~richard.mueller/mueller.hunt.Oct.2007.pdf.
[8] MacGee, J. and J. Rodrigue (2024), “The Distributional Origins of the Canada-US GDP and Labour Productivity Gaps”, https://doi.org/10.34989/SWP-2024-49.
[1] OECD (2025), International Migration Outlook 2025, OECD Publishing, Paris, https://doi.org/10.1787/ae26c893-en.
[6] OECD (2025), OECD Economic Surveys: Canada 2025, OECD Publishing, Paris, https://doi.org/10.1787/28f9e02c-en.
[12] OECD (2024), Why do OECD countries offer tax relief programmes to attract foreign migrants and returning nationals?, OECD Publishing, Paris, https://doi.org/10.1787/5a23e2a3-en.
[7] OECD (2023), OECD Economic Surveys: Canada 2023, OECD Publishing, Paris, https://doi.org/10.1787/7eb16f83-en.
[2] OECD (2019), Recruiting Immigrant Workers: Canada 2019, Recruiting Immigrant Workers, OECD Publishing, Paris, https://doi.org/10.1787/4abab00d-en.
[9] Statistics Canada (2025), Table 37-10-0130-01 Educational attainment of the population aged 25 to 64, by age group and gender, Canada, provinces and territories, https://doi.org/10.25318/3710013001-eng.
[5] Wang, Y. et al. (2023), “Career development of international medical graduates in Canada: status of the unmatched”, Humanities and Social Sciences Communications, Vol. 10/1, https://doi.org/10.1057/s41599-023-01534-z.
← 1. The estimates for Canada relate to annual earnings and control for gender and age (not education). For more details on the data and methodology used see Chapter 4 of the OECD International Migration Outlook 2025 (OECD, 2025[1]).
← 2. Migrants move more slowly to higher paying firms and industries in Canada than in New Zealand and the United States but not compared with an average of 11 European countries. This may in part be related to the greater difficulty of immigrants to move between provinces and territories compared with native‑born. Note that these comparisons should be made with caution as these patterns could also be driven by many factors.
← 3. The evidence for Canada is consistent with several other studies that suggest that immigrants with prior work experience in Canada are better positioned to contribute to productivity growth.
← 4. For instance, International Medical Graduates (IMGs) in Canada must pay approximately CAD 1 470 for the Medical Council of Canada Qualifying Examination (MCCQE Part I) and CAD 3 255 for the National Assessment Collaboration (NAC) Objective Structured Clinical Examination, fees not faced by Canadian-trained graduates.
← 5. Mutual recognition agreements should focus not on negotiating market access but on: 1) assessing whether scopes of practice and training are comparable at entry to practice, 2) identifying any major differences, and 3) determining what compensatory measures applicants must complete when moving between jurisdictions.
← 6. Bridging programmes are specialised training courses designed to help internationally educated professionals acquire the specific Canadian credentials, work experience, and regulatory knowledge needed to practise their profession in Canada.