An Empirical Investigation of the Impact of Imperfect Information on Wages in Canada

Most studies of wage differentials explain such differentials in terms of factors like gender, race, and human capital. But systematic gaps in earnings can arise even among homogenous individuals as a result of asymmetric employer and worker information gaps, thereby reflecting labour market inefficiency. This paper estimates these gaps in terms of wage differentials across various population groups in Canada. We examine 21 populations groups, which include a number of immigrant groups as well. Information gaps are likely to be important in the context of immigrants, especially those new to Canadian labour markets. Our special interest is not only to compare information gaps of immigrant and other population groups, but also to assess whether (and how) immigrant information gaps depend upon the length of residence in Canada. The econometric model we employ is the two-tier stochastic earnings frontier, which is estimated using data from the 2001, 1996 and 1991 censuses.