New immigration patterns and the growing diversity of the Canadian population have generated important policy debates. At the heart of these debates are questions over the extent to which public and private institutions have responded to the changing face of Canadian society. Nowhere are these questions more apparent than in the significant barriers faced by visible minority groups in the labour market (Bloom et al. 1995; Statistics Canada 2003b). Indeed, a recent study by the Conference Board of Canada finds that visible minorities earn 14.5 per cent less than other Canadians (Conference Board of Canada 2004). This difference raises serious issues regarding constitutional rights, obstacles to economic growth and the concentration of social problems such as poverty, unemployment, and social alienation. This paper employs Statistics Canada's Workplace and Employee Survey (WES) to examine the impact of ethnicity on earnings after accounting for the method of pay, minority language, and immigrant status.
Fang and Heywood (2006) were the first to examine the association between payment method and ethnic wage differentials in Canada. Building on earlier research, they hypothesize that output pay tying earnings to productivity, makes it harder for employers to discriminate in earnings than do time rates in which earnings are often determined, in part, by supervisory discretion. Their earnings equation estimates from the 1999 WES confirm that ethnic wage differentials are significantly different from zero in the time rate sector but are nonexistent in the output pay sector. While their Canadian evidence confirms similar findings from other countries (reviewed in the next section), it does not account for the particularly high correlations in Canada between immigrant status, language skills and ethnicity.
This paper discusses the macroeconomic role of risk in a small open economy, using a stochastic CGE model of an open economy. The stochastic properties of the model derive from uncertainty about the rate of return to foreign bonds and to domestic capital. The return to domestic capital depends on labor productivity shocks and is not perfectly correlated with the return on foreign bonds. Households therefore have a diversification motive to adjust their portfolio so that the same stochastic discount factor applies to both bond returns and equity returns. The uncertain return on the portfolio generates a risk premium that depends on the level of wealth and affects the saving decisions of risk-averse households. Households choose their consumption of goods and leisure to optimally smooth consumption over time. The utility function is of the non-expected utility form, so that the smoothing incentive may differ from the diversification incentive. Because the return to capital is volatile, and potentially negative, households that issue debt to finance the purchase of equity run the risk of not being able to repay the debt. I assume that an insurance market for this risk does not exist, which implies that poor households are liquidity constrained.
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