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Section 3: Literature review

Previous research has found that certain demographic characteristics are associated
with differences in returns to investment in education. One of these is gender.
Gittel et al. (2005) suggest that there are numerous reasons why a woman working
full-time who is similarly educated as her male counterpart would earn lower wages.
They suggest that women offer less labour because of gender roles in family
responsibilities women are significantly more likely to take time out of the labour
market to care for children than men, either by leaving the labour market entirely or
by choosing to work part-time when their children require more care. They also
suggest that women tend to be concentrated in 'low-paying' fields of study such as
the humanities and less concentrated in higher demand fields such as engineering.
Similarly, McNeil and Lamas (1987) find that women are more likely to take time out
of the labour market which leads to them having fewer years of employment with the
same employer and thus less likely to earn higher salaries and promotions. They
also find that the gap in earnings for similarly-educated men and women can be
explained in part by gender differences in occupational structure, with wages tending
to be lower in female-dominated occupations.
An individual's age can also have an impact on returns to education. The relationship
between age and earnings is two-fold: first, age reflects the number of potential years
of experience in the labour market. Younger workers typically have fewer years of
working experience than their older counterparts and therefore tend to command
lower earnings (Card 1999). Furthermore, at different stages in life, people may be
more or less willing to participate in the labour market. Examples of this may be
child-bearing years for women or pre-retirement years for older workers. Finally,
according to the job-matching or information-based model, younger workers tend to
have more frequent short-term employment spells at the start of their careers as they
look for a good match between their skills and employers' needs (Riddell 2007). Such
short-term employment spells would contribute to lower earnings for younger workers
early in their careers.
Immigration status and location of study also play a role in earnings levels. According
to the 2006 Census, one in five Canadians1 was born outside Canada the highest
proportion since 1931. This proportion was even higher in Ontario, where over a
quarter 28.2% of Ontarians was born outside of Canada. The source countries for
new immigrants have also changed over time. Among the more than 1.1 million
immigrants who arrived between 2001 and 2006, almost 6 in 10 were born in Asian
countries, including the Middle East. In Ontario, 63.9% of new immigrants were from
this region. In contrast, in 1971, 61.6% of newcomers to Canada were from Europe
while 63.1% of newcomers in 1971 in Ontario were from this region. As a result of
changes in immigrant source countries, the proportion of the foreign-born population
who was born in Asia and the Middle East (40.8%) surpassed the proportion born in
Europe (36.8%) for the first time in 2006 (Statistics Canada 2008a). This was also
true in Ontario, where 40.5% of the foreign-born population was born in Asia and the
Middle East, while 38.5% was born in Europe. One implication is that new immigrants
are much less likely to have English or French as their mother tongue than previous

generations of immigrants and large numbers have completed their schooling in their
home countries, often in a language other than English or French.
There are many reasons why immigrants may experience lower returns to their
credentials in the labour market. Bonikowska, Green and Riddell (2008), for example,
find that the literacy-skills distribution is higher for the Canadian-born than it is for
immigrants who completed all of their education abroad, noting that these differences
in measured skills partly reflect proficiency in either English or French. They also find
that lower literacy skill levels translate into lower earnings in the labour market.
Finally, they note that part of the explanation for the earnings gap between
immigrants and the Canadian-born is that immigrants' earnings reflect low, or even
zero, returns to their foreign work experience. When only their Canadian work
experience is taken into account, immigrants' earnings were more similar to those of
the Canadian-born with the same years of experience.
A person's family situation may also play a role in labour market attachment. As
previously noted, women in particular are more likely to choose to reduce their
working hours while they have young children and this affects their employment
earnings. Zhang (2009) finds that there is a sizable earnings difference between
women who have children and women who do not. As well, this study reports that the
impact on earnings of having a child was larger for postsecondary-educated women.
Another way in which family situation can affect employment earnings is the impact
of total family income, that is, if one member of the family is already making a fairly
good salary, this might enable his or her partner to take a lower-paying (but possibly
rewarding in some other way) job, to work part-time or to choose not to work at all.
Hou and Myles (2007) find that, increasingly, individuals are tending to marry
similarly-educated individuals (what they term 'homogamy'). This could lead to
situations where highly-educated individuals voluntarily choose to have lower
earnings, if their highly-educated mate already has high earnings.
Other characteristics that have been shown to affect employment earnings are
program level and field of study (Finnie 2001; Finnie and Frenette 2003; Walters
2004; OECD 2008). Earnings trajectories of university graduates tend to be higher
than those of college graduates, who, in turn, have higher earnings trajectories than
high school graduates and those with less than high school (Walters
2004; OECD 2008). With respect to field of study, college and university graduates
with credentials in fine arts, for example, would have a significantly different set of
skills than someone with an engineering diploma or degree and that would affect
occupational options. Most studies find that graduates in the more general liberal arts
programs (such as the humanities and social sciences) tend to do more poorly in
terms of employment and earnings outcomes than do graduates in more applied
fields (Walters 2004).
A number of studies have addressed the issue of highly-educated workers with low
earnings in a European context. For example, this phenomenon has been studied in
Austria (Fersterer and Winter-Ebner 2002) and Sweden (Korpi and Talin 2008).
Researchers there conclude that developed economies have been creating more
skilled workers than skilled jobs in recent years and, as a result, the supply of
educated labour has outstripped the demand for it. In other words, they suggest that
weak employer demand for more highly educated individuals may provide part of the

explanation. Other work in Ireland suggests that the phenomenon of highly-educated

low-earnings workers can be partially explained by a drop in the level of ability
associated with a postsecondary education (McGuiness and Benett 2007). Their
explanation is that, as access to postsecondary education has increased, greater
variance has arisen in the ability levels of postsecondary graduates with the result
that variance in returns to education are due to the fact that higher-ability graduates
are able to find higher-paying jobs, while lower-ability graduates do not. These kinds
of hypotheses are out of scope of this report, however, since the first concerns the
nature of demand for skills in the labour market while the second requires information
about the abilities of individuals.
To summarize, the literature suggests that there are a number of factors that may
help explain why some college- and university-educated individuals are in lowearnings situations. These include gender, age, immigration status, labour market
attachment (full-time versus part-time), field of study and occupation. The
contribution of each of these factors is investigated using logistic regression analysis.
Before turning to that analysis, however, the next chapter first describes the data
sources and methodology that form the basis for the statistical analysis.