Economic and fiscal performance of immigrant-owned firms in Canada

Canada has one of the highest shares of
immigrants among developed countries. According to the 2021 Census, immigrants made up nearly
one-quarter (23.0%) of the population—the largest proportion among G7
nations—and this figure is expected to rise to almost 32% by 2041 (Statistics
Canada, 2022). Immigrants also tend to have higher
business ownership rates compared with those born in Canada (Green et al.,
2016). Therefore, understanding the impact of immigrant-owned businesses on the
Canadian economy is essential.

This article highlights key findings from
two recent studies (Liu et al., 2024a; Liu et al., 2024b) that explore the labour
productivity and fiscal contributions of immigrant-owned firms. Drawing from
the Canadian Employer–Employee Dynamics Database covering the period from 2001
to 2020, these studies analyze the relationship between immigrant business
ownership and both firm-level labour productivity and fiscal contributions. The
research takes into account firm characteristics and the characteristics of immigrant
owners upon their arrival. Additionally, the studies examine differences in labour
productivity and fiscal contributions between firms that are majority-owned
versus minority-owned by immigrants.

Firms with immigrant majority ownership are, on average,
less productive than firms owned by Canadian-born individuals, while firms with
immigrant minority ownership are just as productive, with firm size
significantly influencing the labour productivity gap

After controlling for firm characteristics
such as employment, capital intensity, industry and province, the labour
productivity of firms majority-owned by immigrants was found to be 9.4% lower
than that of their counterparts owned by Canadian-born individuals across all
firm sizes. Conversely, the labour productivity of firms with immigrant minority
ownership was 2.4% higher than that of firms owned by the Canadian-born
population (Chart 1).^Note 

However, immigrant-owned firms were more
concentrated among small firms, and this overall labour productivity gap
conceals important variations across firm sizes. The productivity gap increased
with firm size. For firms with fewer than five employees, the productivity gap
between firms majority-owned by immigrants and those owned by Canadian-born
individuals was 8.8%. This gap widened as firm size increased, reaching 20.9%
for firms with 100 or more employees. For firms with immigrant minority ownership,
while they were slightly more productive than their counterparts owned by the Canadian-born
population among firms with fewer than 100 employees, they were 10.3% less
productive compared with these counterparts among firms with 100 or more
employees.

The labour productivity of immigrant-owned firms is positively
correlated with the education, knowledge of official languages and previous
business experience of immigrant owners, particularly for small and
medium-sized firms

The characteristics of immigrant owners,^Note  particularly those related to
human capital, positively contributed to the labour productivity of
immigrant-owned firms. Firms owned by immigrants admitted through the business
class (principal applicants) exhibited the highest level of labour
productivity, 3.4% higher compared with the reference group of firms owned by
immigrants admitted through the economic class (principal applicants). This
evidence indicates that owners’ previous business experience positively impacts
firms’ labour productivity. In contrast, firms owned by immigrants admitted
through the refugee category and other categories were among the least
productive (Chart 2).

The education level of immigrant owners
demonstrated a strong and positive correlation with a firm’s productivity. For
instance, immigrant-owned firms with owners holding a doctoral degree exhibited
the highest labour productivity, 16.4% higher than firms whose owners held a
high school diploma or less. Immigrant-owned firms with owners possessing a
master’s degree were the second most productive, followed by those whose owners
had a bachelor’s degree (Chart 2).

The ability of immigrant owners to speak
official languages was also correlated with a firm’s labour productivity.
Immigrant-owned firms whose owners were proficient only in English or both
English and French were equally productive and outperformed those led by owners
proficient only in French or neither English nor French. Interestingly,
immigrant-owned firms whose owners were proficient only in French experienced
the lowest labour productivity, which may be related to limited market or
business opportunities caused by language barriers (Chart 2). These findings
highlight the important role of owners’ human capital in improving firm
performance, consistent with other studies (Fairlie and Robb, 2009).

Geographically, immigrant-owned firms led
by owners who arrived from Europe, the United States or other miscellaneous
regions were the most productive. In contrast, firms with owners from Eastern
Asia were the least productive, on average (Chart 2).

However, the correlations of these
characteristics with firm labour productivity were mostly significant among
small and medium firms with fewer than 100 employees. Among large firms with
100 or more employees, these relationships largely disappeared, except for the
education level of immigrant owners. In large firms, those with immigrant
owners holding either a bachelor’s or master’s degree, but not a doctoral
degree, became the most productive. While immigrant-owned firms led by owners
from Europe, the United States or other miscellaneous areas remained among the
most productive across all sizes, firms led by Eastern Asian owners were no
longer the least productive among firms with 100 or more employees. In fact,
they were as productive as firms whose owners came from Europe and the United
States.

Immigrant-owned firms (both majority and minority
immigrant-owned) tend to pay higher net taxes per employee compared with firms owned
by Canadian-born individuals

After controlling for firm
characteristics, firms with immigrant majority ownership paid, on average, 16%
more in net taxes (total taxes payable minus tax refunds or credits) per
employee than their counterparts with Canadian-born owners (Chart 3). Firms
with immigrant minority ownership paid even more—23% higher net taxes per
employee (Chart 3).

This increase in net taxes is attributable
to both higher total taxes payable and lower tax refunds or credits.
Specifically, firms with immigrant majority ownership paid 10% more in total
taxes before refunds and received 37% less in tax refunds or credits per
employee. Similarly, firms with immigrant minority ownership paid 16% higher
total taxes and received 11% less in tax refunds (Chart 3).

Within immigrant-owned firms themselves,
those with immigrant minority ownership paid 16% more in net taxes per employee
than those with immigrant majority ownership, even after accounting for firm
and owner characteristics. Factors such as the immigrant owner’s business
experience, education and proficiency in both official languages were
positively associated with higher net taxes per employee.

Conclusion

Immigrant-owned firms, particularly those with immigrant majority ownership, were generally less productive than firms owned by Canadian-born individuals (no immigrant owners), and this productivity gap widened as firm size increased. This gap may tie to several factors. For instance, immigrant-owned firms face more financial constraints that could limit their ability to invest in productivity-enhancing technology or skilled labour; even after adjusting for broad sector differences, immigrant-owned firms may still be concentrated in highly competitive, low-margin industries (e.g., small retail, restaurants, or personal services) that have lower economies of scale and fewer opportunities for productivity growth.

Firms with immigrant minority ownership outperformed those with immigrant majority ownership across all firm sizes. In fact, small and medium firms (with fewer than 100 employees) that were minority immigrant-owned showed similar productivity levels compared with their counterparts owned by Canadian-born individuals. Additionally, minority immigrant-owned firms contributed more to net taxes payable than their majority immigrant-owned counterparts. These findings suggest that collaboration between immigrant and Canadian-born owners could be beneficial, since co-ownership facilitates the exchange of information, culture, experiences and networks, helping to develop products that meet diverse demands.

The
characteristics of immigrant owners at the time of arrival, such as education,
business experience and language proficiency, were positively correlated with
the labour productivity and fiscal contributions of immigrant-owned firms.
These factors were particularly significant for small and medium firms, with
education being the most important predictor of productivity across all firm
sizes. This highlights the crucial role of education in supporting skilled labour
supply and the success of businesses in the Canadian economy.

Authors

Huju Liu is with
the Economic Analysis Division, Analytical Studies and Modelling Branch, at
Statistics Canada. Chaohui Lu is with Health Canada and was affiliated with the
Economic Analysis Division at Statistics Canada at the time of the analysis.
Haozhen Zhang and Jianwei Zhong are with the Research and Data Branch,
Immigration, Refugees and Citizenship Canada.

References

Fairlie, R.W., and A.M. Robb. (2009). Gender differences
in business performance: evidence from the Characteristics of Business Owners
survey. Small Business Economics 33, 375.

Green, D., H. Liu, Y. Ostrovsky, and G.
Picot. (2016). Immigration,
Business Ownership and Employment in Canada.
Analytical Studies Branch Research Paper Series, no. 375, Statistics Canada.

Liu, H., C. Lu, H. Zhang, and J. Zhong.
(2024a). Labour Productivity of Immigrant-owned Businesses and Its
Determinants, in Elmi et al. (Eds.): Immigrant Entrepreneurship: Challenges and
Opportunities, Palgrave Macmillan Cham.

Liu, H., C. Lu, H. Zhang, and J. Zhong.
(2024b). Fiscal Contribution of Immigrant-owned Corporations and Its
Determinants, in Elmi et al. (Eds.): Immigrant Entrepreneurship: Challenges and
Opportunities, Palgrave Macmillan Cham.

Statistics Canada. (2022). Immigrants
make up the largest share of the population in over 150 years and continue to
shape who we are as Canadians, The Daily,
October 26, 2022.