NBER WORKING PAPER SERIES THE WAGE GAP BETWEEN FRANCOPHONES AND ANGLOPHONES: A CANADIAN PERSPECTIVE, 1970 TO David Albouy

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1 NBER WORKING PAPER SERIES THE WAGE GAP BETWEEN FRANCOPHONES AND ANGLOPHONES: A CANADIAN PERSPECTIVE, 1970 TO 2000 David Albouy Working Paper hp:// NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachuses Avenue Cambridge, MA July 2008 I would like o hank Nicolas Béland, David Card, Allan Collard-Wexler, Nicole Forin, Rob Gillezeau, Thomas Lemieux, Mary Mackinnon, Chris Minns, Suresh Naidu, Daniel Paren, Jacques Raynaud, Jean-Benoi Rousseau, Laine Ruus, François Vaillancour, Bill Wason, Philippe Wingender, wo anonymous referees, and seminar paricipans a UC Berkeley and McGill Universiy for heir help and advice. All misakes are my own. Please send commens o albouy@umich.edu. The views expressed herein are hose of he auhor(s) and do no necessarily reflec he views of he Naional Bureau of Economic Research. NBER working papers are circulaed for discussion and commen purposes. They have no been peerreviewed or been subjec o he review by he NBER Board of Direcors ha accompanies official NBER publicaions by David Albouy. All righs reserved. Shor secions of ex, no o exceed wo paragraphs, may be quoed wihou explici permission provided ha full credi, including noice, is given o he source.

2 The Wage Gap beween Francophones and Anglophones: A Canadian Perspecive, 1970 o 2000 David Albouy NBER Working Paper No July 2008 JEL No. J2,J7,R23 ABSTRACT The wage differenial beween Francophone and Anglophone men from 1970 o 2000 fell by 25 percenage poins wihin Quebec, bu only by 10 poins Canada-wide, largely because he wages of Quebec Anglophones fell by 15 poins relaive o oher Canadian Anglophones. Accordingly, he Canadian measure of he Francophone wage gap beer reflecs he changing welfare of Francophones han he Quebec measure. Over half of he reducion in he Canadian Francophone wage gap is explained by rising Francophone educaion levels. In Quebec, he declining number and relaive wages of Anglophone workers is bes explained by a falling demand for English-speaking labour. David Albouy Deparmen of Economics Universiy of Michigan 611 Tappan Sree 351C Lorch Hall Ann Arbor, MI and NBER albouy@umich.edu

3 1 Inroducion Wage differences beween Francophones, naive French-speakers, and Anglophones, naive English-speakers, have long been a sign of he socioeconomic dispariies beween he wo major linguisic culures of Canada. In he pas, Francophones held few well-paying jobs, even wihin he province of Quebec, where Francophones make up a subsanial majoriy. Since Quebec s Quie Revoluion, a period of rapid modernizaion saring around 1960, he once large hourly wage difference beween Francophone and Anglophone males or Francophone wage gap fell remarkably. Previous research including Shapiro and Selcner (1997), Breon (1998), Vaillancour and Touchee (2001), and Béland (2003) focused on measures wihin Quebec and concluded ha he Francophone wage gap beween workers wih similar skills had almos disappeared by This disappearance is ofen credied o laws promoing he French language, passed mosly in he 1970 s, and o growing conrol of he Quebec economy by Francophones. Furher reducion of he Francophone wage gap beween workers of all skills is credied o educaional reforms begun in he 1960 s, which boosed Francophone schooling levels. 1 When i is measured in Canada as a whole, a differen picure of he Francophone wage gap emerges, a picure ha has received far less aenion. 2 As shown below, he wage gap beween similarly-skilled workers was much smaller in Canada han in Quebec in 1970, and while i disappeared over he 1980s, i has since reappeared. Meanwhile, in Quebec, 1 See Bloom and Grenier (1992) for a comprehensive survey of he earlier lieraure on he Francophone wage gap. 2 Boule and Lavaleé (1983) look a he Francophone wage gap in Canada in 1970 and 1980, and noe ha he wage gap wihin Monreal was primarily aribuable o he presence here of a highly paid Anglophone elie. Their sudy does no provide an explici decomposiion or conrol for differences in characerisics, and heir insighs have no been applied o laer periods. Chiswick and Miller (1988) and Bloom and Grenier (1992) also look a he wage gap wihin Canada, bu by including provincial conrols in heir regression, heir esimaes are based on wihinprovince variaion, similar o he Quebec-only measures. 1

4 Francophones now earn significanly more han similarly-skilled Anglophones. The Francophone wage gap measures in Quebec and Canada differ mainly because he measure in Quebec uses only he idiosyncraic minoriy of Anglophones in Quebec as a comparison group. This small group of Anglophones once earned much more han oher comparable Anglophones in Canada and now earns significanly less. The populaion of Anglophones in Quebec also fell as many emigraed o oher provinces. 3 Previously, he Francophone wage gap in Quebec was much larger han in Canada because Anglophones in Quebec earned more han Anglophones ouside he province; now he Francophone wage gap in Quebec has reversed agains Anglophones parly because Quebec Anglophones now earn less han oher Anglophone Canadians. The populaion of all Canadian Anglophones provides a superior benchmark for measuring he relaive produciviy and welfare of Francophones, as Quebec Anglophones exhibi unsable wages and oher idiosyncrasies. Of course, using a naional measure of he wage gap glosses over provincial wage differences, bu hese appear o be unimporan as Quebec has a wage srucure similar o he res of Canada, and as he Francophone gap ouside of Quebec is similar o he gap Canada-wide. 4 Furhermore, rying o conrol for provincial differences in wage levels has limied value as he economic welfare of Francophones depends inexricably on he economic performance of Quebec, a performance which has been uneven in recen years (Forin 2001). Analyzing he Francophone wage gap from a Canadian perspecive sheds addiional ligh on why Francophone and Anglophone wages differ. This issue is complicaed, since being 3 Coulombe (2000) noes ha he relaive wages of Anglophones in Quebec fell relaive o hose in Onario, alhough he makes no connecion beween his and he Francophone wage gap, nor does he conrol for skills. 4 The represenaiveness of he Francophone gap ouside of Quebec for all Francophones is quesionable as Francophones ouside Quebec appear o have parly assimilaed ino English culure, wih almos wo hirds working in English and over a hird speaking English a home and raising Anglophone children (see O Keefe 2001). 2

5 Francophone or Anglophone is defined by moher ongue, i.e. which language he person firs learned and sill undersands. Moher ongue indicaes more han jus language skills, bu also ehniciy and educaion, as each group has differen schooling sysems. One reason for he Francophone wage gap is ha he demand for French-language skills may differ from he demand for English-language skills. Anoher reason is ha Francophones may possess differen non-language skills han Anglophones, some observed in daa, such as educaion, and ohers no, such as moivaion. Third, since Anglophones once held disproporionae economic power, Francophones may have been discriminaed agains by predominanly Anglophone employers. Fourh, mos Francophones prefer o live in Quebec, and hus may be willing o ake lowerpaying jobs in order o live here raher han in higher-wage areas in he res of Canada. While he previous lieraure has considered a leas he firs hree reasons, i has done lile o measure he relaive imporance of each, or how each reason has changed since The lieraure has broadly credied he fall in he Francophone wage gap in Quebec o hree explanaions, discussed in Secion 3: educaional reforms, he passage of language laws, and increasing Francophone conrol of he economy. Evidence in Secion 4 indicaes ha differences in non-language skills, mainly educaion and experience, accoun for much of he raw Francophone wage gap in Canada and in Quebec. Furhermore, relaive increases in hese skills for Francophones explain wo hirds of he gap closure in Canada beween 1970 and 2000, albei less of he larger gap closure in Quebec. Thus, in Canada educaional reforms seem largely responsible for improving he relaive welfare of Francophones, alhough language laws and increased Francophone conrol of he economy may have raised he reurn o schooling, encouraging Francophones o purse higher sudies. The direc effecs of language laws and greaer Francophone economic power which presumably increased he demand for French 3

6 skills and reduced discriminaion are more difficul o measure. Ye, one poin previously overlooked is ha hese laer wo explanaions played larger role in closing he gap wihin Quebec han in all of Canada, as hey helped o depress Anglophone wages in he province as well as raise Francophone wages. Secion 5, which compares he wages of French-English bilinguals relaive o unilinguals, finds he esimaed reurn o bilingualism rose for Anglophones and fell for Francophones, supporing he hypohesis ha he demand for French rose in Quebec while he demand for English fell. The fall in he demand for English-speaking labour may be due o he language laws, which increased he coss of hiring English speakers, Quebec s separais movemen, which induced some firms o leave he province (Tiriroglu e al. 2004), and he gradual displacemen of Monreal by Torono as Canada s Meropolis (e.g. Higgins 1986, Polese 1990). As discussed in Secion 6, a negaive demand shif for English-speaking labour explains why so many Anglophones lef Quebec over his period beer han a negaive supply shif, which would imply, counerfacually, ha Anglophones remaining in Quebec be paid even higher wages relaive o Anglophones in he res of Canada. The demand-shif hypohesis is consisen wih he view ha Anglophones lef Quebec in he pursui of beer jobs raher han from heir dissaisfacion wih Quebec poliics, a greaer need o speak French ouside of work, or oher qualiy-of-life facors. A he same ime, he relaive immobiliy of Francophones does no appear o be a major cause of he Francophone wage gap, as Francophones ouside Quebec have long earned wages similar o hose in Quebec, suggesing ha added mobiliy would no have much of an effec on Francophone wages. To keep he analysis as racable and brief as possible, his paper focuses on Canadianborn males beween he ages of 20 and 59 who are eiher Francophone or Anglophone. The 4

7 majoriy of his analysis is based on he Public Use Microdaa Files on Individuals (or PUMFI) available from he Canadian Census for years 1971 (1% sample of he populaion), 1981 (2%), 1986 (2%), 1991 (3%), 1996 (2.8%), 2001 (2.7%), whose availabiliy deermine he ime period of his analysis. Annual wage daa aken as he sum of wages and salaries and selfemploymen income in he previous year are aken from a limied wage sample of hose who repor having worked full-ime and a leas 26 weeks in he previous year, so ha all observaions conain credible hourly wage measures. 5 Mean characerisics of he sample for 1970 and 2000 are shown in Table 1, which separaes he populaion by moher ongue and residence in Quebec. Column 9 displays he relaive change in characerisics beween all Francophones and Anglophones in Canada beween 1970 and Decomposing he Francophone Wage Gap in Canada by Region 2.1 Regional Decomposiion of Mean Wage Differences The discrepancy beween measures of he Francophone wage gap in Canada versus Quebec can be explained by decomposing he Canadian Francophone wage gap ino Quebec and non-quebec componens, and he wage gap beween Anglophones in Quebec and ouside Quebec. Le w refer o mean log wages, he subscrip for ime, he superscrip F refer o Francophone and A o Anglophone, and, when i appears, he second superscrip Q o refer o Quebec, N o Non- Quebec, wih an omission implying all of Canada. Thus, F w refers o mean log wages of all 5 Addiional informaion on he daa and is consrucion are provided in an on-line appendix on he NBER websie. Treamen of muliple responses of moher ongue, saring in 1986, is given here, as well as addiional analyses, ables, and graphs. 6 As mos Francophones live in Quebec and mos Anglophones live ouside Quebec, naional saisics for Francophones and Anglophones are closely approximaed by Quebec Francophones and Non-Quebec Anglophones. 5

8 Canadian Francophones, and QF w refers o he mean log wages of Quebec Francophones. Furhermore, use φ o denoe he fracion of Canadian Francophones in Quebec, and α o denoe he fracion of Canadian Anglophones in Quebec. The mean wages of Canadian Francophones and Anglophones are equal o he weighed sum of wages of each group in and ou of Quebec: w = φ w + ( 1 φ ) w (1a) F A QA QF NA NF w = w + ( 1 α ) w (1b) Subracing equaion (1b) from (1a), he Canadian Francophone gap g = w w can be F A expressed as a weighed sum of he Quebec Francophone gap, g Q = w w, he Non-Quebec QF QA Francophone gap, g N = w w, and he Quebec gap for Anglophones, a NF NA = w w : QA NA g = φ g + ( 1 φ ) g + ( φ α ) a (2) Q N This ideniy gives a regional decomposiion of he Canadian Francophone gap for a given year: he firs wo erms are due o differences wihin regions, while he hird erm is due o differences in wage levels beween regions. Because φ is close o one and α is close o zero, his Q Q decomposiion is approximaed by g g + a ; equivalenly, g g a, i.e., he Quebec Francophone gap is roughly he sum of he Canadian Francophone gap, which likely reflecs fundamenal differences in produciviy, minus he Quebec gap for Anglophones, which likely reflecs he idiosyncrasies of Anglophones in Quebec. We begin by looking a he Francophone gap unadjused for skills in 1970 and 2000 wihin Quebec, ouside Quebec, and for Canada. These are repored in Panel A in Table 2, under columns 1 and 2, wih heir change repored in column 3. The Quebec gap for Anglophones is 6

9 repored in Panel B. Figure 1 also graphs hese gaps for inermediae years. 7 In 1970 he Francophone gap in Quebec was large a 27 poins, alhough in Canada i was only 13 poins as he Quebec gap for Anglophones was 14 poins in heir favour. Ouside Quebec, he Francophone gap was closer o he naional average a only 10 poins. As seen in he graph, beween 1970 and 1980, he Canadian Francophone gap fell o one poin. Meanwhile, he Quebec gap for Anglophones fell o an 8-poin advanage, bu because he Francophone gap in Canada had largely disappeared, wha remained was he primary cause of he remaining 9-poin Francophone gap in Quebec. The Canadian Francophone gap remained small afer 1980, while he Quebec gap for Anglophones disappeared by 2000, causing he Quebec Francophone gap o largely disappear as well. 8 Changes in he Francophone gap ouside Quebec followed a similar ime paern o he enire naion, supporing he noion ha he Francophone gap wihin Quebec in 1970 was exaggeraed by he high wages Anglophones once earned in Quebec. 2.2 The Disribuion of Changes in he Wage Gap We can examine changes in he Francophone and Quebec gaps across he wage disribuion by looking a he 10 h, 50 h, and 90 h perceniles, graphed in Figure 2. The paerns are similar o ha 7 In Table 1 we see ha, since 1970, he number of full ime workers diminished, alhough Francophones saw a relaive shif owards full-ime work. This shif would be expeced o lower he relaive wages of Francophones in he sample, increasing he Francophone wage gap, bu aemps o correc for his do no affec esimaes subsanially (Shapiro and Selcner 1997). 8 Looking furher back, Minns (2003), using he 1901 and 1971 Census, calculaes ha he annual wage gap beween naive-born Francophone and Anglophone males did no change beween 1901 and 1970: boh years saw a gap of abou 14 poins in Canada and 26 poins in urban Quebec. In 1970, he annual and hourly wage gaps were nearly idenical, as boh groups worked similar hours. Alhough publicly available Census microdaa beween 1901 and 1971 are unavailable, previous research from he Royal Commission on Bilingualism and Biculuralism (1969, pp ) and Vaillancour (1978) suggess ha in 1960 he annual wage gap was larger han in 1970 by an addiional 6 poins in Canada and an addiional 15 poins in Quebec. The gaps are based on French and English ehniciy, no moher ongue, and are calculaed for he logarihm of he mean, insead of he mean of he logarihm. 7

10 of mean wages, wih some ineresing deparures. 9 Boh in Canada and Quebec, he Francophone gap is larger a he upper end of he disribuion han a he lower end. This is because Francophone wages are on average lower bu less dispersed han Anglophone wages. A he 10 h percenile, Francophones made heir larges gain naionally, mosly beween 1970 and The Quebec gap for Anglophones fell by 20 poins, mosly since 1985, so ha in 2000 Anglophones in Quebec earn abou 8 percen less han Anglophones ouside Quebec. Francophones a he low end of he disribuion now make more han heir Anglophone counerpars, paricularly in Quebec. A he 50 h percenile, he wage gaps beween workers are raher similar o ha for means. A he 90 h percenile, differences are mos exreme: in 1970, he Francophone gap was a 18 poins naionally, bu a 42 poins in Quebec, primarily as he Quebec gap for Anglophones was 26 poins. Beween 1970 and 1980, a shif occurs: Francophones almos close he gap naionally, while Quebec Anglophones lose 15 poins relaive o heir non-quebec peers. Ye, since 1980 Francophones have no made progress in Quebec, and have los ground naionally Explaining Changes in Francophone and Quebec Wages Three principal explanaions are ypically given for why Francophone wages have caugh up wih Anglophone wages in recen decades (e.g. Levine 1990, Vaillancour 1996): reforms which improved access o educaion for Francophones, laws passed which favour he French language in Quebec, and increased conrol of he Quebec economy by Francophones. Quebec also 9 Alhough percenile gaps canno be decomposed linearly he way a mean gap can, i sill holds ha he Canadian Francophone gap is roughly he sum of he Francophone Quebec gap and he Quebec gap for Anglophones. 10 Saez and Veall (2005) find relaed resuls using ax reurn daa on very high earners. They conjecure ha highly skilled Anglophones in Canada may be earning more due o increasing compeiion from he Unied Saes. 8

11 underwen a number of regional economic changes due o he hrea of secession, he deparure of many businesses and Anglophone workers from he province, and he decline of Monreal relaive o Torono as Canada s economic cenre. A he beginning of Quebec s Quie Revoluion, major reforms changed he province s educaion sysem, improving access o educaion for Francophones a he secondary, college, and universiy levels. As seen in Table 1, overall educaion levels rose for boh Francophones and Anglophones beween 1970 and 2000, bu Francophones caugh up relaive o Anglophones in boh primary and secondary educaion. Francophones have also aged relaive o Anglophones. As already remarked in earlier sudies (e.g. Lacroix and Vaillancour 1981), improvemens in Francophone educaion and experience were doubless facors in closing he unadjused Francophone wage gap. 11 Saring in 1969, a number of laws were passed in Quebec promoing he use of French in schools, a work, in business, and in governmen, he mos prominen being Bill 101 in This bill makes i more difficul o aend public schools in languages oher han French, increasing he number of French speakers, and wih hem he fuure supply of French-language skills and he demand for French-language producs. I also makes Quebec less appealing o Anglophone parens. Bill 101 requires firms wih more han fify employees o undergo a cerified process of francizaion, mandaing greaer French communicaion wihin firms, and ha members of professional associaions make heir services available in French. This process was no insananeous: in 1980 only a small fracion of businesses possessed a francizaion cerificae, alhough by 1995 his fracion had risen o hree quarers (Quebec 1996). 11 In 2000, Francophone males also had an average of 1.0 years of college relaive o 0.8 years for Anglophones. Years of college are unavailable for 1970, bu in 1975 Francophones and Anglophones boh had 0.5 years of college, implying a relaive gain of 0.2 years of college for Francophones. 12 The mos imporan bills include Bills 63, 22, 101, 52, 142, 178, and 86. The firs five bills are summarized and analyzed in Vaillancour (1992). More deail is found in Official Languages Law Group (2000). 9

12 Requiremens ha businesses pos signs in French were insiued more quickly. The governmen of Quebec also made French he only official language, alhough governmen services are sill widely available in English. 13 Presumably, hese laws helped o increase he demand for French-language skills, in par by making i more expensive o hire English-language skills. Even before he firs language laws were passed, French was already gaining ground as he primary language of business in Quebec, as Francophones ook greaer conrol of he provincial economy. Ulimaely, his change in economic conrol is he produc of many deeper forces, including improved Francophone educaion, language laws, an increasingly regional focus of Monreal owards French Quebec, and deliberae effors of he Quebec governmen o give Francophones greaer access o public and privae capial hrough insiuions such as he Caisse de dépô e placemen (Levine 1990). 14 Thus, greaer Francophone economic conrol was in many ways as much an oucome of change as i was a cause of i. Whaever he case, Francophones firs gained conrol in he public secor and laer in he privae secor, where he percenage of firms conrolled by Francophones rose seadily (Vaillancour e al. 2007). This greaer Francophone conrol may have lessened discriminaion of Anglophone employers agains Francophone workers, a he risk of inroducing reverse discriminaion. Increased economic conrol should have also raised demand for French-language skills, since presumably Francophone employers communicae more producively wih Francophone employees. 13 Ouside of Quebec more limied measures were aken o promoe he French language. A he Federal level wo Official Languages Acs were passed in 1969 and 1988 o ensure he provision of federal services in boh English and French where populaion size warrans i. The hree provinces conaining he mos Francophones ouside of Quebec Onario, New Brunswick and Manioba also ook effors a providing cerain governmen services in French, possibly increasing he demand for French-speaking civil-servans ouside of Quebec. 14 Anoher heory for why he gap has closed is ha Francophones and Anglophones are now more similar in heir aiude o work. Some (e.g. Higgins 1986) claim ha Francophones have radiionally held commercial work in lower eseem han oher aciviies and ha his changed subsanially during he Quie Revoluion. 10

13 While he language of Quebec s economy became increasingly French, Quebec s relaive imporance in he Canadian economy fell, especially as Monreal los is economic dominance o Torono (Polese 1990). 15 This change was puncuaed by he displacemen of he head offices of a number of large English-Canadian firms o he res of Canada. Many facors likely conribued o his relaive decline, including weaker populaion growh in Quebec, language laws, and he upheaval creaed by he Quebec secession movemen. Alhough boh referenda for secession from Canada were defeaed in 1980 and in 1995, some businesses cied he uncerainy brough as heir main reason for leaving he ciy (Tiriroglu e al. 2004). 16 Thus, while Francophones now earn a greaer share of Quebec s income, Francophones may have earned more had Quebec remained more cenral wihin he Canadian economy. One possible confounding facor affecing wages over his period is wha Forin (2001) called he Big Bubble of , whereby increased labour demand for consrucion projecs, generous wage selemens given o unions, and a high provincial minimum wage emporarily depressed profis and raised wage levels in Quebec. Wihou his wage bubble, Canada-wide Francophone wages would no have risen so quickly in 1980, and Quebec Anglophone wages would have fallen more precipiously. 4. Accouning for Skill Changes in he Francophone Wage Gap 4.1 Changes Explained and Unexplained by Improvemens in Non-Language skills. To begin assessing heories of why he Francophone wage gap exiss and has changed over ime, i is useful o decompose he gap o see how much is due o observable differences in educaion, 15 Based on ime-series evidence, Coulombe (2000) argues ha changes in he Quebec economy saring in 1970 have pushed i owards a lower long-run equilibrium growh pah. 16 Oher evens in his upheaval include erroris acion by he Fron de libéraion du Québec in 1970 and he elecion of he Pari Québécois in

14 experience, and oher non-language skills. 17 Using he same subscrip and superscrip noaion as Secion 2.1, le X refer o he vecor of mean skills for a given group, including a consan, and β refer o he vecor of fied reurns for skills in ha group, esimaed using ordinary leas squares, so ha he mean log wages of Francophones and Anglophones a ime can be wrien w w F A = X β (3a) F A F = X β (3b) A A Subracing (3b) from (3a), and adding and subracingx β, gives he skill decomposiion of he Francophone wage gap: F g F A A F F A = ( X X ) β + X ( β β ) (4) The firs erm of he decomposiion is he wage difference prediced by differences in skills, while he second erm is he residual difference due o differences in he reurns for skills. Assuming ha he β coefficiens are esimaed accuraely, he residual difference could be due o differing demand for French-language skills, differences in unobserved skills, pure labourmarke discriminaion, geographic immobiliy, measuremen error, or oher causes. Decomposiions for 1970, 2000, and heir change are presened in Table 3. The characerisics used include eigh educaion indicaors, a quaric in poenial experience, and nine indusry indicaors. 18 The resuls in column 1 indicae ha in 1970 average differences in educaion beween Canadian Francophones and Anglophones accouned for roughly hree-fifhs 17 This is a sandard Oaxaca (1973) decomposiion, also aribued o Blinder (1973). The regional decomposiion in equaion (2) can be reinerpreed as he case where X conains only a consan and a Quebec dummy. 18 The educaion variables indicae less han grade 8, grade 9 or 10, grade 11 or higher, 1 o 2 years of universiy, 3 o 4 years of universiy, or 5 or more years of universiy as well as rade cerificae and bachelors degree holding. The indusry caegories are given by agriculure, oher primary, manufacuring, consrucion, ransporaion & uiliies, rade, finance & real-esae, services, and public adminisraion. Arguably indusry characerisics do no belong in he skill decomposiion as hey are no skills or even pre-marke characerisics, bu heir inclusion has oo lile effec on he resuls o meri showing resuls excluding indusry characerisics separaely. Imporan observable characerisics lef ou of he decomposiion include bilingualism, discussed in Secion 5, and urban residence, discussed in he online Appendix. 12

15 of he 13 poin Francophone wage gap in Canada. Oher facors such as experience and indusry composiion helped Francophones slighly, and six poins of he wage gap remain unexplained. In 2000, seen in column 2, he residual Francophone wage gap fell o only 2.5 poins, while he prediced gap disappears almos compleely. Almos all of he explained convergence, oalling 6.5 poins, is due o relaive improvemens in Francophone educaion, alhough he relaive increase in experience of Francophone workers also conribued one poin. The ime rends of he prediced and residual gaps are graphed in Figures 3a and 3b, using he β coefficiens esimaed for all Canadian Anglophones. The Francophones gap shrinks monoonically, alhough i shrunk mos beween 1970 and 1980, as he iniial beneficiaries of he educaional reforms of he 1960s join he sample. A he same ime, he prediced Quebec gap for Anglophones does no change significanly over ime, and hus, he rise in he prediced Francophone wage gap in Quebec is similar o he rise in Canada. The sory is quie differen when looking a residual changes in he Francophone gap, paricularly afer Naionally, afer a 6-poin reducion in he residual gap beween 1970 and 1980 making i emporarily posiive, possibly because of he Big Bubble i begins o disfavour Francophones again in In Quebec, Francophone wages coninue o rise relaive o Anglophones, unil in 2000 hey earn 4 percen more han Anglophones wih he same observable skills, who make 6 percen less han comparable Anglophones ouside Quebec. Thus, he differen rajecories of he Francophone gaps inside and ouside of Quebec are no explained by changes in he observable characerisics of Anglophones in Quebec, bu are due o more myserious changes. Taking he Canada-wide benchmark, he resuls above sugges ha educaional reforms were he mos fundamenal cause of he long-run decline in he Francophone. To undersand why 13

16 he previous lieraure did no emphasize educaion as grealy, noe how in Quebec he residual Francophone gap rises more han he prediced gap. Thus, he increase in Francophone educaional aainmen was seen as one, bu no necessarily he mos imporan, cause of rising Francophone wages. Seeing ha residual changes are mainly due o Anglophone wages falling in Quebec, aenion shifs o he quesion of why Anglophone wage levels in Quebec fell so precipiously, which is addressed in Secion 6. Neverheless, he quesion remains why in Canada he residual Francophone wage gap closed by four poins beween 1970 and I could be due o language laws, oher facors associaed wih he greaer Francophone conrol of he Quebec economy, or even unmeasured improvemens in educaion or schooling qualiy. 19 Disenangling he relaive conribuion of hese differen explanaions is difficul, especially wih limied microdaa ha is available only since Given ha Bill 101 was passed in 1977, i may have effeced change mos in he lae 1970s hrough he rapid implemenaion of cerain policies and possibly hrough an announcemen effec. The period beween 1970 and 1980 does coincide wih he mos rapid decrease in he Francophone wage gap, boh naionally and wihin Quebec. I is difficul o be cerain ha he language laws are he primary cause of his change, especially since we do no have yearly daa and we do no know he rend prior o Furhermore, afer 1980 he wages of Francophones fell relaive o Anglophones in Canada, alhough i coninued o rise relaive o Anglophones wihin Quebec. One possible inerpreaion is ha he language laws may have helped Francophones replace Anglophones in well-paying jobs (Raynauld and Vaillancour 1984, Vaillancour and Carpenier 1989), by making i more 19 Because of limied educaion daa in he 1971 Census only coarse educaion measures are used (see Appendix 1). Using more deailed educaion daa from he 2001 Census including years of college, field of sudy, and oher degrees earned he differenials in 2000 due o educaion and indusry fall o -1.7 and zero poins, respecively. 14

17 expensive o hire English labour. Bu in he long-run hese laws served o drive businesses away, causing wages in Quebec o gradually fall, especially afer he Big Bubble ended. As he language laws likely did no raise overall labour produciviy, and as here were only a small number of more producive Anglophone jobs in Quebec for Francophones o acquire, i is no surprising ha gains measured naionally are fairly small. 4.2 The Disribuion of he Francophone Wage Gap Unexplained by Skills Informaion on how changes in he residual wage gap are disribued can be obained by applying he decomposiion echnique of Dinardo, Forin, and Lemieux (1997). I produces a counerfacual disribuion of wages ha Francophones would be paid if hey were paid like Anglophones wih similar skills. The difference beween his disribuion and he acual disribuion of Francophone wages is a residual similar o he skill decomposiion used above: in fac, a he mean i produces nearly idenical resuls. These residual gaps for he 10 h, 50 h, and 90 h perceniles are graphed in Figure 4. Canada-wide in 1970, he residual Francophone gap was disribued evenly a 5 percen across perceniles. By 1980 he gap shrank for all groups, alhough by 2000 he gaps a he 50 h and 90 h perceniles revered o heir size in In he long-run, he residual Francophone gap shrank only a he 10 h percenile, possibly because Anglophone wages a he boom were dropping similarly o changes seen in he Unied Saes (Kaz and Auor 1999). Across he disribuion, he residual Quebec gap for Anglophones shows an unusual paern. In 1970, he gap was much larger a he upper end of he disribuion hen a he boom of he disribuion. Over he 1970s, he upper end of he gap fell by more han 10 poins, i hen sabilized over he nex fifeen years, only o fall below zero afer A he lower end he Quebec gap did no change unil afer 1985, when i fell sharply by abou 15 poins. I is no 15

18 clear why Anglophone wages fell firs a he upper end and laer a he lower end. One possible explanaion is ha he deparure of large firms from Monreal in he lae 1970s drove down he upper end of he wage disribuion, while he recession of he early 1990s, paricularly severe in Quebec, eliminaed many of he jobs in indusries, such as exiles, ha employed Anglophones a he boom of he disribuion. Anoher explanaion is ha beer workers from he upper end of he disribuion lef before workers from he lower end, as seen below, he evidence for his laer explanaion appears weak The Wage Srucure and Changes in he Reurn o Skill for Francophones If Quebec s language laws or oher changes did help Francophones ake jobs ha only highlyskilled Anglophones were once privy o, hen presumably he wages of highly-skilled Francophones should have risen disproporionaely. Figure 5a plos he average wages of Francophones relaive o Anglophones in he same skill group across Canada in 1970 and 2000, where skill groups are defined by five educaion and five experience caegories ineraced. 21 In 1970, he Francophone gap was larger for more highly skilled workers, locaed o he righ; his lower reurn o skill for Francophones migh be indicaive of lower demand for French or discriminaory pracices in higher-skilled jobs. By 2000, hese differences had largely disappeared, consisen wih he heory ha highly-skilled Francophones were indeed aking 20 According o Juhn, Murphy, and Pierce (1991) overall increases in wage inequaliy over his period could have conribued o increases in he residual wage gap. Applying he Juhn-Murphy-Pierce procedure here suggess ha increased inequaliy in he Anglophone wage disribuion may have increased he residual Francophone gap in Canada by 0.8 poins (s.e. = 0.1 poins). 21 Educaion caegories are grade 8 or below, grade 9 or 10, grade 11 and above, some universiy, and bachelor s degree or higher. Only groups wih a leas 30 observaions of boh Francophones and Anglophones in boh years are used o ensure comparabiliy and ha he skill-group means are close o normally disribued, resuling in 25 or fewer groups. The fied regression lines are based on Card and Lemieux s (1996) one-dimensional skill model. 16

19 beer jobs formerly available only o Anglophones. 22 In Figure 5b, we see ha highly-skilled Francophones overcame an even larger wage gap wihin Quebec, alhough by 2000 Francophones were doing beer han Anglophones in lower skill groups. Overall, his increase in he reurn o skills for Francophones may have encouraged Francophones o aain higher levels of educaion, alhough he increase may also be due o unmeasured increases in Francophone schooling or school qualiy. Comparing he Anglophones in and ou of Quebec in Figure 5c, Anglophones in 1970 were beer paid in Quebec across skill groups. Ye, in 2000, only he mos-skilled Anglophones in Quebec earned as much heir equivalens ouside of Quebec and less-skilled Anglophones in Quebec do worse han boh Anglophones ouside Quebec and Francophones in Quebec. Ineresingly, when Francophones and Anglophones are pooled ogeher, as in Figure 5d, relaive wages in Quebec are similar o he res of Canada, excep for a small consan. Thus, i appears ha Quebec s employmen srucure has long been similar o he res of Canada consisen wih Coffey and Polese (1999) bu ha jobs may have been reshuffled beween Francophones and Anglophones. These resuls seem o conradic he previous finding in Figure 4 ha he boom of he Francophone disribuion gained more han he op, skilled workers gained more han unskilled workers. However, mos of he variaion seen in Figure 4 is wihin (observable) skill groups raher han beween skill groups, seen in Figure 5. Thus, wihin skills groups, he boom end was lifed up, even while highly-skilled groups gained more on average. 22 Accordingly if he skill-decomposiion in Table 3 is done using coefficiens esimaed off of Francophones, he residual wage gap is slighly larger in

20 5 Changes in he Wages of French-English Bilinguals Thus far, he imporance of language skills remains murky. Forunaely, he Census has a helpful measure of he languages a responden claims o speak, alhough i does no indicae he degree of proficiency. The skill-decomposiion from above is no easily adaped o his measure. Francophones who repor speak boh French and English are likely o speak French relaively beer, while Anglophones who repor he same, are likely o speak English beer. Furhermore, he reurn o learning English for a Francophone is likely o be differen han he reurn o learning French for an Anglophone; hese reurns are also likely o depend on region. Neverheless, hese measures may help us undersand changes in he residual Francophone gap if he reurn o speaking French has risen for Anglophones, he reurn o speaking English has fallen for Francophones, or if Francophones increasingly speak English. One mehod o esimae he reurn o language skills is o look a how much more French- English bilinguals are paid relaive o heir unilingual counerpars, conrolling for observable non-language skills. The esimaes for four groups Francophones and Anglophones in Quebec and ouside Quebec in 1970, 2000, and heir change, are presened in Table 5, Panel D. Addiionally, Panel A gives he proporion of each group ha is bilingual; Panel B, he oal wage difference, regardless of skills; and Panel C, he wage gap prediced by observable nonlanguage skills. Figure 6 graphs he residual differences. Unobservable selecion issues may be a serious problem wih hese esimaes. As seen in Panel C, bilinguals have beer observable skills, indicaing ha hey may also have beer unobserved skills, leading o an upward bias in he reurn o bilingualism. However, he change in he measured reurn o bilingualism may reliably reflec changes in he reurn o language skill if he proporion of bilinguals and he wage gaps prediced by observable skills remain roughly 18

21 consan, as his would sugges ha changes in unobserved skills are probably small. Beween 1970 and 2000, he measured reurn o learning English for Quebec Francophones fell from 11 o 8 percen, suggesing ha he demand for English-language skills fell in Quebec. While he proporion of Francophone bilinguals rose only slighly, he firs row of Panel C reveals ha bilingual Quebec Francophones have relaively lower prediced wages han before, and hus fewer observable skills, suggesing ha hey may also have fewer unobserved skills, which could also accoun for he measured change. For Anglophones in Quebec, he reurn o learning French has risen from roughly zero o abou 5 percen; alhough he change using only 2000 is no significan, i is if daa from 1995 and 2000 are pooled ogeher. Anglophones in Quebec became increasingly bilingual, and in 2000 hese bilinguals has beer observed skills, making i difficul o rule ou ha unobservable characerisics are no he cause. However, he increase in he supply of bilinguals ogeher wih he increase in he relaive wage of bilinguals does sugges an increasing demand for French-language skills in Quebec. Ouside of Quebec, here is no significan reurn o learning French for Anglophones. On he oher hand, he reurn o learning English for Francophones has fallen, alhough one should be cauious in inerpreing his change, as he proporion of Francophones who are unilingual is small and falling quickly. Overall, he esimaes sugges, albei inconclusively because of selecion issues, ha in Quebec he demand for French-language skills rose and he demand for English-language skills fell Much of he previous lieraure immediaely separaes unilingual and bilingual Anglophones and Francophones. This is avoided for wo reasons here: firs he number of differen gaps across regions would make his onerous o presen. Second, since bilingualism is generally chosen, selecion bias issues are a serious concern, as shown here. Furher informaion on he reurn o language skills is available from Allophones hose whose moher ongue is neiher French nor English who may speak English, French, boh, or neiher. The online appendix explains how small samples pose obsacles for using his informaion, alhough Anglophone wages did fall relaive o Allophone 19

22 6 The Quebec-Anglophone Wage Gap and Emigraion While he wages of Anglophones in Quebec fell relaive o he res of Canada, Anglophones were emigraing en masse from Quebec. Using Census figures on migraion, which exclude hose who lef he counry alogeher, he Quebec Anglophone populaion which peaked a approximaely 800,000 in 1976, saw approximaely 350,000 leave Quebec, while only 135,000 enered, leaving a populaion of approximaely 590,000 Quebec Anglophones in As seen in Table 1, in 1970, 6 percen of Canadian Anglophones lived in Quebec; in 2000, only 3 percen did. 24 The previous lieraure (e.g. Higgins 1986, Polese 1990, Levine 1990, Locher 1988, Ami-Tali 1993, Wason 1996, Sevenson 1999) menions a number of reasons why Anglophones lef (or sopped enering) Quebec, among hem fear of Quebec secession, disconen wih he language laws and provincial poliics, and he lack of employmen opporuniies. Excep for some evidence based on inerviews, he lieraure does no give much guidance on how imporan each of hese reasons are, or wheher hey operae hrough changes in he supply of or demand for Anglophone workers. 25 Neoclassical models of worker mobiliy across areas (e.g. Roback 1982, Bound and Holzer 2000, Albouy 2007) permi he use of sandard supply-and-demand analysis o model he Anglophone exodus, using a graph wih he number of Anglophone workers on he horizonal axis, and he relaive wage of Anglophones, given by he Quebec gap for Anglophones, on he verical axis. The supply of Anglophone workers is represened by an upward sloping curve, wih wages in Quebec. Robinson (1988) provides an ineresing model of language acquisiion and choice, which for various reasons is no used here. 24 Exac couns depend on he reamen of muliple responses in he Canadian Census. Oher discrepancies depend on emigraion from Canada, differences beween feriliy and moraliy, and measuremen error. 25 Based on inerviews Locher (1988) finds Anglophones moved primarily because of dissaisfacion wih Quebec poliics and language laws; Ami-Tali (1993) finds Anglophones moved primarily for job opporuniies elsewhere. 20

23 a slope ha increases in he variance of moving coss or ases for Quebec-specific ameniies, and which shifs inwards if Anglophones see heir relaive qualiy of life diminish or heir relaive cos of living increase. The demand for Anglophone workers is represened by a downward sloping curve, wih a slope ha is decreases in he subsiuabiliy of Anglophone labour wih oher facors, including Francophone labour, and which shifs in if he produciviy of Englishspeaking labour falls, or he cos of such labour increases. Using sandard comparaive saics, i is plain o see ha falling Anglophone employmen in Quebec ogeher wih lower relaive wages is consisen wih a negaive demand shif, and no wih a negaive supply shif, which would predic rising relaive wages. While his analysis remains speculaive, i suggess ha Anglophones lef Quebec primarily because of los job opporuniies, raher han because he changing poliical and linguisic siuaion in Quebec diminished heir qualiy-of-life. 26 A negaive supply shif may also have conribued o he Anglophone exodus, bu such a shif alone would imply ha Anglophones remaining in Quebec should be paid higher wages. In 2000, Anglophones remaining in Quebec were paid lower wages, meaning hey los considerable welfare. Anglophones who lef Quebec, in conras, had lower moving coss, weaker ases for life in Quebec, or beer opporuniies elsewhere, and hus were no made as worse off as hose who sayed. 27 This raises he quesion of wha caused demand for Anglophone labour o fall so precipiously in Quebec. One possible explanaion is ha he language laws raised he cos of hiring English speaking labour. However, direc esimaes of hese coss have ypically been 26 Price daa rules ou a negaive supply shif from a higher cos-of-living: he Consumer Price Index (all iems) beween 1971 and 2000 increased by 4.2 percenage poins less in Monreal han in Torono, and 1.3 poins less han in Canada as a whole. Therefore, he relaive cos-of-living in Quebec probably fell over his period. 27 This analysis also raises he quesion of why Anglophones in Quebec had such high wages in As mos Quebec Anglophones live in Monreal, his may be due o an urban wage premium, reflecing he higher produciviy of workers in a large ciy, which compensae for higher coss-of-living. As seen in he online appendix, wage levels in Monreal were close o hose in Torono unil afer

24 small (Vaillancour 1996), rarely exceeding one percen of oal oupu. Ye, if hese coss are fully capialized ino Anglophone wages, his could have a subsanial effec: for example if Anglophones make up 15 percen of labour coss, hen coss equal o one percen of he oal wage bill could lower Anglophone wages by 7 percen. Furhermore, he measured coss are likely a lower bound of he rue coss as some coss are hard o observe, and as firms could have already shifed resources inefficienly in order o avoid hese coss. Anoher explanaion is ha here was an exogenous drop in he produciviy of Anglophone labour in Quebec, possibly from secular regional shifs or from risk relaed o poliical insabiliy in Quebec. An alernae, supply-driven, explanaion is ha Anglophone workers wih high unobservable skills disproporionaely lef Quebec, causing wage levels o fall because of unobserved selecion This explanaion may be parly rue, bu i seems oo exreme o explain he enire 14 poin drop in he Quebec gap for Anglophones, especially when so many Anglophones did no move, and as observable skill levels of Quebec Anglophones remained high and relaively consan beween 1970 and 2000, as seen in Figure 3a. For selecion o be he sole explanaion of he wage drop, he posiive selecion ou of Quebec would have had o change unobservable skills dramaically, wihou changing observable skills. I is hard o imagine how his kind of selecion would operae. To explore iner-provincial migraion furher, saisics on Anglophone movers and nonmovers are presened in Table 6. The Census from 1981 o 2001 rack respondens who moved over he previous five years, covering moves beween 1975 and The firs column repors he average characerisics of Anglophones ouside of Quebec who did no move in he 5 years prior o he Census day, averaged over all Census years, weighed by inverse sampling probabiliies. The oher columns repor he average characerisics of four groups relaive o he 22

25 group of non-movers ouside Quebec: non-movers in Quebec, and movers who lef Quebec, arrived in Quebec, or moved beween any oher provinces. Because migraion flows are no consan, i is necessary o conrol for iming issues, and hus in he able a group s mean characerisics are differenced wih conemporary non-movers ouside Quebec from he same Census year before being averaged over all years, weighed by inverse sampling probabiliies. 28 Relaive o conemporaries who did no move and oher iner-provincial movers, hose who lef Quebec are beer educaed and had higher pos-move wages; hey also older and more likely o move o Onario han he ypical migran. 29 Anglophones who moved ino Quebec are also well-educaed, bu hey arrived in small numbers, resuling in a ne brain-drain from Quebec, albei oo small o have a major effec on he relaive skill levels of Quebec Anglophones. Sill, he loss of skilled Anglophones may hrough los agglomeraion effecs from spillovers or complemenariies have endogenously lowered he overall produciviy of Anglophone labour. To examine wheher he drop in he residual Quebec gap for Anglophones is relaed o selecive migraion, he average residual wage Quebec emigrans is repored a he boom of Panel A in Table 6. Emigrans from Quebec do have a residual wage premium of 3 poins in heir pos-move wages. Given ha less han half of Anglophones lef Quebec, his change should no explain more han 1.5 poins of he 14-poin drop in he residual Quebec gap for Anglophones, unless pre-move wages of Quebec leavers were higher han heir pos-move wages. While possibly presen, selecive migraion does no appear srong enough o fully explain why he Quebec gap for Anglophone fell so remendously. 28 This produces resuls like a regression coefficien on a group indicaor dummy variable, using non-moving non- Quebecers as a reference, in a regression which includes Census year indicaors as conrol variables. 29 Pre-move earnings are no available in Census daa. Grenier (1987) examined Quebec leavers beween 1976 and 1981, finding hem o be younger and beer educaed han Quebec sayers. However oher iner-provincial movers end o be even younger, alhough less educaed, han hose leaving Quebec. 23

26 The iming of changes observed across he wage disribuion also raises he issue of wheher Anglophones wih greaer unobserved skills lef Quebec firs, perhaps spurring a decrease in Anglophone labour demand hrough he effecs described above. This issue is explored in Panel C by looking a he paern of explained and unexplained wages of Anglophones who lef Quebec over ime. Here here is no obvious paern excep ha he highes paid workers appear o have lef las, beween 1995 and Conclusion Analyzing he Francophone wage gap in Canada, raher han in Quebec alone, gives a more balanced picure of wha happened o he wages of Francophones and Anglophones since 1970, as well as a beer sense of he economic effecs of policies mean o preserve he French language and improve he welfare of Francophones. Improvemens in Francophone educaional aainmen due primarily o reforms in he Quebec educaion sysem, bu also perhaps o a higher reurn o educaion for Francophones had he cleares and mos prevalen effec on Francophone wages by direcly raising produciviy. Less clear are he direc effecs of language laws and oher policies mean o increase he demand for French-speaking labour and reduce discriminaion agains Francophone workers. Changes in relaive wages unexplained by observable skills, especially wihin Quebec, sugges ha hese helped o raise demand for labour of he French majoriy, alhough a a cos o he English minoriy. The improvemen of Francophone welfare and he susained vialiy of French in Quebec may indeed jusify his cos, bu i is essenial ha policy makers and evaluaors do no confuse Anglophone pains wih Francophone gains by only analyzing wage differences wihin he province. While he relaive wages of unilingual and bilingual workers, conrolling for observable skills, does sugges ha he reurn o French-language skills may have increased, i also appears 24

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