The federal government could put the equivalent of 370,000 more people to work if it tweaked the immigration system to focus on the long-term needs of the job market, says a new report by Toronto-Dominion Bank.

Unemployment and underemployment among immigrants is worse than ever, the report says, but Ottawa could easily fix the problem.

"We would gain a major competitive advantage if this country were recognized around the world as one where all migrants are successful in being able to practise their own trade and raise their standard of living," said chief economist Craig Alexander.

"As of yet, no major country has been able to stake this claim."

Wealth gap

Immigrants who arrived in Canada in the 1970s used to be able to catch up to the salaries of their Canadian counterparts within a generation.

But the disparity has grown steadily and now the average immigrant doesn't have much hope of seeing the gap close until the second generation.

"The simple, but sad, truth is that many new immigrants cannot hope to close the earnings gap in their lifetime," the TD paper says.

Closing that gap is crucial as Canada faces the mass retirement of the baby-boom generation, the paper explains.

'We would gain a major competitive advantage '—TC Bank economist Craig Alexander

If immigrants were employed at the same level as established Canadians, there would be about 370,000 extra people at work, the TD economists estimate.

"Canada admits hundreds of thousands of highly educated, highly skilled immigrants each year to meet labour demand or to fill skills gaps," Alexander said.

"And yet, any reason for participating in skilled immigration is rendered null and void if those immigrants ultimately take lower-paying jobs unrelated to their training because of the labour market barriers that they face."

The TD economists argue that the problem is not insurmountable and that Ottawa already has the tools to better match people with jobs if it just tweaked the system to focus on the long term.

Right now, the federal skilled worker program, the provincial nominee program and the temporary foreign worker program all target the short-term needs of the job market, the paper says.

Bureaucratic improvements

Ottawa should reorient the federal program towards longer-term needs. And it should develop a better labour-market information system to identify which occupations will be in demand.

At the same time, Ottawa should make its point-based admission system more flexible, with a greater emphasis on language, the paper says.

Immigration Minister Jason Kenney is in the midst of a process that will likely do just that.

The TD report also says Ottawa should improve its patchwork of settlement services, so that integration efforts start before people land in Canada.

Some extra funding would be required in this area, the paper says.

Prime Minister Stephen Harper recently highlighted the immigration system as ripe for reform, given the long-term demographic challenges.

Ottawa anticipates a labour shortage as the population ages. Efficient immigration is considered one of the keys to addressing labour needs.

Kenney has been pursuing a series of reforms over the last year aimed at attracting immigrants with the skills Canada needs. He is poised to revamp the point system later this year.