Unemployment in Canada and the United States: A Further Analysis

Abstract

During the 1980s a substantial gap emerged between unemployment rates in Canada and the United States. In this paper, we use microdata from labor force surveys at the beginning and end of the decade to examine the sources of the emergent gap. As in earlier work, we find that most of the relative rise in unemployment in Canada is attributable to an increase in the relative "labor force attachment" of Canadians, rather than to any shortfall in relative employment. Indeed, relative employment rates increased in Canada over the 1980s for younger workers and for adult women. The relative rise in labor force attachment of Canadians is manifested by a sharp increase in the propensity of non-workers to report themselves as unemployed (i.e. looking for work) rather than out-of-the-labor force. This change is especially pronounced for individuals who work just enough to qualify for unemployment insurance (UI) in Canada. Moreover, two- thirds of the relative increase in weeks of unemployment among non-workers is associated with the divergent trends in UI recipiency in the two countries. Both findings point to the availability of UI benefits as an important determinant of the labor force attachment of nonworkers.