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Supply Side Hysteresis: The Case of the Canadian Unemployment Insurance System

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  • Thomas Lemieux

    (Universite de Montreal)

  • W. Bentley MacLeod

    (Boston College)

Abstract

This paper presents results from a 1971 natural experiment carried out by the Canadian government on the unemployment insurance system. At that time they dramatically increased the generosity of the system. We find that the propensity to collect UI increases with a first time exposure to the system. Hence as more individuals experience unemployment, their lifetime use of the system increases. This supply side hysteresis effect may explain why unemployment has steadily increased over the 1972-1992 period, even though the generosity of unemployment insurance did not.

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File URL: http://fmwww.bc.edu/EC-P/wp340.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 340..

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Length: 42 pages
Date of creation: 01 Jan 1997
Date of revision:
Handle: RePEc:boc:bocoec:340

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References

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  1. Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
  2. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
  3. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-59, September.
  4. Lindbeck, Assar, 1995. " Welfare State Disincentives with Endogenous Habits and Norms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 477-94, December.
  5. Green, David A & Riddell, W Craig, 1993. "The Economic Effects of Unemployment Insurance in Canada: An Empirical Analysis of UI Disentitlement," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages S96-147, January.
  6. A. S. Yelowitz, . "Did recent medicaid reforms cause the caseload explosion in the food stamp program?," Institute for Research on Poverty Discussion Papers 1109-96, University of Wisconsin Institute for Research on Poverty.
  7. Lawrence F. Katz & Bruce D. Meyer, 1988. "Unemployment Insurance, Recall Expectations, And Unemployment Outcomes," NBER Working Papers 2594, National Bureau of Economic Research, Inc.
  8. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  9. Bloom, H. & Fink, B. & Lui-Gurr, S. & Bancroft, W. & Tattrie, D., 1997. "Implementing the Earnings Supplement Project: A Test of a Re-employment Incentive," Papers r-98-1a, Gouvernement du Canada - Human Resources Development.
  10. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
  11. David Card & W. Craig Riddell, 1993. "A Comparative Analysis of Unemployment in Canada and the United States," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 149-190 National Bureau of Economic Research, Inc.
  12. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
  13. Bruce D. Meyer & Dan T. Rosenbaum, 1996. "Repeat Use of Unemployment Insurance," NBER Working Papers 5423, National Bureau of Economic Research, Inc.
  14. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  15. Thomas Lemieux & W. Bentley MacLeod, 1997. "Supply Side Hysteresis: The Case of the Canadian Unemployment Insurance System," Boston College Working Papers in Economics 340., Boston College Department of Economics.
  16. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, vol. 47(187), pages 247-83, August.
  17. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  18. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 554-93, October.
  19. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  20. Lindbeck, Assar, 1995. "Welfare State Disincentives with Endogenous Habits and Norms," Working Paper Series 441, Research Institute of Industrial Economics.
  21. Miles Corak, 1993. "Unemployment Insurance Once Again: The Incidence of Repeat Participation in the Canadian UI Program," Canadian Public Policy, University of Toronto Press, vol. 19(2), pages 162-176, June.
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Citations

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Cited by:
  1. Jean-Baptiste Michau, 2013. "Unemployment Insurance And Cultural Transmission: Theory And Application To European Unemployment," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1320-1347, December.
  2. Thomas Lemieux & W. Bentley MacLeod, 1997. "Supply Side Hysteresis: The Case of the Canadian Unemployment Insurance System," Boston College Working Papers in Economics 340., Boston College Department of Economics.
  3. Marcel Dagenais & Pierre Mohnen & Pierre Therrien, 1997. "Do Canadian Firms Respond to Fiscal Incentives to Research and Development?," CIRANO Working Papers 97s-34, CIRANO.
  4. Corak, Miles & Chen, Wen-Hao, 2003. "Firms, Industries, and Unemployment Insurance: An Analysis Using Employer-Employee Data," IZA Discussion Papers 811, Institute for the Study of Labor (IZA).
  5. Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," Levine's Working Paper Archive 122247000000002028, David K. Levine.
  6. Chen, Wen-Hao & Corak, Miles, 2005. "Entreprises, industries et assurance-chomage : une analyse des donnees sur les employeurs et les employes recueillies au Canada," Direction des etudes analytiques : documents de recherche 2005260f, Statistics Canada, Direction des etudes analytiques.
  7. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2011. "The Longterm Effects of UI Extensions on Employment," Boston University - Department of Economics - Working Papers Series WP2011-064, Boston University - Department of Economics.
  8. Martin Ljunge, 2012. "The Spirit of the Welfare State? Adaptation in the Demand for Social Insurance," Journal of Human Capital, University of Chicago Press, vol. 6(3), pages 187 - 223.
  9. Peter Kuhn & Chris Riddell, 2006. "The Long-Term Effects of a Generous Income Support Program: Unemployment Insurance in New Brunswick and Maine, 1940-1991," NBER Working Papers 11932, National Bureau of Economic Research, Inc.
  10. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 722-737, April.
  11. Bjorn, Gustafsson & Gustafsson, Bjorn & Osterberg, Torun & Corak, Miles, 2001. "Intergenerational Influences on the Receipt of Unemployment Insurance in Canada and Sweden," Analytical Studies Branch Research Paper Series 2001159e, Statistics Canada, Analytical Studies Branch.

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