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Shifting Skill Demand and the Canada-US Unemployment Gap: Evidence from Prime-Age Men

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  • Peter Kuhn (McMaster)
  • A. Leslie Robb (McMaster)

Abstract

This paper considers the possible role of shifts in labour demand away from unskilled workers, combined with an institutionally- generated greater labour supply elasticity in Canada, in explaining the apparent secular increase in Canadian male unemployment, and in explaining the emergence of the Canada-U.S. unemployment rate gap in the 1980's. Using comparable data on annual weeks worked and unemployed in both countries, we identify four main facts which are consistent with such this explanation: Both Canada and the US experienced wage polarization over this period, with substantial real wage declines for unskilled men; annual weeks worked fell disproportionately among unskilled workers in both countries; responses of weeks worked to wage declines were more elastic in Canada; and aggregate movements out of employment over this period corresponded closely to movements into unemployment in Canada. Interestingly, however, unskilled U.S. men were more likely than Canadians to leave the labour force as their employment fell, adding further to the Canada-U.S. unemployment gap. As well, some fairly substantial decreases in weeks worked are observed quite high up in the Canadian wage distribution, where wages did not fall appreciably. The latter changes cannot easily be explained by a shifts in labour demand alone.

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Paper provided by McMaster University in its series Canadian International Labour Network Working Papers with number 01.

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Handle: RePEc:mcm:cilnwp:01

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  1. David Card, 1992. "A Comparative Analysis of Unemployment in Canada and the United States," Working Papers 677, Princeton University, Department of Economics, Industrial Relations Section..
  2. David Card & Richard B. Freeman, 1993. "Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States," NBER Books, National Bureau of Economic Research, Inc, number card93-1, octubre-d.
  3. Burbidge, John B & Magee, Lonnie & Robb, A Leslie, 1997. "Canadian Wage Inequality over the Last Two Decades," Empirical Economics, Springer, vol. 22(2), pages 181-203.
  4. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  5. Murphy, Kevin M & Welch, Finis, 1993. "Inequality and Relative Wages," American Economic Review, American Economic Association, vol. 83(2), pages 104-09, May.
  6. Orley Ashenfelter & David Card, 1986. "Why Have Unemployment Rates in Canada and the U.S. Diverged?," NBER Working Papers 1840, National Bureau of Economic Research, Inc.
  7. repec:fth:prinin:352 is not listed on IDEAS
  8. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
  9. Ross D. Milbourne & Douglas D. Purvis & W. David Scoones, 1991. "Unemployment Insurance and Unemployment Dynamics," Canadian Journal of Economics, Canadian Economics Association, vol. 24(4), pages 804-26, November.
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Cited by:
  1. Brahim Boudarbat & Thomas Lemieux & W. Craig Riddell, 2010. "The Evolution of the Returns to Human Capital in Canada, 1980-2005," Canadian Public Policy, University of Toronto Press, vol. 36(1), pages 63-89, March.
  2. Picot, Garnett, 1998. "What is Happening to Earnings, Inequality and Youth Wages in the 1990s?," Analytical Studies Branch Research Paper Series 1998116e, Statistics Canada, Analytical Studies Branch.
  3. Osberg, Lars, 1997. "Economic growth, income distribution and economic welfare in Canada 1975-1994," The North American Journal of Economics and Finance, Elsevier, vol. 8(2), pages 153-166.
  4. Gary Burtless, 1998. "Relative Unemployment in Canada and the United States: An Assessment," Canadian Public Policy, University of Toronto Press, vol. 24(s1), pages 254-263, February.
  5. Picot, Garnett, 1998. "Le point sur l'inegalite des gains et sur la remuneration des jeunes durant les annees 90," Direction des etudes analytiques : documents de recherche 1998116f, Statistics Canada, Direction des etudes analytiques.

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