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Labour Market Adjustment in Canada and the United States

  • Eswar Prasad
  • Alun Thomas

This paper provides a quantitative assessment of the relative importance of different labour market adjustment mechanisms in Canada and the United States. The effects of the unemployment insurance (UI) system on labour market adjustment are also examined. We find that, at the aggregate level, employment growth shocks result in roughly similar unemployment rate responses but smaller wage responses in Canada relative to the United States. Although the UI system has clearly contributed to increased unemployment persistence in Canada, there is little evidence that the endogenous component of the UI system has had a significant effect on aggregate unemployment persistence. We also conclude that the lower degree of aggregate real wage flexibility in Canada has had only a limited effect on unemployment persistence.

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Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 24 (1998)
Issue (Month): s1 (February)
Pages: 121-137

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Handle: RePEc:cpp:issued:v:24:y:1998:i:s1:p:121-137
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  1. Robert A. Amano & R. Tiff Macklem, 1998. "Unemployment Persistence and Costly Adjustment of Labour: A Canada-US Comparison," Canadian Public Policy, University of Toronto Press, vol. 24(s1), pages 138-151, February.
  2. 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.
  3. Miles Corak & Stephen R. G. Jones, 1995. "The Persistence of Unemployment: How Important Were Regional Extended Unemployment Insurance Benefits?," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 555-67, August.
  4. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  5. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
  6. Chan G. Huh & Bharat Trehan, 1995. "Modeling the time-series behavior of the aggregate wage rate," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
  7. Andolfatto, David & Gomme, Paul, 1996. "Unemployment insurance and labor-market activity in Canada," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 47-82, June.
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