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

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  • Peter Kuhn
  • A. Leslie Robb

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-US unemployment rate gap in the 1980s. Using comparable data on annual weeks worked and unemployed in both countries, we identify four main facts which are consistent with 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 in 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 US men were more likely than Canadians to leave the labour force as their employment fell, adding further to the Canada-US 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 shifts in labour demand alone.

Suggested Citation

  • Peter Kuhn & A. Leslie Robb, 1998. "Shifting Skill Demand and the Canada-US Unemployment Gap: Evidence from Prime-Age Men," Canadian Public Policy, University of Toronto Press, vol. 24(s1), pages 170-191, February.
  • Handle: RePEc:cpp:issued:v:24:y:1998:i:s1:p:170-191
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    1. 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.
    2. 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 804-826, November.
    3. Orley Ashenfelter & David Card, 1986. "Why Have Unemployment Rates in Canada and the U.S. Diverged?," Working Papers 584, Princeton University, Department of Economics, Industrial Relations Section..
    4. Murphy, Kevin M & Welch, Finis, 1993. "Inequality and Relative Wages," American Economic Review, American Economic Association, vol. 83(2), pages 104-109, May.
    5. 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, November.
    6. 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.
    7. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    8. 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.
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    Cited by:

    1. Picot, Garnett, 1998. "Le point sur l'inegalite des gains et sur la remuneration des jeunes durant les annees 90," Direction des études analytiques : documents de recherche 1998116f, Statistics Canada, Direction des études analytiques.
    2. 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.
    3. Mark D. Partridge, 2001. "Changes in U.S. and Canadian Wage Dynamics in the 1990s: How Unique Are Favorable U.S. Labor Market Developments?," The Review of Regional Studies, Southern Regional Science Association, vol. 31(1), pages 71-93, Summer.
    4. 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.
    5. 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.

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