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

  • Thomas Lemieux

    (Universite de Montreal)

  • W. Bentley MacLeod

    (Boston College)

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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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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Web page: http://fmwww.bc.edu/EC/Email:


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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. Thomas Lemieux & W. Bentley MacLeod, 1998. "Supply Side Hysterisis: The Case of the Canadian Unemployment InsuranceSystem," NBER Working Papers 6732, National Bureau of Economic Research, Inc.
  3. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-59, September.
  4. Aaron S. Yelowitz, 1996. "Did Recent Medicaid Reforms Cause the Caseload Explosion in the Food Stamp Program?," UCLA Economics Working Papers 756, UCLA Department of Economics.
  5. Bruce D. Meyer & Dan T. Rosenbaum, . "Repeat Use of Unemployment Insurance," IPR working papers 95-24, Institute for Policy Resarch at Northwestern University.
  6. 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.
  7. 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.
  8. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 973-1002, November.
  9. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  10. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  11. Lindbeck, Assar, 1995. "Welfare State Disincentives with Endogenous Habits and Norms," Working Paper Series 441, Research Institute of Industrial Economics.
  12. 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.
  13. 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.
  14. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
  15. 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.
  16. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  17. 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.
  18. 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.
  19. 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.
  20. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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