Labour Market Adjustment in Canada and the United States

Eswar Prasad and Alun Thomas

Canadian Public Policy, 1998, vol. 24, issue s1, 121-137

Abstract: 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.

Date: 1998
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