Exploring the Canadian-U.S. Unemployment and Nonemployment Rate Gaps: Are There Lessons for Both Countries?

The Canadian and U.S. economies are very similar. Yet, beginning in the 1980s, Canada experienced much greater relative unemployment rates followed in the 1990s by a declining share of population employed. Using state- and provincial-level data this study assesses why U.S. labor markets have recently performed relatively better than their Canadian counterparts. The empirical results indicate that more rapid U.S. employment growth explains a relatively small proportion of its lower joblessness. Structural causes including lower U.S. unionization and less generous unemployment insurance appear to be more important, at least in the long run. The Canadian labor market also appears to be less flexible to regional economic shocks.