An Analysis of Canadian Unemployment

Abstract

The paepr reviews different reasons for the emergence in the 1980s of an unemployment gap between Canada and the U.S. We develop a small equilibrium model ofthe Canadian labor market to quantify and evaluate these reasons. We conclude that the gap is essentially due to the liberalization of the benefits system in 1971, the effects of which have often been masked by raw-material booms. The huge increase in unemployment in 1981-82 appears to have been due to a sharp monetary squeeze, exacerbated by a fall in the price of exports.