LABOR-MARKET ADJUSTMENT IN CANADA AND THE UNITED-STATES

This paper provides a quantitative assessment of the relative importan ce of different labour market adjustment mechanisms in Canada and the United States. The effects of the unemployment insurance (UI) system o n labour market adjustment are also examined. We find that, at the agg regate level, employment growth shocks result in roughly similar unemp loyment rate responses but smaller wage responses in Canada relative t o the United States. Although the UI system has clearly contributed to increased unemployment persistence in Canada, there is little evidenc e that the endogenous component of the UI system has had a significant effect on aggregate unemployment persistence. We also conclude that t he lower degree of aggregate real wage flexibility in Canada has had o nly a limited effect on unemployment persistence.