US LABOR-MARKET POLICY AND THE CANADA-US UNEMPLOYMENT RATE GAP

In this paper, we investigate the extent to which changes in US labour market policy in the 1980s may have contributed to the emergence of a n unemployment rate gap between Canada and the United States. In that decade, unemployment insurance benefits became taxable, income tax fat es fell substantially, and various administrative changes were made th at effectively tightened unemployment insurance eligibility requiremen ts. These policy changes are evaluated in the context of a computable equilibrium model of the labour market. Our estimates suggest that all of these reforms together can account for no more than a 0.4 percenta ge point decline in the US natural rate of unemployment; a combined ef fect which accounts for 20 per cent of the unemployment rate gap.