Supply side hysteresis: the case of the Canadian unemployment insurance system

This paper presents results from a 1971 natural experiment carried out by t he Canadian government on the unemployment insurance system. At that time, the generosity of the UI system was increased dramatically. We find some ev idence that the propensity to collect UI increases with a first-time exposu re to the new UI system. Hence, as more individuals experience unemployment , their lifetime use of the system increases. This supply side hysteresis e ffect may explain why unemployment has steadily increased over the 1972-199 2 period, even though the generosity of unemployment insurance did not. (C) 2000 Elsevier Science S.A. All rights reserved.