Persistence of Unemployment

Persistence of Unemployment: Hysteresis in Canadian Labour Markets

Copyright Date: 1995
Pages: 184
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  • Book Info
    Persistence of Unemployment
    Book Description:

    The deep recession and slow recovery of the Canadian economy in the 1980s and the lengthy recession of the early 1990s raised serious questions about economic policy making. The steady worsening of Canadian unemployment rates led some economists to doubt the traditional view that the national economy is by nature self-correcting and to endorse the concept of hysteresis - the idea that the unemployment rate may display no tendency to return to an unchanging natural rate. Such hysteresis would have important and far-reaching implications for economic policy, particularly monetary policy.

    eISBN: 978-0-7735-6542-5
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Figures and Tables
    (pp. ix-x)
  4. Acknowledgments
    (pp. xi-2)
  5. 1 Introduction
    (pp. 3-14)

    The deep recession of the early 1980s and the slow recovery of the Canadian economy through much of the rest of the decade raised a number of serious questions about the role and conduct of economic policy-making. As unemployment rose to levels unseen since the 1930s, growing numbers of people experienced the grim reality of long-term joblessness, exhaustion of eligibility for unemployment insurance benefits, rising debt and dependence on family members or on social assistance, and gradual realization of poor future prospects. Disparities in provincial experience have widened over the past few decades, and, within each region, much of the...

  6. 2 Theories of Hysteresis and Multiple Equilibria
    (pp. 15-36)

    This chapter surveys theories of hysteresis, with primary attention being given to labour markets, and discusses related concepts associated with models of multiple equilibria. From the outset, it should be recognized that, beyond testing whether or not the concept applied to a particular economy, a key issue is the cause of such extreme persistence. Many structural factors can generate hysteresis, and, for some empirical assessment and policy analysis, it can matter which model or models apply in a given circumstance.

    In this chapter, I address models related to insider-outsider bargaining, other models of union membership dynamics, models of “de-skilling” and...

  7. 3 International Evidence
    (pp. 37-52)

    This chapter surveys the main components of the existing empirical literature on the assessment of hysteresis in labour markets. For purposes of exposition, and also partly because Canada has some distinctive institutional features not present elsewhere, this chapter covers evidence for countries other than Canada. Chapter 4 examines Canadian evidence in detail.

    I begin by assessing work on the univariate properties of time series, such as a measure of national income or the unemployment rate. I argue that this literature is largely inconclusive and that, as a matter of common sense, it is not reasonable to think that the rate...

  8. 4 Canadian Evidence
    (pp. 53-76)

    The Canadian rate of unemployment increased dramatically in the 1980s, both relative to its own performance since the Second World War and relative to the US rate of unemployment. National decadal averages moved continuously upward from 4 per cent in the 1950s and 5 per cent in the 1960s to 6.7 per cent in the 1970s and 9.5 per cent in the 1980s. Relative to the US economy, where labour-market performance has also somewhat worsened over time, the Canadian economy experienced an unemployment rate that averaged two percentage points higher than the US rate during the 1980s, with the gap...

  9. 5 Macroeconomics of Hysteresis in Canada
    (pp. 77-93)

    In this chapter, I examine macroeconomic work on the modelling of hysteresis and various approaches to testing. I first discuss univariate testing of the time-series properties of Canadian unemployment rates. Though such tests suggest non-stationarity, at least for some specifications, serious doubts must remain about the informativeness of this characterization for the rate of unemployment. I next consider the robustness of various attempts at estimation of an empirical Phillips curve. The main finding is that results indicative of hysteresis are rather sensitive to minor details of the econometric specification, raising questions about their general validity.

    The first area of macroeconomic...

  10. 6 Microeconomic Foundations and Estimation
    (pp. 94-117)

    In this chapter, I employ individual-level data to extend existing analysis of unemployment persistence and hysteresis in a variety of directions. I use as my primary microeconomic data source the best available Canadian panel data – the Labour Market Activity Survey (LMAS) – which I introduce in the first section of this chapter. However, since serious problems have recently come to light regarding interpretation of the various non-employment states as coded in the LMAS, I match – in the second section – the LMAS to the monthly information on the labour market from the Labour Force Survey (LFS) for the six months that each...

  11. 7 Conclusion and Policy Implications
    (pp. 118-124)

    An overall assessment of the importance of hysteresis in Canadian labour markets must take into account the range of evidence discussed above, both that by other researchers surveyed in chapter 4 and the new findings of chapters 5 and 6. I begin by summarizing the main results of this work, first at a macroeconomic level, then with regard to the microeconomic evidence that has been marshalled. I go on to discuss the degree of consistency or inconsistency in these results and to propose a way of thinking about their reconciliation.

    The main thrust of the macroeconomic evidence must be said...

  12. Notes
    (pp. 125-144)
  13. Refrences
    (pp. 145-166)
  14. Index
    (pp. 167-170)