The Impact of Macroeconomic Conditions on the Instability and Long-Run
Inequality of Workers' Earnings in Canada
by Charles M. Beach, Ross Finnie and David Gray
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 268
Context
Canada's labour market in the 1980s and 1990s was subject to
transformations such as increasing integration with the U.S. economy
and shifting trade flows, the rapidly advancing state of information
technology, shifting modes and organization of production such as 'out-sourcing'
and non-standard work patterns, fluctuating prices for natural resources,
increased competition and worker vulnerability, and high inflows of
immigrants. On the macroeconomic level, the economy recovered slowly
from the recession of the early 1990s, as the unemployment rate was
persistently high until the late 1990s. Some of these developments might
be expected to have an impact on the distribution of labour market earnings
across workers.
Objectives
This paper examines the variability of workers' earnings in Canada
over the period 1982-1997 and how earnings variability has varied in
terms of the unemployment rate and real gross domestic product (GDP)
growth over this period.
Findings
Three findings arise from the study:
- First the study finds an increase in earnings variability between
1982–1989 and 1990–1997 that is largely confined to men
and largely driven by widening long-run earnings inequality.
- Second, the pattern of unemployment rate and GDP growth rate effects
on these variance components is not consistent with conventional explanations
of cyclical effects on earnings inequality and is suggestive of an
alternative paradigm of how economic growth over this period widens
long-run earnings inequality.
- Third, when the unemployment rate and GDP growth rate effects are
considered jointly, macroeconomic improvement is found to reduce the
overall variability of earnings as the reduction in earnings instability
outweighs the general widening of long-run earnings inequality.
Data sources: The data set used in this paper is
the Longitudinal Administrative Database file.
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the full publication.
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