Unemployment in
the stock and flow
by Michael Baker, Miles Corak and Andrew Heisz
Business
and Labour Market Analysis Division
Analytical Studies Branch research paper
series, No. 097
A framework for the dynamic analysis of unemployment is
presented, and applied to Canadian and U.S. data. The focus of the analysis is
upon the distinctionbetween being unemployed and becoming unemployed, that is,
between the stock and the flow of unemployment. The share of a particular group
in the stock ofunemployed will differ from its share in the flow into unemployment
to the extent that the average duration of unemployment for the group differs
from the economywide average.
An analysis of Canadian and U.S. data leads
to a series of stylized facts that permit a deeper understanding of unemployment
in the two countries, andof the differences between them. Significant differences
in the average duration of unemployment imply that stock shares are not good indicators
of flow shares,changes in the stock share of some groups are due to changes in
the flow share, while for others they are due to changes in the length of unemployment
spells.
Explanations of the Canada–U.S. unemployment rate gap should try
to accommodate at least three facts uncovered by the analysis:
- that
employer initiatedpermanent separations are the primary means of entry into unemployment
in Canada, while labour force entry plays a more important role in the US;
- unemployment
spells are significantly longer in Canada than in the U.S. because of longer spells
for most groups regardless of reason for unemployment, not becauseof a compositional
difference in the make up of the unemployed; and
- that longer spell duration
and a higher incidence of unemployment contribute about equallyto the trend increase
in the Canada–U.S. unemployment differential during the 1980s.
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the full publication.
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