The duration of unemployment during boom and bust
by Miles Corak
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 056
The research reported in this paper has both a substantive and a methodological
objective. The main objective is to contrast developments in the average
duration of unemployment in Canada during the 1990-1991 recession with
developments during that of 1981-1982. In doing so a new measure of
the average duration of unemployment is also introduced to the Canadian
literature: the average completed duration of unemployment for a cohort
of individuals that begin their spell of unemployment at the same time.
Cyclical variations in this statistic are in sharp contrast with those
of the average duration of unemployment that is published as a part
of the Labour Force Survey.
The Canada-wide average duration of unemployment for those individuals
becoming unemployed during the 1990-1991 recession is, at 19.6 weeks,
about the same as that experienced during the 1981-1982 recession. What
distinguishes the recent recession from that of a decade ago is the
fact that the chances of leaving unemployment during the first two months
of unemployment appear to be better, but the chances of leaving at three
months and longer are worse: unemployment has become more polarized.
This finding is attributed to a long-standing structural change that
occurred in the aftermath of the 1981-1982 recession, and that was not
reversed by the recovery and expansion of the 1980s.
We note that there is a great deal of cyclical variation in the duration
of unemployment in Canada. Fluctuations in the duration of unemployment
account for about 65 per cent of any changes in the unemployment rate,
while fluctuations in the incidence of unemployment account for the
remaining 35 per cent. We also find that upswings in the business cycle
disproportionately increase the probability of leaving unemployment
for the shorter-term unemployed. Recovery and expansion does relatively
little to improve the exit probabilities of the longer-term unemployed.
The most notable development in the data is the extent of the change
that has occurred in the Ontario labour market. Those permanently laid-off
in Ontario have suffered a 107 per cent increase in the duration of
unemployment between 1988 and 1992. This is due to a very large decline
in the probability of leaving unemployment during the first month of
unemployment.
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