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.

Not available electronically.