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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