Shifting skill demand and the Canada-US unemployment gap: Evidence from prime-age men

This paper considers the possible role of shifts in labour demand away from unskilled workers, combined with an institutionally-generated greater labour supply elasticity in Canada, in explaining the apparent secular increase in Canadian male unemployment, and in explaining the emergence of the Canada-WS unemployment rate gap in the 1980s. Using comparable data on annual weeks worked and unemployed in both countries, we identify four main facts which ale consistent with this explanation: Both Canada and the US experienced wage polarization over this period. with substantial real wage declines for unskilled men; annual weeks worked fell disproportionately among unskilled workers in both countries; responses of weeks worked in wage declines were more elastic in Canada; and aggregate movements out of employment over this period corresponded closely to movements into unemployment in Canada. Interestingly, however, unskilled US men were more likely than Canadians to leave the labour force as their employment fell, adding further tu the Canada-US unemployment gap. As well, some fairly substantial decreases in weeks worked are observed quite high up in the Canadian wage distribution, where wages did not fail appreciably. The latter changes cannot easily be Explained by shifts in labour demand alone.