The Americas: Canada's high unemployment is no mystery
In the first three quarters of 1996, Canada's unemployment rate averaged 9.6%, while the U.S. rate was only 5.4%. In fact, every year since 1981, Canada's unemployment rate has exceeded the U.S. rate. The gap averaged 2.1 percentage points between 1981 and 1989, and has risen to an average of 3.8 percentage points in the 1990s.</br></br>This widening gap worries many Canadian politicians and citizens. The highest annual U.S. unemployment rate since 1941 was 9.7% in 1982, during the depths of the 1981-82 recession. But Canada is not in a recession. Although growth is slow, real output between 1989 and 1996 grew an average of 1.5% per year. So why is unemployment so much higher in Canada than in the U.S.?</br></br>One cause, you might suspect, lies in how the Canadian and U.S. governments measure unemployment. In Canada, passive job searchers, those who look for a job only by consulting the want ads, are counted as unemployed. In the U.S., you have to be actively searching to be classified as unemployed. But this definitional difference, according to economist Jay Zagorsky of the Center for Human Resource Research at Ohio State University, can account for only 0.7 percentage points of the 4.2-point difference.</br></br>Also, many U.S. residents who might be counted as unemployed under the Canadian definition are in prison. The much higher U.S. incarceration rate, though, still can account for only about 0.2 percentage points of the 4.2-point gap. Moreover, notes Andrew Sharpe of the Ottawa-based Centre for the Study of Living Standards, if you count as "half-unemployed" part-time workers who would rather work full-time, the difference between Canadian and U.S. unemployment rates widens by about 1.5 percentage points.</br></br>An obvious suspect when trying to explain high unemployment is a country's system of unemployment insurance. The more valuable the benefits, the longer they last and the easier they are to qualify for, the greater the unemployment rate, all other things equal. The reason: People have an incentive to stay unemployed and to be very choosy about the jobs they will accept when they are subsidized to stay at home. Canada's unemployment insurance system became much more expensive in 1972 when Pierre Trudeau's government increased the benefits' value and duration, and decreased the period required to qualify.