During the 1980s a substantial gap emerged between unemployment rates in Canada and the
United States. In this paper, we use microdata from labor force surveys at the beginning and
end of the decade to examine the sources of the emergent gap. As in earlier work, we ﬁnd that
most of the relative rise in unemployment in Canada is attributable to an increase in the relative
"labor force attachment" of Canadians, rather than to any shortfall in relative employment.
Indeed, relative employment rates increased in Canada over the 1980s for younger workers and
for adult women. The relative rise in labor force attachment of Canadians is manifested by a
sharp increase in the propensity of non-workers to report themselves as unemployed (i.e. looking
for work) rather than out-of-the-labor force. This change is especially pronounced for individuals
who work just enough to qualify for unemployment insurance (UI) in Canada. Moreover, two-
thirds of the relative increase in weeks of unemployment among non-workers is associated with
the divergent trends in UI recipiency in the two countries. Both ﬁndings point to the availability
of UI beneﬁts as an important determinant of the labor force attachment of nonworkers.
During the 1980s a substantial gap emerged between unemployment rates in Canada and the
In this paper we provide theoretical and empirical analyses of an
asymmetric-information model of layoffs in which the current employer is
better informed about its workers’ abilities than prospective employers
are. The key feature of the model is that when firms have discretion with
respect to whom to lay off, the market infers that laid-off workers are of
low ability. Since no such negative inference should be attached to
workers displaced in a plant closing, our model predicts that the post-
displacement wages of otherwise observationally equivalent workers will be
higher for those displaced by plant closings than for those displaced by
layoffs. A simple extension of our model predicts that the post-
displacement unemployment duration of otherwise observationally equivalent
workers will be lower for those displaced by plant closings than for those
displaced by layoffs.
In our empirical work, we use data from the Displaced Workers Supplements
in the January l984 and 1986 Current Population Surveys. For our whole
sample, we find that the evidence (with respect to both re-employment wages
and post-displacement unemployment duration) is consistent with the idea
that laid-off workers are viewed less favorably by the market than are
those losing jobs in plant closings. Furthermore, our findings are much
stronger for workers laid-off from jobs where employers have discretion
over whom to lay off, and much weaker for workers laid-off from jobs where
employers have little or no discretion over whom to lay off.
This paper analyzes the results of the New Jersey Unemployment
Insurance Reemployment Demonstration Project (NJUIRDP) and presents a
framework for understanding the effects of the reemployment bonus and Job
Search Assistance (JSA) aspects of the program. A simple search model
which allows the possibility of recall leads to predictions about the time
pattern of the effects of a bonus offer on new job finding. The
experimental nature of the NJUIRDP allows the effect of the bonus to be
isolated, and evidence is found for a positive effect early in the bonus
period. This is consistent with the model. Evidence is also found that
initial expectation of recall has a negative effect on the new job finding
rate, but that this effect disappears over time. This is interpreted as
reflecting the updating of recall expectations, as pointed to by the search
model. This important interaction between time and recall expectations
implies that if JSA can speed up the adjustment of those expectations, the
new job finding rate will be increased. Evidence suggesting just such an
effect is found when the JSA treatment is isolated.
In this paper Lilien's (1982) hypothesis that sectoral shifts in employment
raise aggregate unemployment is tested using Canadian quarterly data. Lilien's
framework is extended to investigate regional labour market rigidities and to
distinguish between industry shifts that are correlated with changes in aggregate
activity, and those which are exogenous to the overall level of activity. The
robustness of the results to various changes in model specification is also
investigated. I find that in Canada exogenous shifts in employment between
sectors do not have a significant effect on the aggregate unemployment rate.
Standard models of dynamic labor demand rely on the presence of
adjustment costs to explain the observed smoothness in employment patterns,
although the costs are often difficult to quantify. The experience rating
feature of the U.S. Unemployment Insurance (UI) system provides a
measurable linear cost of adjustment. Using a unique data set with
administrative data on over 8,000 firms, I estimate the effect of a
UI-induced linear adjustment cost on seasonal labor demand in retail trade.
I find strong support for the large role of adjustment costs in reducing
the employment response of firms to seasonal fluctuations in demand.
The purpose of this paper is to summarize a certain line of work on
the interpretation of unemployment in the analysis of male labour supply
behavior. Specifically, this work investigates whether the data support
the null hypothesis that individuals experiencing unemployment are on a
labour supply function, and if the data do not support this hypothesis,
how might a researcher proceed in empirical work. The motivation for
doing this is two fold. First, what unemployment represents is an
intrinsically interesting question, and may have implications beyond
labour supply analysis in terms of macroeconomic theory. Second, if
unemployed workers are constrained in the sense that they are off their
individual labour supply functions, standard labour supply estimation
may involve a fundamental misspecification of the equation. However, it
should be emphasized that the purpose of this paper is to survey one
possible approach to this problem; the paper does not attempt to provide
a general survey on labour supply estimation or on constraints in the
Observations and Conjectures on the U.S. Employment Miracle
This paper has three goals. First, to place U.S. job growth in international perspective
by exploring cross-country differences in employment and population growth. This section finds
that the U.S has managed to absorb added workers -- especially female workers -- into
employment at a greater rate than most countries. The leading explanation for this phenomenon
is that the U.S. labor market has ﬂexible wages and employment practices, whereas European
labor markets are rigid. The second goal of the paper is to evaluate the labor market rigidities
hypothesis. Although greater wage ﬂexibility probably contributes to the U.S.'s comparative
success in creating jobs for its population, the slow growth in employment in many European
countries appears too uniform across skill groups to result from relative wage inﬂexibility alone.
Furthermore, a great deal of labor market adjustment seems to take place at a constant real wage
in the U.S. This leads to the third goal: To speculate on other explanations why the U.S. has
managed to successfully absorb so many new entrants to the labor market. We conjecture that
product market constraints contribute to the slow growth of employment in many countries.
This study proposes and implements a specification test for the
hypothesis that unemployment represents intertemporal labour supply
behavior. The test allows for uncertainty and endogenous unemployment.
Given standard specifications of the intertemporal labour supply model, I
find strong evidence against this interpretation of unemployment. These
results indicate the need to turn to either 1) alternative models where
unemployed workers are off a supply function or ii) more complex models
of intertemporal substitution.
During the 1980s, many European countries introduced ﬁxed-term contracts to ﬁght high
and persistent levels of unemployment. Although these contracts have been widely used,
unemployment remains about the same after ﬁfteen years. This paper builds a theoretical
model to reconcile these facts. I analyze the labor market effect of the introduction of
ﬁxed-term contracts in an efficiency wage model. The form of incentive compatible ﬁxed-
term contracts and the firm’s choice of contracts are studied. Permanent contracts are the
standard way to offer incentives, but ﬁxed-term contracts are cheaper. This generates an
externality, which can make employment higher in the system with only permanent contracts.
As a consequence, from a social point of view, the share of ﬁxed-term contracts is too large.
Increases in the renewal rate of ﬁxed-term contracts into permanent contracts lead to higher
employment levels. The model highlights the interaction between different rigidities in the
labor market. Aggregate employment and the share of temporary contracts are affected in
the same way by ﬁring costs and the ﬂexibility of wages.
This paper presents a survey of recent microeconometric studies of
the labor market, focusing on research that emphasizes the possible
failure of measured wage rates to separate individual supply and demand
decisions. On both the demand and supply sides of the labor market
there is evidence that forces from the other side of the market
influence employment outcomes through some mechanism other than the
wage. On the supply side, this evidence takes the form of correlations
between individual labor supply outcomes and market—level measures of
employment demand in the individual's local labor market. On the demand
side, it takes the form of correlations between firms’ employment decisions and measures of their employees‘ outside opportunities. Both sets
of findings are inconsistent with simple supply and demand models, and
suggest the need for alternative models of the labor market, which
permit an uncoupling of short-run employment decisions from wage rates.