Throughout the post—war period, U.S. and Canadian unemployment rates
moved in tandem, but this historical link apparently ended in 1982.
During the past three years, Canadian unemployment rates have been some
three percentage points higher than their U.S. analogues, and this gap
shows no sign of diminishing. This paper is an empirical evaluation of
a variety of explanations for this new unemployment gap.
We first show that the demographic and industrial composition of
the two countries is remarkably similar, so that no simple mechanical
hypothesis explain the basic puzzle. It is also evident that the
increase in Canadian unemployment relative to U.S. unemployment cannot
be fully attributed to output movements. We find that the gap between
actual and predicted Canadian output, based on U.S. output, has fallen
dramatically since 1982 while the unemployment gap has widened. We also
find that unemployment in Canada was 2 to 3 percentage points higher in
1983 and 1984 than predicted by Canadian output.
We have investigated a variety of hypotheses to explain the slow
growth of employment in Canada after 1982. These hypotheses attribute
the slow growth of employment to rigidities in the labor market that
raise employers’ costs and restrict the flow of workers between
sectors. The evidence does not support the notion that the growth in
relative unemployment in Canada is due to differences in the regulation
of the labor market in the two countries. Minimum wage laws and
unemployment benefits are fairly similar in Canada and the U.S., and
neither has changed relative to the other in the last decade.
Unionization rates have increased in Canada relative to U.S. since
1970. Most of this divergence occurred before 1980, however, and does
not seem to have created an unemployment gap prior to 1980. Finally,
the hypothesis that differential real wage rates are a major determinant
of relative employment in the U.S. and Canada is soundly rejected by the
data. Real wage rates have been essentially uncorrelated with employ-
ment movements within each country and between the two countries.

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.

This paper uses two data sets to examine the impact of the potential
duration of unemployment insurance (UI) benefits on the duration of
unemployment and the time pattern of the escape rate from unemployment in the
United States. The first part of the empirical work uses a large sample of
household heads to examine differences in the unemployment spell distributions
of UI recipients and nonrecipients. Sharp increases in the rate of escape
from unemployment both through recalls and new job acceptances are apparent
for UI recipients around the time when benefits are likely to lapse. The
absence of such spikes in the escape rate from unemployment for nonrecipients
strongly suggests that the potential duration of UI benefits affects firm
recall policies and workers’ willingness to start new jobs. The second part
of our empirical work uses accurate administrative data to examine the effects
of the level and length of UI benefits on the escape rate from unemployment of
UI recipients. The results indicate that a one week increase in potential
benefit duration increases the average duration of the unemployment spells of
UI recipients by 0.16 to 0.20 weeks. The estimates also imply that policies
that extend the potential duration of benefits increase the mean duration of
unemployment by substantially more than policies with the same predicted
impact on the total U1 budget that raise the level of benefits while holding
potential duration constant.

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.

Reemployment bonus experiments offer large lump sum payments to
unemployment insurance (UI) recipients who find a job quickly. Such
experiments are underway or have been recently completed in four states. This
paper analyzes the results from Illinois and discusses the implications of the
experiments for theories of unemployment and policy design. I examine the
hazard rate of exit from unemployment and find that it is significantly higher
for the experimental groups, but only during the period of bonus eligibility.
Both labor supply and search theories of unemployment are shown to suggest a
rise in the reemployment hazard just before the end of bonus eligibility and
to suggest larger effects of the fixed amount bonus for lower income groups.
Only weak support is found for these hypotheses, which suggests limitations of
the models of unemployment. Some modifications of the models are suggested.
The experiments demonstrate the effects of economic incentives on job
finding behavior but they do not show the desirability of a permanent
reemployment bonus program. Evidence from another sample suggests that as
many as half of those who received a reemployment bonus returned to their
previous employer, so that a bonus program that pays people returning to their
last employer would provide a strong encouragement to temporary layoffs. A
discussion of UI claim filing behavior suggests that a permanent program could
well increase the frequency or promptness of filing, thus reducing any
financial advantages of a bonus program.

The US unemployment insurance system is financed by an experience-rated
payroll tax. The system imposes a layoff or firing cost on employers, leading
them to fire fewer workers in a downturn and hire fewer workers in an upturn.
Increases in the degree of experience rating are therefore predicted to reduce
the temporary layoff unemployment rate in a recession, and to lower employment
at the peak of the business cycle.
We combine Current Population Survey data for l979-1987 with a newly
assembled database of experience rating factors for individual states and
industries to measure the effects of imperfect experience rating on temporary
layoff unemployment rates over the cycle. We find a strong negative
correlation between the degree of experience rating and the rate of layoff
unemployment in recessionary years, but smaller and unsystematic correlations
in expansionary years. We also find that cyclical employment fluctuations are
dampened in states and industries with a greater degree of experience rating.

This paper assesses the ability of a simple search—theoretic
model to explain the results of two controlled reemployment bonus
experiments. The availability of two independent experiments
with substantially different treatments allows for a rigorous
test of the model. Parameters of the model are estimated by
minimizing the distance between the observed and predicted
aggregate response in each experiment, then cross-validated using
the observed and predicted treatment response from the other
experiment. The model is unable to predict an effect as large as
that observed in one of the experiments. In addition, the model
cannot explain the degree of individual—specific wage variability
found in the data. The relative success of models with and
without variable search intensity is also considered, but the
statistical procedures cannot distinguish between them.

In this paper, I consider the effect of changing the level of unemployment
insurance (UI) benefits on workers who do not receive UI. I hypothesize that
a spillover effect between insured and uninsured workers exists so that an
increase in the UI benefits, which leads to longer durations of unemployment
for insured workers, will lead to a reduction in the duration of unemployment
for the uninsured. This prediction is tested using data from several March
Current Population Surveys and the National Longitudinal Survey of Youth. In
both samples I find that an increase in UI benefits leads to a reduction in
the duration of unemployment for uninsured workers. Furthermore, using
several years of state level data, I show that the estimated effect on
unemployment for the entire labor force is roughly zero when I allow for the
spillover effect.

This paper presents new evidence on the reasons for the recent decline in
the fraction of unemployed workers who receive unemployment insurance benefits.
Using samples of unemployed workers from the March Current Population Survey,
we estimate the fraction of unemployed workers who are potentially eligible for
benefits in each year and compare this to the fraction who actually receive
unemployment compensation. Perhaps surprisingly, we find that the decline in
the fraction of insured unemployment is due to a decline in the takeup rate for
benefits. Our estimates indicate that takeup rates declined abruptly between
l98O and 1982, leading to a 6 percentage point decline in the fraction of the
unemployed who receive benefits.
We go on to analyse the determinants of the takeup rate for unemployment
benefits, using both aggregated state-level data and micro-data from the Panel
Study of Income Dynamics. Changes in the regional distribution of unemployment
account for roughly one-half of the decline in average takeup rates. The
remainder of the change is largely unexplained.

This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The main findings are: 1) the average unemployed worker in the U.S. devotes about 41 minutes to job search on weekdays, which is substantially more than his or her European counterpart; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between -1.6 and -2.2; 4) the predicted wage is a strong predictor of time devoted to job search, with an elasticity in excess of 2.5; 5) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; 6) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI. A nonparametric Monte Carlo technique suggests that the relationship between job search effort and the duration of unemployment for a cross-section of job seekers is only slightly biased by length-based sampling.