Variation in Employment Growth in Canada: The Role of External, National, Regional and Industrial Factors


This paper presents a method for assessing the impact of external,
national, and sectoral shocks on Canadian employment fluctuations at the
national, industry, and provincial levels. Special attention is given to the
contribution of sectoral shocks to aggregate employment fluctuations. Shocks
which initially affect specific industries and provinces can induce aggregate
fluctuations not only because national employment is the sum of employment in
various sectors but also because of feedback across sectors.
The analysis is based on an econometric model relating employment growth in
each province and industry to the current and lagged change in U.S. output, the
lags of employment growth at the national, industry, and provincial levels, a
Canadian national shock, and shocks affecting specific industries, specific pro-
vinces, and specific province—industry pairs. The model is estimated using
annual data on Canadian employment at the province-industry level.
The results suggest that U.S. shocks are responsible for two-thirds of the
steady—state variance in the growth of Canadian national employment, while the
Canadian national shock accounts for approximately one quarter of this variance.
Taken together, industry specific, province specific and province—industry spe-
cific shocks account for about one—tenth of the variance of Canadian national
employment growth. Although U.S. shocks are the dominant influence on aggregate
employment growth in Canada, sectoral shocks account for about thirty percent of
the variance in national employment due to Canadian sources.
Estimates of the contribution of U.S., Canadian national, industry, and
provincial shocks to the variance of employment in specific industries and pro-
vinces are also provided.

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Journal of Labor Economics, Vol. 8, No. 1, Part 2, January 1990
Working Papers