Question

Why does the unemployment rate in the United States tend to be lower than the unemployment rate in Canada given similar economic performance?

Answer 1

the integrated nature of the U.S. and Canadian economies, cyclical fluctuations in the United States tend to have an impact on economic activity in Canada. Comparisons between the Canadian and U.S. labour markets, therefore, generate a high level of interest.Note 1 In fact, although the impact of U.S. economic downturns on the Canadian economy has varied greatly from case to case, previous recessions in both countries have often been synchronized (Cross 2009).

In the United States, the recession that started in December 2007Note 2 had a profound impact on the U.S. labour market, and has been described as the most severe recession of the post-war period (Elsby, Hobijn and Sahin 2010). In Canada, the 2008–2009 recession also resulted in considerable job losses, but has been less severe than recessions that started in 1981 and in 1990 (Cross 2011). After the recession, employment growth in both countries followed an upward trend. However, the rate of growth was not steady, and average monthly employment growth in both countries was slower in 2013 than in 2012.

In Canada, information on the current state of the labour market is collected through Statistics Canada’s Labour Force Survey (LFS). In the United States, household labour market information is taken from the Current Population Survey (CPS), a survey conducted for the Bureau of Labor Statistics.Note 3 Both are monthly surveys that use largely similar methodologies. The LFS sample is approximately 56,000 households, while the sample for the CPS is approximately 60,000 households.

There are, nonetheless, some conceptual differences between the two surveys. Therefore, adjustments are made to the Canadian data to make them coherent with the U.S. concepts, so that the data from the two countries can be compared (Sunter 1998; Usalcas and Bowlby 2002; Ferrao 2009; Zmitrowicz and Khan, 2014). These adjustments are presented in the appendix.

Adjustments made to the data can affect their interpretation. For example, if the unemployment rates of the two countries were to be compared without taking these adjustments into account, the U.S. unemployment rate would have fallen below the Canadian rate in December 2013, after being higher the previous five years. In reality, Canada’s unemployment rate in that month, adjusted for the purposes of comparison with the U.S. rate, was still 0.6 percentage points lower than the U.S. rate.

In this article, a set of indicators for the pre-recession period up to June 2014 is compared, to obtain a comparative profile of the state of the labour market in both countries. The indicators presented are employment, the employment rate, the unemployment rate, and the participation rate. All of the Canadian data have been adjusted to the U.S. concepts, to allow for direct comparisons.