U.S.-Canadian Unemployment Rate and Wage Differences among Young, Low-Skilled Males in the 1980s

Abstract

During the mid 1980s young, low-skilled adults in Canada were much more likely to be out of work than their U.S. counterparts. The unemployment rate gap for this cohort was 7 percentage points. At the same time wage inequality was higher in the United States. Using panel data from the U.S. National Longitudinal Survey of Youth and the Canadian Labour Market Activity Survey, in this study a general equilibrium search model of the labor market is employed to identify structural differences contributing to these gaps. The results reveal that both wage and unemployment differences are driven by a higher job destruction/separation rate in Canada and higher job offer arrival rates in the United States. In general, the model characterizes the U.S. labor market as having less search frictions than that of Canada. That is, Canadian firms are found to have more monopsony power than their U.S. counterparts.