Canadian and US Unemployment Rates: A Comparison Based on Regional Data

This paper sets out to explain the Canadian-US unemployment rate gap that has persisted since 1982. The gap, which appeared in two stages, has lasted through peaks and troughs in economic activity. We use a panel of five Canadian and nine US regions to search for the causes. The 1971 liberalization of the Canadian unemployment insurance system can explain the first occurrence of the gap, which was veiled by preferable raw material price movements during the 1970s. The further widening of the gap in the '90s is the result of the tougher post 1987 Bank of Canada stance in fighting inflation.