These articles were presented at a conference in December 2004, convened to consider the disparity in job growth between the United States and Canada-namely, while the United States was struggling to create jobs, the number of Canadian jobs was increasing. The conference was cosponsored by the Canadian Consulate General in New York, the Centre for the Study of Living Standards, the Federal Reserve Bank of New York and the New York Association for Business Economics.Labor market ; Labor market - Canada ; Business cycles

David Murchison

Erica L. Groshen

Zahir Lalani

English

Research Papers in Economics

FRBNY Economic Policy Review / August 2005 1
1.I n t r o d u c t i o n
ver the past three years, observers of North American
 economies have confronted two interesting phenomena. 
The first, which has received wide media attention, centers on 
the lack of job growth in the current U.S. recovery. The second 
involves the disparity in job growth between the United States 
and Canada—namely, while the United States was struggling to 
create jobs, Canada was producing them at a fast clip.
To shed light on this disparity, in December 2004 the 
Canadian Consulate General in New York, the Centre for the 
Study of Living Standards, the Federal Reserve Bank of New 
York, and the New York Association for Business Economics 
cosponsored the conference “Labor Market Developments in 
the United States and Canada since 2000.” The goal of the 
sessions was to engage key Canadian and U.S. economists to 
explore the reasons for the lack of job growth in the United 
States, to contrast the U.S. experience with that of Canada, 
and to offer potential lessons from these experiences.
2. The Weak U.S. Jobs Recovery
Richard B. Freeman and William M. Rodgers III examine the 
operation of the U.S. labor market in the current recovery. 
They find that this recovery has been the worst in recent history 
in terms of job creation. Moreover, the slow employment 
growth is not attributable to the poor performance of a 
particular sector, such as the dot-com sector after its boom-
bust cycle. Freeman and Rodgers also find a decline in job 
growth among groups especially sensitive to business cycle 
swings, such as African Americans, new labor market entrants, 
out-of-school youth, and less educated workers. Finally, the 
current recovery is shown to have no particular geographic 
dimension, which is unusual for recent recessions. The weak 
jobs recovery, conclude the authors, represents a major shift in 
the link between the labor market and the economy over the 
business cycle, rather than an idiosyncratic break in historic 
patterns.
Lars Osberg, in his remarks on the Freeman-Rodgers study, 
observes that he is less convinced than the authors by the 
structural change explanation for the jobless recovery. He 
argues that structural changes should be common across 
industrial countries, but only the United States has experienced 
a jobless recovery. Instead, Osberg contends that the lack of 
social supports for the unemployed in the United States, by 
constraining consumption by jobless workers, may help 
explain the nation’s relative lack of job creation.
Erica L. Groshen, Zahir Lalani, and David Murchison
The views expressed are those of the authors and do not necessarily reflect the 
position of the Federal Reserve Bank of New York, the Federal Reserve System, 
the Bank of Canada, or the Canadian Consulate General.
Conference Overview 
and Summary of Papers
Erica L. Groshen is an assistant vice president at the Federal Reserve Bank 
of New York; Zahir Lalani is consul and senior representative for New York 
for the Bank of Canada; David Murchison is the Department of Finance 
representative in New York for the Canadian Consulate General.
<erica.groshen@ny.frb.org>
<zahir.lalani@international.gc.ca>
<david.murchison@international.gc.ca>
O2 Conference Overview and Summary of Papers
3. Is Canada Losing Well-Paid Jobs?
René Morissette and Anick Johnson assess whether the relative 
importance of low-paid (less than $10 an hour) and well-paid 
($25 an hour or more) jobs in Canada has changed over the 
past two decades. They also consider whether well-paid jobs are 
disappearing in the country by analyzing changes in the share 
of jobs falling in certain real wage categories over 1997-2004. 
Morissette and Johnson find little evidence that the relative 
importance of well-paid jobs has declined or that the relative 
importance of low-paid jobs has risen over the period 
examined. Their results suggest that well-paid jobs are not 
disappearing in Canada. However, when the authors compare 
the wages of newly hired employees with those of their more 
experienced counterparts, they find a widening gap that is 
mostly not compositional. Canadian firms, conclude 
Morissette and Johnson, are responding to growing 
competition within industries and from abroad by reducing 
wage offers for new employees, making temporary jobs 
available to a growing proportion of these workers, and 
providing on a less frequent basis pension plans that guarantee 
defined benefits at retirement. 
Erica L. Groshen’s discussion of the Morissette-Johnson 
paper notes that Canada and the United States were subject to 
similar shocks in trade technology and consumer tastes over 
the past two decades. Thus, differences in employment 
performance between the countries likely reflect business cycle 
disparities or variations in how labor market institutions 
mediate shocks or cycles. This contrast suggests that recent 
employment growth in Canada may be seen as reducing a 
legacy of unemployment from the 1990s that persisted after the 
early 1990s recession. From this standpoint, recent strategies 
pursued by Canadian employers to relax wage rigidity in the 
country can be viewed as allowing a period of catch-up job 
growth. If this interpretation is correct, recent innovations by 
Canadian employers—such as the reduction of starting wages, 
the use of temporary workers, and the provision of less pension 
coverage—may be a short-lived catch-up phenomenon rather 
than an indication of a looming loss of good jobs in Canada.
4. The Recession’s Effects on State 
Unemployment Insurance Funding
In terms of the change in real GDP, the 2001 downturn in the 
United States was one of the mildest in fifty years, according to 
Wayne Vroman. Yet during 2002-04, several large states had 
trouble financing their unemployment insurance (UI) 
programs. Accordingly, Vroman discusses the recession’s 
effects on states experiencing UI funding problems and the 
borrowing options available when state trust fund reserves are 
inadequate. Not only has the size of drawdowns from UI trust 
funds varied by state, the author finds, but so have the types of 
loans used to address funding problems. He also concludes that 
all of the states that had to borrow had low trust fund balances 
at the end of December 2000—just before the recession 
began—and that funding problems have been concentrated 
among the large states. 
Timothy C. Sargent considers Vroman’s study in light of the 
automatic stabilizer role of unemployment insurance 
programs. That is, because UI programs accumulate reserves 
during expansions and run deficits that support consumption 
during recessions, they work to smooth business cycle 
fluctuations. Sargent emphasizes that Vroman’s findings imply 
that changes in the UI funding practices of states undermine 
the automatic stabilizer role, potentially leaving the United 
States more vulnerable to economic fluctuations.
5. Conclusion
The papers and commentaries presented consider a variety of 
explanations for the disparate job creation performance in the 
sister economies of the United States and Canada. While this 
issue is far from being resolved, the common theme arising 
from the sessions is the key role played by labor market policy 
and by institutions—including unemployment insurance, 
practices that constrain wage flexibility, and social supports for 
the jobless—in channeling into different outcomes the 
common shocks faced by the U.S. and Canadian economies. 
As the recovery continues to unfold and more data become 
available, further analysis of the contrasting job creation 
performance of the United States and Canada will help us 
understand more fully the experiences of the two countries.
The views expressed are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York, 
the Federal Reserve System, the Bank of Canada, or the Canadian Consulate General. The Federal Reserve Bank of New York 
provides no warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any 
particular purpose of any information contained in documents produced and provided by the Federal Reserve Bank of New York 
in any form or manner whatsoever.

Labor market developments in the United States and Canada since 2000: conference overview and summary of papers

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Labor market developments in the United States and Canada since 2000: conference overview and summary of papers

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