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Why are Canadian and US Unemployment Rates So Highly Correlated?

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  • Kevin Lang
  • Jay Zagorsky

Abstract

We examine twin mysteries - the high correlation between Canadian and US unemployment rates and the emergence of a gap between these rates around 1982. We argue that the apparent close relationship between the unemployment rates and the sudden emergence of a gap are statistically spurious, because both rates are highly persistent. When we difference the data, the unemployment rates remain highly correlated but at a plausible level. Moreover, the permanent increase in the gap is not strikingly large compared with other years. This means that there is little reason to limit explanations for the current gap to events in 1982.

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  • Kevin Lang & Jay Zagorsky, 1998. "Why are Canadian and US Unemployment Rates So Highly Correlated?," Canadian Public Policy, University of Toronto Press, vol. 24(s1), pages 56-71, February.
    • Handle: RePEc:cpp:issued:v:24:y:1998:i:s1:p:56-71
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    References listed on IDEAS

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    1. Orley Ashenfelter & David Card, 1986. "Why Have Unemployment Rates in Canada and the U.S. Diverged?," Working Papers 584, Princeton University, Department of Economics, Industrial Relations Section..
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    4. De Long, J Bradford & Lang, Kevin, 1992. "Are All Economic Hypotheses False?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1257-1272, December.
    5. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    6. Ross D. Milbourne & Douglas D. Purvis & W. David Scoones, 1991. "Unemployment Insurance and Unemployment Dynamics," Canadian Journal of Economics, Canadian Economics Association, vol. 24(4), pages 804-826, November.
    7. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    8. David Card & W. Craig Riddell, 1993. "A Comparative Analysis of Unemployment in Canada and the United States," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 149-190, National Bureau of Economic Research, Inc.
    9. Green, David A & Riddell, W Craig, 1993. "The Economic Effects of Unemployment Insurance in Canada: An Empirical Analysis of UI Disentitlement," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 96-147, January.
    10. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
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    1. Manfred Keil & Louis Pantuosco, 1998. "Canadian and US Unemployment Rates: A Comparison Based on Regional Data," Canadian Public Policy, University of Toronto Press, vol. 24(s1), pages 38-55, February.
    2. Zagorsky, Jay L., 1998. "Was depression era unemployment really less in Canada than the U.S.?," Economics Letters, Elsevier, vol. 61(1), pages 125-131, October.

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