What Is the Natural Unemployment Rate in Canada?
Back in the late 1980s and early 1990s, most of us in Canada used to talk about the natural unemployment rate as being around 7 - 7.5% when the actual unemployment rates were 8% or higher. Economic conditions have changed since then. The social safety net is lower, reducing optimal search times for job-seekers. But how much has the natural unemployment rate fallen? Could it possibly have fallen to under 6.5%? Canada has been experiencing unemployment rates well under 6.5% for quite some time now (see this for an article about the most recent drop back down to 6.1%).
Under today's economic conditions, 6.5% sounds about right to me. But I expect Gabriel Mihalache might not buy into this idea very readily.
Job gains have registered the hottest start to the year in a quarter century, with more than 103,000 jobs created in the first two months of 2007, according to National Bank Financial.I know that the natural unemployment rate is pretty much a guess about what would result from job search if people's expectations were in line with reality, and it is still clear that people's expectations are not in line with reality, on average. But what is the reality, and what will it be when people's expectations are in line with reality and they adjust their job search accordingly?
February's jobless rate, meantime, unexpectedly fell to 6.1 per cent from 6.2 per cent, Statscan said. [emphasis added]
Under today's economic conditions, 6.5% sounds about right to me. But I expect Gabriel Mihalache might not buy into this idea very readily.
Category: Economics, Macroeconomics, Money Posted on
Monday, March 12, 2007 at 1:03am
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Regarding expectations, the key question is... expectations of what? In a McCall-ish setting (where all unemployment arises because of decisions of the worker), it's expectations regarding the distribution of wages offered.
Outside of a few professions, it's very hard for me to see how an unemployed person's expectations about offers might be wrong, now in the age of Monster.com and everything else. (And people talk about labor market conditions pretty much, maybe more than about any other market.)
Have I given you a headache yet?:) This isn't my field at all. I only particpate in my local market, not experience the wider one, let alone measure and study it. But if you could answer how the US has a lower number I would really appreciate it.
My guess is that the US unemployment rate is generally lower than the Cdn rate (Alberta excepted) because the U.S. has a lower social safety net. As a result, people are more desperate to take jobs there than here; or put differently, they do not search as long for a job there.
I'm not sure, but even Gabriel might agree with this explanation.
It's true that anyone could always open an apple stand on their street corner, and in this sense all unemployment is voluntary... but... still...
Another part might be played by the legislation imposing extra costs on companies, costs associated with hiring and firing.
Beyond that, anything which influences productivity, including the weather (no one would be surprised that a drought will depress jobs in the agricultural sector, for example)
But to be franc, I don't think I can put all of these "sources" of unemployment into a single model... maybe a in few months/years :)