Measures of excess demand and unemployment in Canada and the United States

During the 1980s, the unemployment rate in Canada was several percentage points higher than in the US. Prior to this time, the level and the movements in the unemployment rates in the 2 countries were similar. Reasons for the shifts in the unemployment vacancy (UV) relationship in Canada and the US during the past 2 decades are examined to determine whether these shifts can explain this gap in unemployment between the 2 countries. Changing structural imbalances in the labor markets by themselves cannot explain the shifts in the UV curves or the gap in the unemployment rates in the 2 countries. It is concluded that aggregate economic shocks that create some structural imbalances are required to explain the shifts in the UV curves and the differing unemployment experiences in the 2 economies.