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I would like to thank Trevor Alleyne and Jorge Márquez-Ruarte for helpful comments, Bob Billings for providing some of the data used in this paper, and Owi Ruivivar for research assistance. This paper was presented at the annual meetings of the Canadian Economics Association in Ottawa, Canada in June 1993. A revised version of the paper is to be published in a conference volume of Canadian Business Economics. The views expressed in this paper do not necessarily reflect those of the IMF.
The three previous recession troughs, as defined by Statistics Canada, were in 1970:Q2, 1980:Q2, and 1982:Q4. The proximity of the last two recession troughs, separated by only 10 quarters, is a potential problem. However, the cycle comparison charts did not change substantially when the horizon was limited to 6 quarters before and after the trough. Hence, I have left the horizon at 8 quarters centered around the trough in order to include more recent data.
Some observers have noted that the sharp decline in employment in this recession was due to the fact that much less labor was hoarded in this recession than in previous ones.
On average, gross flows across sectors tend to dominate net flows. However, the ratio of net to gross flows rises in downturns (when employment dispersion usually rises).
The nine sectors at the 1-digit level are: manufacturing; construction; wholesale and retail trade; public administration; agriculture; other primary industries; transportation and utilities; finance, insurance, and real estate (FIRE); and personal and business services.
In this note, detrended output refers to output that was detrended using an estimated linear trend, allowing for breaks in the slope of the trend function in 1973:1 and 1982:1.
The large spike in the dispersion measure in 1975 is partly due to a decline in manufacturing employment concurrent with increases in employment in services and trade. The employment data appear to be generally consistent over the sample period used in this study. I would like to thank Bob Billings of the Department of Finance for help in verifying some of the disaggregated data used in this section.
For example, a shock that has a favorable effect on productivity and relative wages in a particular sector would gradually lead to net flows of labor into that sector. A subsequent shock with a similar beneficial effect on productivity in that sector would reinforce the earlier shock and increase employment dispersion in the short run. On the other hand, a shock that reversed the initial favorable productivity shock would reduce net inflows of labor into that sector and reduce employment dispersion.
Sectoral unemployment rates were available only for six sectors (agriculture and other primary goods industries were combined into one sector for this chart). Data were not available for F.I.R.E. and government,
The construction sector typically tends to have a strongly countercyclical unemployment rate as it has high-wage jobs that require sector-specific human capital. As a result, construction workers who are laid off in a downturn tend to wait in that sector for conditions to improve rather than move to other sectors.