Since early 1990, the aggregate unemployment rate in Canada has risen by about 4 percentage points and, despite the recent cyclical rebound in output, has remained in a range close to 10 1/2 percent. The persistence of a high unemployment rate and subdued employment growth in this recovery relative to previous postwar recoveries suggests that there have been fundamental changes in the structure and functioning of the Canadian labor market. This paper seeks to shed some light on these developments by examining Canadian labor market data that are disaggregated by industry, skill level, province, and demographic classifications. The analysis corroborates a growing body of evidence that the increase in unemployment in Canada in the 1990s partly reflects an increase in the persistent or structural component of unemployment.
Some important structural problems that contribute to labor market rigidity are identified and described. Skill and geographical mismatch in the labor market as well as the unemployment insurance (UI) system appear to be important factors contributing to structural unemployment. Changes to the UI system recently proposed by the Government are briefly described, followed by an examination of various proposals for more fundamental UI reform. This paper then identifies some particularly vulnerable groups in the labor force--youth, unskilled workers, older dislocated workers, and immigrants. Active labor market measures that could foster their integration into the labor force and their absorption into employment are discussed.
The paper concludes that measures to remove structural distortions to labor supply and reduce job mismatch are necessary in order to significantly reduce structural unemployment and enhance the long-term growth prospects of the Canadian economy.