Canadas Unemployment Rate

Canada's Unemployment Rate

For decades prior to the 1981-82 recession, the national unemployment rates of Canada and the United States had been nearly identical. Since then, a persistent "unemployment rate gap" has emerged. Throughout most of the 1980s,

Canada's unemployment rate has consistently been about 2 percentage points higher than in the United States. The gap developed in spite of very similar economic performances across the two countries: the growth rate of real per capita incomes has been virtually identical since 1976. However, now, well into the 90s, the gap has widened much more significantly. In the last five years, the United States average has actually fallen from 6.7% to 6.5%, with a current rate of 5.2%, while the Canadian rate has and still remains at 9.4%, with a current rate of 9.7%. This substantial difference in Canada's unemployment rate can be attributed mostly to the safety net which the government provides, including generous payments of unemployment insurance and other social services; but also to the high payroll taxes; and the under performing Canadian economy.

There is no single reason for the persistent gap in the unemployment rates of

Canada and the U.S., but rather a combination of the above factors.

"No society can be flourishing and happy, of which the far greater part of the members are poor and miserable." (Adam Smith) This is the theory behind the creation of social services such as unemployment insurance and welfare payments in many countries. The Canadian government provides a substantial

"social safety net" for its population. At first, this seems like a fair and proper thing to do, as it is in the best interests of society as a whole.

However, when this generosity is taken advantage of by undeserving recipients, problems and controversy arise. The problem of abuse of Canadian social services has become prominent in 1996. The general consensus of organizations such as the

Fraser Institute and the OECD, is that Canada's generous social safety net is a disincentive to work, which leads to dependence on the government, thus resulting in increased unemployment. By comparing the social benefits provided for Canadians and Americans, the cause of this gap in the unemployment rate becomes apparent.

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...ent differences in their unemployment rates.

As with many economic phenomenon, there is no single explanation for the gap in unemployment between the U.S. and Canada. It is evident that Canada has many contributing factors affecting its high unemployment rate, although most seem to be rooted in government policies and programs. Some argue that a cut in such government instituted programs is the only way to initiate a decline in the unemployment rate, while others disagree maintaining that this would be undemocratic and would violate the social contract. The United States has a much less generous offering of social assistance, and lower payroll taxes and minimum wage rates, however this has not affected the people in a negative way. In fact, there is substantial evidence that their economy is booming, proving that it is possible to have a fruitful society with lower government subsidies. It is not until there is a cut back in these programs, that the Canadian unemployment rate will drop. Any change, calls for significant measures, with real impacts on peoples' lives. However, until this happens, the unemployment rate gap between

Canada and the U.S. will remain present and lasting.