Endogeneity in Structural Unemployment Equations: The Case of Canada

IMF Working Papers, December 1, 1993

Source details

Canonical URL: Endogeneity in Structural Unemployment Equations: The Case of Canada

Examines the endogeneity of structural variables in unemployment rate equations for Canada.
Structural variables studied: the generosity of unemployment benefits, nonwage labor costs, the relative minimum wage, and the degree of unionization.
Uses causality tests to detect reverse causality and employs instruments suggested by the empirical analysis to estimate the structural unemployment rate equation.

Conducts causality tests to identify reverse causality affecting the structural variables.
Estimates the structural unemployment rate equation using instruments derived from the empirical analysis of the structural variables.

Finds evidence of reverse causality for the structural variables based on causality tests.
Confirms that:
- The generosity of unemployment benefits has a significant positive impact on the unemployment rate.
- Nonwage labor costs have a significant positive impact on the unemployment rate.
- The relative minimum wage has a significant positive impact on the unemployment rate.
Fails to find an effect for the degree of unionization on the unemployment rate.

Subject: Labor, Labor costs, Labor unions, Minimum wages, Unemployment, Unemployment rate
Keywords: Labor costs, Labor unions, Minimum wages, replacement rate, UI account, UI premium, UI reform, UI system, Unemployment, unemployment equation, Unemployment rate, unemployment rate equation, WP

International Monetary Fund. "Endogeneity in Structural Unemployment Equations: The Case of Canada", IMF Working Papers 1993, 094 (1993).