Is Hysteresis a Characteristic of the Canadian Labour Market? A Tale of Two Studies

This paper replicates and extends the econometric work of two previous studies of output-inflation dynamics in Canada -- Fortin (1991) and Cozier and Wilkinson (1991) -- in an attempt to reconcile their divergent conclusions. The former paper finds that the Canadian labour market exhibited hysteresis during the 1973-90 period, while the latter paper rejects labour market hysteresis over the period 1964-88. The approach taken in this paper is to estimate alternative specifications of the key equations presented by Cozier and Wilkinson and by Fortin, so as to isolate the mainfactors contributing to this difference in view. The paper then asks whether this additional information enables one to accept one inference over the other. The authors find that the available evidence against labour market hysteresis in Canada is much more compelling than evidence infavour. The paper concludes with a discussion of outstanding issues that might yet have a bearing on this question.