Can a Matching Model Explain the Long-Run Increase in Canada's Unemployment Rate?

The authors construct a simple general equilibrium model of unemployment and calibrate it to the Canadian economy. Job creation and destruction are endogenous. In this model, they consider several potential factors that could contribute to the long-run increase in the Canadian unempoloyment rate: a more generous unemployment insurance system, higher layoff costs, higher discretionary taxes, and a slower rate of productivity growth. They find that in the model economy the impact of all of these factors on the unemployment rate is small.

Also published as:

Canadian Journal of Economics (0008-4085)
August 1999. Vol. 32, No. 4, pp. 878-905