Structural Influences on Participation Rates: A Canada-U.S. Comparison

ing into account the more severe recession in Can-
ada in 1990-91 and the subsequent weaker expan-
sion. This stronger attachment may have been be-
cause of the higher probability that an
unemployed worker in Canada will be receiving
Unemployment Insurance (now called Employ-
ment Insurance). Apart from the incentive to re-
main active in the labour market in order to qual-
ify for benefits, recipients of EI have to be
searching for work and are, therefore, likely to re-
port in the Labour Force Survey that they are seek-
ing work when they are not employed.¹⁶ Changes
to EI since 1989 have helped to more than halve
the probability that a non-working individual will
receive benefits and to almost eliminate the differ-
ence between the two countries’ probabilities.
There may, however, be some inertia in the par-
ticipation rate response to these changes in Can-
ada but eventually the tighter eligibility rules, es-
pecially as they apply to seasonal workers, may
bring the relationship between employment and
participation rates in Canada closer to that of the
United States. Another factor that tends to raise
the participation rate in Canada relative to that of
the United States is that, in Canada, just looking at
job ads qualifies an individual for inclusion in the
labour force. If the U.S. definition were used, the
participation rate in Canada would be about 0.5
per cent lower.¹⁷

In the case of male participation rates, the con-
tinuation of the long-term downward trend after
1976 appears to be the result of a permanent nega-
tive reaction to recessions. Although not easily
apparent from Chart 7, a closer examination of the
data reveals that the shift to a lower level in the
early 1980s was permanent in the United States,
while there was a partial recovery in Canada. Af-
ter 1989, the decline lasted until 1995 followed by
a marginal increase in both countries. Although
U.S. employment rates are now at about the same
level as they were in 1984-87, the participation
rate is two percentage points lower and 2.5 per-
centage points below its 1979 level, in spite of the
sustained strong expansion. This inertia in the
U.S. participation rate suggests structural factors
at work, which may also be present in Canada.

Nevertheless, it is unclear why the male partici-
pation rate has been on a declining trend for so
long in Canada and the United States as well as
other industrial countries.¹⁸ Accordingly, there is
a great deal of uncertainty about the future direc-
tion and size of movement for this group.

One possible explanation for the downward
trend in the male participation rate is rooted in the
rising skill levels required for workers in many
sectors. When men with limited skills are laid off
from traditional, well-paid jobs in goods-produc-
ing industries, they may take a long time to adjust
their wage rate expectations to the level their ex-
perience and skill level can command in an envi-
ronment where technological change has made
many skills obsolete. Many of these men, unable
to find “suitable” jobs, drop out of the labour
force. Those who can take advantage of early re-
tirement options may opt for permanent with-
drawal. Others may switch roles with spouses,
frequently moving in and out of the labour force.
In Canada, declines in the participation rate for
workers with fewer than eight years of education
have been greater than those for groups with
higher levels of education. Although some of this
difference can be attributed to the harsher impact
of a weak economy on the least skilled, the U.S.
experience suggests a longer-term effect may be
operating. The rise since the early 1980s of school
attendance rates of young men in both countries
may eventually outweigh the negative effect of
layoffs and early retirements and lead to a reversal
of the long-term downward trend in the rate for
adult men.

The rising trend in the participation rates of
women in 1976-89, continued a trend that began
in the early 1950s. Strong demand for occupations
that women were able to fill interacted with vari-
ous sociological and economic factors that were
evident in both the United States and Canada, as
well as many other industrial countries: changes
in societal attitudes toward working women, par-
ticularly those with family responsibilities; the
larger percentage of women with post-secondary
education; and the more ambitious career aspira-
tions of many women. As a result of these factors,
each generation of women has spent more time in
the labour force than the preceding one, pushing
up the core participation rate. The marked slow-
down in the rate of growth of the U.S. participa-
tion rate over the 1990s, in the face of continuing
robust expansion, raises the question as to
whether this ratcheting-up process is nearing a
limit and that the flattening out of the Canadian
female participation rate was partly the result of
structural factors, which will restrain further
growth in the future.¹⁹

Canadian Business Economics

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