The Bank of Canada says that in the United States “the unemployment rate appears to have significantly overstated the improvement in broader labour market conditions” in a report on Tuesday.

Statistical Differences

First off, I learned a few things about how small differences in how unemployment is measured can add up to a big difference.

  • In Canada, ‘working age’ begins at 15 while in the US it’s 16
  • Passive job seekers like people who merely read newspaper ads are considered unemployed in Canada but not the US

The BOC says that an apples-to-apples comparison tells a different story than the official numbers. “Once adjusted to the U.S. definition, the Canadian unemployment rate is in fact lower than in the United States.”

Canada US unemployment comparison

Canada US unemployment comparison

But the aim of the paper is to go beyond the unemployment numbers to something that capture things like involuntary part-time work and discouraged workers.

Canada and the US make great economic comparables because of similar demographics and laws.

Giving Up

One stark difference is in long-term unemployment. It represents about 37% of unemployment in the US compared to 20% in Canada. The BOC suspects the slight improvement in the US over the past 3 years is due to people leaving the labor force.

long term unemployment canada and US

Participation is the Great Question

Fed policymakers repeatedly brush off the falling participation rate as a demographic phenomenon but Canada hasn’t had the same phenomenon.

“demographic factors appear to be only partly responsible for the declining labour force participation in the United States, suggesting worse labour market conditions than in Canada over this period.

Overall, they conclude that the post-recession decline in Canadian unemployment may have modestly overstated the improvement while in the US it appears to “have significantly overstated the improvement in broader labour market conditions.” That’s something average people have been saying for a long time.