Supply Side Hysterisis: the Case of the Canadian Unemployment Insurance System

50 Pages Posted: 9 Jan 1999 Last revised: 28 Jun 2021

See all articles by Thomas Lemieux

Thomas Lemieux

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: September 1998

Abstract

This paper presents results from a 1971 natural experiment carried out by the Canadian government on the unemployment insurance system. At that time, they dramatically increased the generosity of the system. We find that the propensity to collect UI increases with a first time exposure to the system. Hence as more individuals experience unemployment their lifetime use of the system increases. This supply side hysterisis effect may explain why unemployment has steadily increased over the 1972 - 1992 period, even though the generosity of unemployment insurance did not.

Suggested Citation

Lemieux, Thomas and MacLeod, William Bentley, Supply Side Hysterisis: the Case of the Canadian Unemployment Insurance System (September 1998). NBER Working Paper No. w6732, Available at SSRN: https://ssrn.com/abstract=129573

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William Bentley MacLeod

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