Commentary: Erica L. Groshen

1. Introduction Motivated by concerns about the wage impact of deindustrialization and growing trade, Rene Morissette and Anick Johnson examine changes in the relative importance of well-paid jobs in Canada from 1981 to 2004. The authors analyze many dimensions of the issue using a mosaic of data sources, and have produced a thought-provoking paper with intriguingly mixed results. My comments use the parallel experience of the United States during the same period to find contrasts and commonalities that might clarify whether good jobs are indeed waning in Canada. 2. Why Wage Structures Change To begin, it is helpful to review why the distribution of wages might change. Employer influences, labor force composition, and institutions that mediate supply and demand are all reasons. Four fundamental shifts can affect the need for workers: trade activity, technological change, consumer tastes, and business conditions. The authors are particularly concerned about the influence of the first two shifts. Trade adds and eliminates jobs as it boosts production of exports, reduces production of import-competing goods, and expands transport and warehousing jobs. Technology affects which goods are produced and how they are made. However, consumer tastes--which reflect such characteristics as age, wealth, and fashion trends--and the business cycle also affect wages, as can workforce composition and institutional changes. On the worker side, wage changes can reflect differences in human capital, such as education, training, or skills, as well as the amount of competition faced from other workers, such as through demographics or immigration. Institutions that mediate supply and demand influences on wages also have an important effect. Government safety nets, such as unemployment insurance and transfer payments, can affect the willingness to work for a given wage. Retraining options can influence wages by enabling workers to upgrade their skills. Finally, union negotiations can also have an effect on wages. How similar are trends in these influences across Canada and the United States? The strongest similarities probably relate to technology, consumer tastes, and trade. These sister economies use much the same technologies and are increasing their trade with the rest of the world and with each other. Populations in both countries are also aging and growing wealthier. The countries differ, however, in terms of the depth of the 1990 and 2001 recessions and their institutional labor market practices. With regard to the latter, unionism is higher in Canada, and the social safety net of unemployment insurance, training options, and other transfer payments is wider. These institutional differences are likely to result in more rigid wages in Canada. 3. Canadian and U.S. Labor Market Trends A comparison with labor markets in the United States may shed light on the causes of trends in Canada, as many influences on wages have been the same across both countries, while others have differed. Accordingly, we examine five labor market trends: unemployment rates, mean wages, wages of new workers versus those of incumbents, pension plan participation, and the share of temporary jobs. Recent unemployment rates have been higher in Canada than in the United States. The two countries began the 1980s with almost identical unemployment rates of 7 to 8 percent. However, the 1980s recession proved to be much deeper in Canada. By 1984, the Canadian unemployment rate exceeded the U.S. rate by about 4 percentage points. A differential of 3 to 4 percentage points persisted until around 2000, when the milder recession in Canada narrowed it to about 2 percentage points. In contrast, real wage patterns have been steadier and stronger in Canada throughout most of the past two decades. Morissette and Johnson find that median real wages in Canada have been stable for the past twenty years. …

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