Employment Along the Canada-U.S. Border (Part 2)

This is a follow-up to my earlier post: Employment Along the Canada-U.S. Border. In that post, I reported employment ratios and participation rates for three regions: Canada, U.S. states that bordered Canada, and U.S. states that did not border Canada. The main conclusion was that U.S. border states behave a lot more like non-border states, than they do Canada.

In this post, I (well, my fine research assistant, Lily, actually) report the same data but controlling for age and sex. In particular, I restrict attention to "prime age" workers--the age range 25-54 years old. I also divide the groups by sex. Here is what we get.

 

Participation rates for prime-age males has been declining steadily over time, but the decline seems to be much more dramatic in the U.S. Again, the border states follow their southern, rather than northern, counterparts.

The declining participation rates among men have been offset in part by the rising participation rates among prime-age women. Since about 2000, the participation rate among Canadian prime-age women continues to rise and remain stable, while in the U.S., the participation rate declines a bit. Again, the border states look more like their southern counterparts.

The great Canadian slump is evident in the 1990s. By the early 2000s, the employment to population ratio of prime-age males in both countries were roughly the same. The most recent recession hit the U.S. more severely than in Canada. Again, note that the border states followed their U.S. counterparts more closely than their Canadian neighbors.

According to this data, Canadian prime-age women were hardly affected by the recent recession.The pattern here is similar to the labor force participation rates described above.

While we can't say for sure just by looking at this data, I suspect that national policy differences are driving much of the different behavior here. But before I start looking for what these policy differences might be, I'll ask my trusty R.A. to look at sectoral decompositions.

Inflation expectations and real treasury yields

My colleague Kevin Kliesen supplies me with the following updates on inflation expectations and real treasury yields.

The first two plots show not very much action since the beginning of the year. The latest data show a recent tick down in inflation expectations, and a tick up in real yields:

 



Here is what the data looks like since 2007. Following some volatile behavior during the crisis, inflation expectations have roughly remained stable since 2009.

The interesting behavior since that time was fall yields and a flattening of the yield curve (nominal and real).  That downward trend appears to have reversed in mid 2013 (the taper tantrum), but has more or less remained stable since then (with the exception of the 2-year real, which has declined somewhat).

So while the real yield curve has steepened as of late, real yields are still well below where they were before the crisis (especially at the short end).

Employment Along the Canada-U.S. Border

I've written about differences in the Canadian and U.S. labor markets before; see here.  I see that Steve Williamson has recently chimed in as well with this: Why are Canadians Working so Much More than Americans?

A question that interested me is to what extent this cross-country difference is driven by regional considerations. That is, we know that most of the Canadian population lives and works near the U.S. border (the 49th parallel):

Now consider creating a new country consisting of U.S. border states: Washington, Montana, North Dakota, Minnesota, Wisconsin, Michigan, Ohio, New York, Vermont, New Hampshire and Maine (I exclude Alaska, Idaho, and Pennsylvania). If we were to combine these border states with Canada, the region of interest would look roughly like this (map is a little off, but you get the idea):

The question is this: Would you expect the labor market in the U.S. border states to look more like the Canadian labor market or more like the U.S. labor market?

There is good reason to believe, I think, that the demographics across the two countries are pretty similar (though certainly not identical). If the type of economic activity along the border is roughly similar across the two countries, then one might reasonably expect similar labor market behavior in Canada and the border states. But this is not what we see at all.

Here is a plot of the participation rate (employment plus unemployment as a ratio of the working age population):

 

The U.S. border states look a lot more like the rest of the U.S. and not like Canada at all. Here is a plot of the employment rate (employment as a ratio of the working age population):

 

 

Once again, the border states look more like the U.S. in general, rather than Canada.

A preliminary conclusion is as follows: [1] If Canada-U.S. demographics are roughly similar; and [2] if U.S. border states are roughly similar to their Canadian counterparts in terms of sectoral composition; then the differences we observe between the two countries (in terms of labor market activity) are quite possibly driven by policy differences.

Exactly what sort of policy differences we are talking about here remains an open question.