Keynesianism and Labor Markets: United States vs. Canada

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Some more from the new Canadian budget: It has some interesting charts (page 38) comparing U.S. and Canadian labor markets (or “labour” markets as the Canadians would say).

The charts, replicated below, show that by every dimension (total employment, unemployment rates, and participation rates) the Canadian economy has done far better than the U.S. economy in recent years.

In the United States, policymakers have worked furiously to get job markets moving again, using massive amounts of Keynesian stimulus. I’m not just talking about the 2009 stimulus bill—in Keynesian theory, the whole amount of government deficit spending is supposed to stimulate demand and boost the economy.

In Canada, they did some Keynesian stimulating as well, but far less than we did. Indeed, the chart below shows that the Canadians did only about one-quarter the Keynesian stimulating that we did. Yet today the Canucks have a lower unemployment rate and a higher participation rate than we do. And while total U.S. employment is about the same today as it was in 2006, Canadian employment is up 9 percent.

Rather than big-government stimulating, the Canadians have pursued corporate tax cuts and other pro-growth policies. Government policies don’t determine everything in country economic performance, but the Canadian experience should give pause to U.S. supporters of further Keynesian pump-priming.