Saturday, July 22, 2006

New Brunswick's unemployment dilemma

Over at Canadian Econoview there's a sharp explanation of the difficulty in isolating the effects of real wage changes in New Brunswick.

Using the service industry as an example, B. Ferguson shows how an increase in the minimum wage may not necessarily lead to a substitution or an income effect in hours of work decisions, meanwhile labour force participation may increase as reservation wages are met. But wait! Then there's migration to consider. And the discouraged who leave the workforce...

I read elsewhere that studies have shown that “the number of people moving with a job already in hand is three times as large as the number moving to look for work” (Modern Labour Economics, Ehrenburg et al: 2004). Whether this is the case in NB, I don't know. Still, egad. What a mess.

Prof Ferguson writes:

It's separating out the various demand and supply factors like these which makes empirical economic analysis the thrilling, heart-pounding business it is (no, really - why are you looking at me that way?).
Well, as long as my anonymity is maintained, I'll admit that I agree!The whole piece is here.

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