A study of the impact of sectoral shifts on aggregate unemployment in the regions of Canada.

Abstract

This paper presents further evidence on the importance of sectoral shifts by examining unemployment fluctuations in the regions of Canada over the period 1976-2011. Sectoral shifts or shocks are measured following Lilien’s methodology and a dispersion index variable is constructed and treated in association with unemployment rate. The empirical research is conducted using OLS procedures, models from GARCH family and Impulse Response Functions (IRF’s) as provided by VAR representations. Results from the OLS regressions, either with or without monetary, fiscal and other exogenous variables, in their majority give support in favor of the sectoral shifts hypothesis. Similar facts emerge from the rest processes undertaken implying that a strong and positive relationship exists between the dispersion index and unemployment rate. Comprehensively, it is stated that reallocation proved to play a significant role in determining the movements of unemployment rate across time.