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6. Small Differences That Matter: Canada Vs. the United States
- Russell Sage Foundation
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6 SMALL DIFFERENCES THAT MATTER: CANADA VS. THE UNITED STATES David Card and Richard B. Freeman To outsiders Canada and the United States often look like two sides of the same coin. The two countries have a closely inter'twined history; they share similar cultures, similar economic institutions , and similar standards of living. The U.S. and Canadian economies are linked by massive trade flows, by the interlocking ownership of multinational firms, and by a steady stream of crossborder migration. Canada and the United States are each others' largest trading partners. Americans control 30 percent of business assets in Canada; Canadians are the fourth largest group of foreign investors in the United States. Eight percent of immigrants in Canada were born in the United States and 6 percent of U.S. immigrants were born in Canada. Labor market institutions in Canada and the United States have more in common with each other than with institutions in other developed economies. The highly decentralized system of collective bargaining in the two countries is a case in point. Virtually identical labor agreements between the same firms and the same international unionsl have historically applied to large sectors of the United States and Canadian economies. Programs such as unemployment insurance are similar in the United States and Canada and much different from programs in Western Europe and elsewhere. Against this backdrop of broad similarity, however, are "small differences" in policies and institutions that distinguish Canada 189 190 WORKING UNDER DIFFERENT RULES from the United States. Although the United States initially led Canada in the adoption of universal social insurance in the 1930s, Canadian income maintenance programs gradually expanded to surpass the generosity of comparable U.S. programs. The burst of industrial unionism in the United States during the 1930s preceded similar developments in Canada by almost a decade. Since the 1970s, however, union membership rates have fallen in the United States while holding steady in Canada. Canada and the United States accommodated huge waves of European immigrants during the late nineteenth and early twentieth centuries. These flows essentially stopped during the Depression and resumed at a slower pace after World War II. In the 1960s, policy reforms on both sides of the border led to changes in the size and composition of immigrant flows and a widening gap in the economic performance of immigrants compared with natives in the two countries. If employment, unemployment, incomes, and poverty rates were nearly identical in the two countries, the differences in institutions and policies just noted would be matters of style rather than substance-small differences that don't matter, contrary to the title of this chapter. But labor market and poverty outcomes did not follow the same path in United States and Canada during the 1980s. Unemployment rates were much higher in Canada in the 1980s. Wage differentials between more and less educated workers expanded massively in the United States but hardly at all in Canada (see Chapter 2, this volume). And while income inequality increased during the 1980s in the United States it was stable or even decreased in Canada. The mixture of similarities and differences in institutions and policies between Canada and the United States provides a series of "experiments" for studying how policies and institutional developments affect the labor market and economy. The presence of a distinct institution or policy in one of the countries can be seen as a "treatment," while its absence in the other country provides a natural "control" for determining what would have happened without that institution or policy. The basic similarity of the two economies and their comparable social patterns make it easier to attribute differences in outcomes to differences in specific institutions or policies in Canada and the United States than is possible between countries with very different labor market systems and social patterns, such as Japan and the United States. [3.81.222.152] Project MUSE (2024-03-28 21:44 GMT) SMALL DIFFERENCES THAT MATTER 191 By the same token any divergence in outcomes between the United States and Canada, such as the widening differential in unemployment or unionization, automatically draws attention. Since so much is the same in the United States and Canada, sustained differences cry out for a explanation in terms of different policies and institutions. Recognizing the potential for learning from each other, policy advocates in Canada and the United States routinely refer to the experiences of the other country in arguing for or against a particular initiative. Voters and decision makers...