Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States.

• Author: Marcis, John G.

The United States and Canada are as similar economically, demographically and socially as any two countries in the world. Because of these similarities, a program that works in one country is likely to work in the other. Consequently, public policy debates within the U.S. and Canada often refer to the experiences of the other country to either support or oppose specific policy initiatives. The two countries, however, chose different strategies for coping with the economic problems of the 1980s. The U.S. chose a market-driven strategy while Canada pursued a more activist social strategy.

The seven papers in this volume are research contributions from a comparative project on the United States and Canada organized by the National Bureau of Economic Research and supported by the William H. Donner Foundation of New York. The papers follow a similar methodology in that they each use detailed microdata on thousands of individuals in Canada (Statistics Canada data) and/or the U.S. (Bureau of the Census data). The seven chapters were written independently and can be read independently.

The editors, David Card and Richard B. Freeman, provide a solid foundation for the papers with an "Introduction" that emphasizes the theme that although major similarities between the United States and Canada exist, "small differences" in labor policies and labor institutions significantly influenced income inequality and labor market experiences during the 1980s. The editors attribute this finding to two phenomena. First, individuals and institutions respond in economically significant ways to incentives. For example, subtle differences in national immigration policies have resulted in differences in the skill levels of those who self-select to migrate. Second, there appears to be an "interaction" effect between specific small differences so that the sum of the small differences is greater than the individual small differences taken separately. For example, differing trends in female labor force participation rates between the two countries and differing trends in union membership rates between the two countries contributed to the divergence in earnings inequality between the U.S. and Canada.

Three papers begin with differences in specific policies and examine how they have generated different economic outcomes. George J. Borjas (Chapter 1) examines and compares immigration policies of the United States and Canada. Prior to the early 1960s, both countries used a...