ECN 204 Lecture Notes - Structural Unemployment, Unemployment Benefits, Efficiency Wage

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25 Apr 2012
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Chapter 9 Unemployment and its Natural Rate
Natural Rate of unemployment: refers to the amount of unemployment that the economy normal
experiences
Cyclical Unemployment: refers to the year to year fluctuations in unemployment around its natural rate,
and it is closely associated with the short run ups and down of economic activity
How is Unemployment Measured?
-Statistic Canada job to produce data on unemployment each month; surveys each adult from 15 and
older and categorizes them into three categories: employed, unemployed, not in labor force.
-Person is considered employed if working at a paid job. Person is unemployed if she is on temporary
layoff or is looking for a job. Person who fits neither such as homemaker, retiree, or student is not in the
labor force.
Labor Force: the total number of workers, including both the employed and the unemployed
Calculation:
Labor Force = Number of employed + Number of unemployed
Unemployment Rate (“u-rate”): the percentage of the labor force that is unemployed
Calculation:
Unemployment Rate = Number of unemployed/Labor Force x 100
Labor Force Participation: the percentage of the adult population that is in the labor force
Calculation:
Labor-Force Participation Rate = Labor Force/Adult Population x 100
Activity 1:
Question: Compute the labor force, the unemployment rate, the adult population, and the labor force
participation
Answer:
Labor Force: 17 180 + 9062 = 18 673 thousand
Unemployment Rate: 100 x 1493/18673 = 8%
Population: 18673 + 9062 = 27 735
Labor Force Participation: 100 x 18673/27735 = 67.3%
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