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Chapter #9 ECN.doc

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ECN 204
Christopher Gore

Chapter #9 Labour Force Statistics • Statistics Canada divides population into 3 groups:  Employed: A person is considered employed if he or she has spent most of the previous week working at a paid job.  Unemployed: A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.  Not in the labour force: everyone else  The labour force is the total # of workers, including the employed and unemployed. Labour force = Number of employed + Number of unemployed • Unemployment rate (“u-rate”): % of the labour force that is unemployed U-Rate = [Number of unemployed/Labour Force] * 100 • Labour force participation rate: % of the adult population that is in the labour force Labour force participation rate = [Labour Force/ Adult Population] *100 Labour Market Experiences of Various Demographic Groups - Statistics Canada publishes these statistics for demographic groups within the population. - These data reveal widely different labour market experiences for different groups. - Discouraged workers o would like to work but have given up looking for jobs o classified as “not in the labour force” rather than “unemployed” Does the Unemployment Rate Measure What We Want It To?  It is difficult to distinguish between a person who is unemployed and a person who is not in the labour force.  Discouraged searchers, people who would like to work but have given up looking for jobs after an unsuccessful search, do not show up in unemployment statistics.  Other people may claim to be unemployed in order to receive financial assistance, even though they aren’t looking for work  Some are being paid “under the table”  Workers who are working part-time when in fact they want to work full-time are underemployed; they not show up in unemployment statistics How Long Are the Unemployed without Work?  Most spells of unemployment are short.  In 2009, the average spell of unemployment lasted 15.6 weeks.  Economists and policymakers must be careful when interpreting data on unemployment and designing policies to help the unemployed  Most people who become unemployed will soon find jobs.  Policy solutions directed toward fixing the unemployment problem should be directed toward those suffering prolonged spells of unemployment Why Are There Always Some People Unemployed? - There’s always some unemployment, though the u-rate fluctuates from year to year. - Natural rate of unemployment  is the rate of unemployment to which the economy tends to return in the long run.  in Canada, it is estimated that the natural rate of unemployment is currently between 6 and 8 percent. - Cyclical unemployment  the deviation of unemployment from its natural rate  associated with business cycles, which we’ll study in later chapters - Even when the economy is doing well, there is always some unemployment, including: - Frictional unemployment  occurs when workers spend time searching for the jobs that best suit their skills and tastes  short-term for most workers  frictional unemployment is inevitable because the economy is always changing - Structural unemployment  occurs when there are fewer jobs than workers  usually longer-term Job Search  Workers have different tastes & skills, and jobs have different requirements.  Job search is the process of matching workers with appropriate jobs.  Sectoral shifts are changes in the composition of demand across industries or regions of the country.  Such shifts displace some workers, who must search for new jobs appropriate for their skills & tastes.  The economy is always changing, so some frictional unemployment is inevitable. Public Policy and Job Search  Government employment agencies provide information about job vacancies to speed up the matching of workers and jobs.  Public training programs aim to equip workers displaced from declining industries with the skills needed in growing industries. Employment Insurance  EI: a government program that partially protects workers’ incomes when they become unemployed  EI increase the unemployment rate  However it achievesone primary goal of reducing the income uncertainty faced by unemployed people 1. Minimum-Wage Laws a. The minimum wage may exceed the equilibrium wage for the least skilled or experienced workers, causing structural unemployment. b. But this group is a small part of the labour force, so the min. wage can’t explain most unemployment in the economy. c. The structural unemployment that arises from an above-equilibrium wage is, in an important sense, different from
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