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ECON 105
Gulriz Barkin

Chapter 8- Unemployment and Inflation How unemployment is measured and how the unemployment rateis calculated The significanceof the unemployment rate for the economy The relationship between the unemployment rate and economic growth The factors that determine the natural rate of unemployment The economic costs of inflation How inflation and deflation createwinners and losers Why policy makers try to maintain a stable rate of inflation Measuring Unemployment Every month Statistics Canada conducts Labor ForceSurvey (LFS). It collects information on labour market activity from the civilian, non-institutionalised population 15 years of age and over (excluded in the survey are persons living on reserves and Aboriginal settlements, full-time members of the armed forces and institutionalized population, these groups make up less than 2% of the population).It usesa rotating sample of around 54,000 households and each household remains in the sample for 6 consecutive months. It uses the survey information to provide estimates of employment and unemployment Employment denotes the number of adult workers (15years and over) who have jobs. Unemployment denotes the number of workers who are not employed but are actively looking for a job. Labour force = Employment rate = Participation rate = Unemployment rate = 1 Chapter 8-UUneempploymeent and nflation Canada;Unemploymentrae Rate)Bothsexes;5 yeas nd overSeasonalyadusted TheeSignifcannce ofthe UnnempploymeenntRaate The uneempploymeent rateisa gooddindicator ofhoow easy or dffcultitisto fnddaa job gvenntheecurrenttstateoffthe econoomyy. But, • IItcan oveersate the true eveelof unemployment. Unnempploymeent neverrfalsto zero even inbooom ttmees wheen obbsare plentiuul sincejob searching takes imee • IItcan undderstate heetrue leveloffunemmployymeent. You are nott“unemmployyed” fyyou have given up oooknggfor ajob beccause hhere are no jobs available. Discouraged workers: wwhoowaant towoork and are avaiable totake woork,buttwhho do nottlook fora job because they believe no obbsare avaiable. Maarginaly attacheddwoorkers: The maarginaly attached compprise hoose whooaree availablefor work and are waating orrempploymeent,buutare nottcurrently ookkngg for work. 2 Chapter 8- Unemployment and Inflation Involuntary Part-Timers: People who want full-timework but who are involuntarily working part-time are really partly unemployed but they are counted as employed So unemployment rate should be treated as an indicator of overall labour market conditions, not as an exact measure of the percentage of people unable to find jobs. Unemployment rate also doesn’t measure the quality of jobs or how well people are matched to their jobs. Also important to realize that the unemployment rate also varies greatly by region and among different demographic groups: 3 Chapter 8- Unemployment and Inflation 16 14 12 Male- 10 Unempoyment 8 Rate; 15 years and over 6 4 Female Unemployment 2 Rate; 15 years and over 0 -1 -1 -9 -7 -5 -3 -1 -1 -9 -7 -5 -3 -1 1971697189811981498179910991399159928002100240027010 Growth and Unemployment During recessions, unemployment rate rises and during expansions, unemployment rate usually falls. However, It is important to recognize that economic expansions aren’t always periods of falling unemployment. A jobless recovery is a period in which the real GDP growth rate is positive but theunemployment rate is still rising. 4 Chapter 8- Unemployment and Inflation Job Creation and Job Destruction – Continual job creation and job destruction are a feature of modern economics, making a naturally occurring amount of unemploymentinevitable. There are 2 types of unemployment in this group: • Frictional Unemployment • Structural Unemployment Frictional unemployment: unemployment due to the time workers spend in job search. Scarcity of information creates frictional unemployment. Matching people to jobs takes time. The short duration of unemployment for most workers suggests that most unemployment in 2007 was frictional. Structural unemployment:more people are seeking jobs in a particular labor market than there are jobs available at the currentwage rate, there is a persistent surplus of of labour. 5 Chapter 8- Unemployment and Inflation Some causes: Minimum Wages Labor unionsare associations of workers that bargains collectively with employers over wages, benefits, and working conditions. Evidence shows that labour unions earn higher wagesand benefits than non-union workers with similar skills. The result of this is similar to minimum wage: workers wages are pushed up abovethe equilibrium wage. E
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