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Chapter 9 Notes FULL lecture notes for Chapter 9

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Angela Trimarchi

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Econ 102 Chapter 9 Notes Prof: Angela Trimarchi
Chapter 9: Natural Rate of Unemployment
The rate of unemployment that exists when the economy’s output is at its
full-employment level.
Types of Unemployment
Frictional Unemployment
oUnemployment caused by the normal workings of the labour
oOccurs when people are searching for jobs
oAlso called “Search Unemployment”
Structural Unemployment
oUnemployment caused by
Adjustments/ restructuring of the economy
Mismatch between workers and jobs
Decline in demand for goods
oAlso called “Technological Unemployment”
oExamples of structural unemployment:
DVDs vs VCRs, makers of VCR products
oOptions for structurally unemployed people:
accept a lower-paying available job for which they are
Retrain for higher paying available jobs within the same
labour market
Move to a new location where there are vacant jobs for
persons with their skills
Seasonal Unemployment
oUnemployment that occurs during different seasons of the year
Cyclical Unemployment
ocaused by year to year fluctuations in unemployment in excess
of structural and frictional unemployment
ocauses real GDP to fall below potential GDP
Question: Is there frictional and structural unemployment when the
economy is at its natural rate of unemployment? YES
How is Unemployment Measured?
Unemployment is measured by the Labour Force Survey (LFS)
Labour Force Survey determines:
Adult Population
oIndividuals 15 years of age or older
oAlso called working-age population
Employed (E)
Econ 102 Chapter 9 Notes Prof: Angela Trimarchi
oThose working at a job part-time or full-time
Unemployed (U)
oThose not currently working but actively seeking work
Labour Force (LF)
Consists of Employed and Unemployed Individuals
Who is not in the Labour Force?
*Full-time students
Those receiving welfare or disability incomes
Those who are independently wealthy
Members of the armed forces
Those who are in jail
Those who are in a mental institution
Discouraged workers
* - Students who are only at school, no job, not looking for a job
Question: Are the above groups of people in the adult population? YES
Discouraged Workers
People who would like to work but who have given up looking for work
because they believe that no work is available
Therefore, they drop out of the labour force and are not counted as
being unemployed
Labour Market Statistics
Labour Force (LF)
Consists of total number of employed individuals (E) and unemployed
individuals (U)
Unemployment Rate (UR):
The percentage of the labour force who are unemployed
UR = [U/LF] * 100
= [U/(U+E)] * 100
Question: What is the current unemployment rate for Canada?
Labour Force Participation Rate (LFPR)
The percentage of the adult population in the labour force
LFPR = [LF/adult population] * 100
Econ 102 Chapter 9 Notes Prof: Angela Trimarchi
In Class Question
If a country’s labour force is 15 million people and 0.5 million are
unemployed, the country’s unemployment rate is:
a) 2.5%
b) 3.3%
c) 4.5%
d) 6.7%
e) 9.0%
UR = [0.5/15] * 100
Characteristics of the Unemployed
oUnemployment is higher in Atlantic Canada than in other
Canadian provinces
Industry – Where they are working
oLow unemployment rates in agriculture, transportation,
communications, utilities keep unemployment down in
Age – How many years they’ve lived
oUnemployment rates tend to decline with age
Education – How much education they have
oUnemployment rates are twice as high for people with a high
school education compared to university graduates
Unemployment: Overstated or Understated?
Because part-time workers are included as full-time workers
Because discouraged workers are excluded from the labour force
Because of false information provided by EI recipients
Two cases:
Underground economy: