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Chapter 21 notes

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University of Waterloo
ECON 102
Maryann Vaughan

Monitoring Jobs and Inflation The Canadian economy is an incredible job-creating machine. In 2011, 17 million people had jobs, which was 2 million more than in 2001 and 6 million more than in 1981. But not everyone who wants a job can find one. On a typical day, more than 1 million people are unemployed. Why unemployment is a problem Lost incomes and production, and lost human capital The loss of income is devastating for those who bear it. Unemployment benefits create a safety net, but don't fully replace lost wages, and not everyone received benefits. Prolonged unemployment permanently damages a person's job prospects by destroying human capital. The population is divided into: 1. The working-age population: the number of people aged 15 years and older and who are not in institutional care. 2. Persons younger than 15 years of age. 3. Persons residing in the Yukon, Northwest Territories, Nunavut, and Aboriginals. 4. Full-time members of the armed forces. 5. Inmates in institutions. Working-age population is divided into two groups: people in the labour force, and people not in the labour force. The Labour force is the sum of employed and unemployed workers. To be counted as unemployed: 1. Without work but has made specific efforts to find a job within the previous four weeks 2. Waiting to be called back to a job from which he or she has been laid off 3. Waiting to start a new job within four weeks Four labour market indicators: The Unemployment Rate = (number of people unemployed / labour force) x 100 The Labour Force Participation Rate = (labour force / working population) x 100 The unemployment rate is an imperfect measure because it excludes: marginally attached workers (including discouraged workers), and part-time workers who want full-time jobs. A Marginally attached worker is a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past. A Discouraged worker is a marginally attached worker who has stopped looking for a job because of repeated failure to find one. Underemployed workers want and are able to work better jobs but cannot find them. Short-term unemployment is less than 14 weeks of unemployment. Long-term unemployment is 14 weeks or longer of unemployment. Unemployment can be classified into three types: 1. Frictional unemployment: arises from normal labour market turnover. Increases in the number of people entering and re-entering the labour force and increases in unemployment benefits raise frictional unemployment. 2. Structural unemployment: created by changes in technology or foreign competition that change the skills needed to perform jobs or the locations of jobs. 3. Cyclical unemployment: influenced by business cycles; higher than normal at troughs and lower than normal at peaks. Natural unemployment is the unemployment that arises from frictions and structural change when there is no cyclical unemployment. Natural unemployment is all frictional and structural unemploym
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