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Lecture 5

ECO1102 Lecture 5: Chatper 9 lecture and reading notes

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David Gray

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Chapter 9 - Unemployment and Its Natural Rate Reading: Identifying Unemployment How the government measures unemployment What problems arise in interpreting the unemployment data How long the typical spell of unemployment lasts Why there will always be some people unemployment How is Unemployment Measured Statistics Canadas job Monthly data on unemployment and on other aspects of the labour market (labour force survey) Types of employment Length of the average workweek Duration of unemployment Based on the answers from the survey above, everyone is place in a category Employed: spend some of the previous week working at a paid job Unemployed: on temporary layoff or is looking for a job Not in the labour force: someone who fit neither employed or unemployed (I.e. full time student, homemaker, or retiree) Labour force: the total number of workers, including both the employed and unemployed Labour force = number of employed + number of unemployed Unemployed rate: the percentage of the labour force that is unemployed Unemployment rate = (number of unemployed / labour force) x 100 Labour force participation: the percentage of the adult population that is in the labour force The fraction of the population that has chosen to participate in the labour market Labour force participation rate = (labour force / adult population) x 100 Example: the labour market experiences of various demographic groups The labour fore participation rate of young women is very similar to that of young men, but for other age groups women have noticeable lower rates of labour fore participation than men Young people have much high rates of unemployment than older people Similarly aged men and women tend to have similar rates of unemployment Labour force data = economists and policymakers to monitor changes in the economy over time Does the Unemployment Rate Measure we want it to Difference between someone who is unemployed and someone who is not in the labour force = difficult to distinguish Some people want to be unemployed to qualify for employment insurance Some people are unemployed but want to work Discouraged searchers: individuals who would like to work but have given up looking for a job The unemployment rate statistic is helpful but not a perfect representation of the jobless rate Example: alternative measures of labour underutilization How Long are the Unemployed without work? 1.Average if 20.8 weeks (Canada 2014) 2.Average unemployment rates are not that helpful because they hid some facts Average spell of unemployment tried widely across the country There may be a wide dispersion of unemployment experiences across individuals 3.Economists and policymakers should focus on fixing the problem of prolonged unemployment Why are There Always Some People Unemployed? In a perfect world with a perfect labour market, wages would adjust to balance the quantity of labour supplied and he quantity of labour demanded = everyone could be employed Natural rate of unemployment: the rate of unemployment to which the economy tens to return in the long run (estimate) Cyclical unemployment: the deviation of unemployment from its natural rate Short run economic fluctuations Explaining unemployment in the long run Takes time for workers to search for the jobs that are best suited for them Frictional unemployment: unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills The number of jobs available in some labour markets my be insufficient to die a job to everyone who wants one When quantity of labour supplied exceeds the quantity deman
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