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Lecture 5

ECO1102 Lecture 5: Chatper 9 lecture and reading notes

9 pages66 viewsWinter 2017

Department
Economics
Course Code
ECO 1102
Professor
David Gray
Lecture
5

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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 Canada’s 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 =
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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
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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 demanded
Structural unemployment: unemployment that results because the number of jobs available in
some labour markets is insufficient to provide a job for everyone who wants one
When wages are set above the level that brings supply and demand into equilibrium
Reasons for an above-equibilirum wage (3)
Minimum wage laws
Unions
Efficient wages
Lecture:
Figure 9.1: The Breakdown of the Population in 2011
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