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Lecture 4

ECO1102 Lecture 4: Week 5_ Feb 7 & 9

5 pages56 viewsSpring 2018

Department
Economics
Course Code
ECO 1102
Professor
David Gray
Lecture
4

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Feb 9
Chapter 10: Unemployment and the demand for labour
LFPRs by gender, 196-2017
Much smaller gap: LFPRs for women have increased significantly since 1976 but remain
below those for men
Employment rates by age and gender, 2017
Employments rates are
Generally higher for men than for women
Except for 15 to 24 years
Highest for men and women aged 24 to 44 years
Significant for people aged 65 years and over
Employment rates by gender, 1976-2017
Much smaller gap now
ERs for women have increased significantly
How long are the unemployed out of work?
In 2017, the average spell of employment lasted 19.6 weeks (up from 15 weeks in 2008)
But average can hide what is really important
Example: consider 4 unemployed people -3 are employed for 4 weeks each while
the 4th is employed for 52 weeks
The average length of employment is 16 weeks
But the problem lies only with the 4th person
Lesson: care must be taken when interpreting data on unemployment
The duration of unemployment, 2017
Most spells of unemployment are short
Does the UR reflect how the LM is performing?
Does the unemployment rate always accurately reflect what’s happening in the labour
market?
1. Sue lost her job and begins looking for a new one
The unemployment rate rises because Sue is now unemployed
This suggests the labour market is worsening and it is
Indicator is OK
2. Job, a steelworker who has been out of work since his mill closed last year, becomes
discouraged and give up looking for work
Jon is discouraged worker
He would like to work but was unemployed for the past year and has now
left the labour force
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The unemployment rate falls because he is no longer unemployed this suggest
labour market is improving but it is not
Indicator is no OK
3. sam , the sole earner in his family of 5, just lost his $80,000 job as a research scientist and
immediately takes a part-time job at McDonald’s until he can find another
Sam employment status remains
But his job is part time rather than full time
The unemployment rate does not change because he is still employed even though
in a job his skill level
Suggests labour market is not worsening but it is
Indicator is not Ok
- Lesson: the unemployment rate does not always accurately reflect t\how well the labour
market is performing
Does the UR measure what we want it to?
Discouraged workers do not show up in unemployment statistics since they are not in the
labour force
Might be classified as unemployed
Other people may claim to be unemployed but really are not
People who are seeking public financial assistance, but not looking for work
Misrepresent their labour market status to Statistics Canada
Thus, it is sometimes difficult to distinguish people who are unemployed from people
who are not in the labour force
Makes the unemployment rate a bit less accurate
The natural rate of unemployment
The rate of unemployment to which the economy tends to return in the long run
Currently estimated in Canada to be between 6-8%
The natural (or equilibrium) rate of unemployment consists of:
Frictional unemployment - It takes time search for the right hobs, even if there are
enough jobs to go around (i.e., job search)
Structural unemployment - The economy is constantly changing and so are the
skills requirements for job, so skills mismatches arise
Real- wage or classical unemployment - When
Cyclical (or observed) unemployment
Short-run fluctuations in unemployment from its natural rate associated with business
cycle
When the economy is:
Expanding, the demand for labour increases and unemployment decreases
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