Class Notes (835,539)
Canada (509,225)
Economics (949)

Chapter 21 Notes.docx

9 Pages
Unlock Document

Economics 1022A/B
Jeannie Gillmore

Chapter 21 Notes Why Unemployment is a Problem  lost incomes and production o unemployment benefits creates a safety net, but they do not fully replace lost earnings  lost human capital o prolonged unemployment permanently damages a person’s job prospects by destroying human capital, which lowers the living standard in both the present and the future Labour Force Survey  population is dived into two groups  working- age population and others who are too young to work or are unable to work o the working-age population is the total number of people aged 15 and over  working age population is further divides into two groups  those in the labour force and those not in the labour force o the labour force is the sum of the employed and the unemployed  the employed are either full time or part time o part time workers either voluntary or involuntary part-time  to be counted in the Labour Force Survey, a person must have a job o to be counted as unemployed, a person must fall into one of three categories:  without work but ahs made specific efforts to find a job within the previous four weeks  laid off from a job and waiting to be called back to work  waiting to stat a new job within four weeks Labour Market Indicator: Unemployment Rate  the unemployment rate is the percentage of people in the labour force who are unemployed  the unemployment rate fluctuates over the business cycle o increases as a recession deepens o reaches a peak when recession ends o decreases after a recovery gets going  the Canadian unemployment rate between 1960-2010 has fluctuated around 7.6% Labour Market Indicator: Involuntary Part-Time Rate  percentage of people in the labour force who want full-time work but work part-time currently  in 2010, the Canadian rate was 5% Labour Market Indicator: Labour Force Participation Rate  the number of people in the labour force is an indicator of the willingness of people of working age to take jobs o the labour force participation rate is the percentage of the working-age population who are members of the labour force  in 2010, the participation rate was 67% Labour Market Indicator: Employment-to-Population Ratio  percentage of working age people that have jobs  in 2010, the ratio was 61.6%  the increase before 1990 indicates that the Canadian economy created jobs at a faster rate than the working age population than the working-age population  the employment-to-population ratio fluctuates with the business cycle o falls in a recession o rises in an expansion  labour force participation rate has milder business cycle swings that reflect movements into and out of the labour force Definitions of Unemployed  the StatsCan unemployment rate doesn’t count the underutilized labour of people with part-time jobs who want full time jobs o also omits underutilized labour (marginally attached workers)  a marginally attached worker is a person who is neither working nor looking for work but has indicated that he or she wants a job and is available and has looked for work sometime in the recent past  a marginally attached worker who has stopped looking for a job because of repeated failure to find one is called a discouraged worker o the official measure of unemployment excludes these workers because they haven’t made specific efforts to find a job within the past four weeks  long term unemployment is the most costly o people who are unemployed for a few weeks and then find another job bear some costs of unemployment  low compared to the costs borne by people who remain unemployed for many weeks o 60% of unemployment is short term (1 – 13 weeks)  4% short term employment for those 25+  high and fluctuating with the business cycle for those under 25 o long term unemployment rate fluctuates with the business cycle, but is trending downward Frictional Unemployment  there is an unending flow of people into and out of the labour force as people move through stages of life o unending process of job creation and destruction as new firms are created, expand or contract, or go out of business  these flows into and out of the labour force create the need for people to search for jobs and for businesses to search for workers  the unemployment that arises from the normal labour turnover is called frictional unemployment o permanent and healthy phenomenon in a dynamic, growing economy Structural Unemployment  structural unemployment is the unemployment that arises from changes in technology or international competition that change the skills needed to perform jobs or change the locations of jobs o usually lasts longer than frictional unemployment because workers must retrain and possibly relocate to find a job o painful for older workers for whom the best available option might be to retire early or take a lower-skilled, lower-paying job Cyclical Unemployment  the higher than normal unemployment at a business cycle trough and lower than normal unemployment at a business cycle peak is called cyclical unemployment o a worker who is laid off because the economy is in a recession and who gets rehired some months later when the expansion begins has experienced cyclical unemployment Seasonal Unemployment  unemployment caused by a job than can only be done in a season (e/x ski instructors cannot work in the summer when there is no snow) Natural Unemployment  natural unemployment is the unemployment that arises from frictions and structural change when there is no cyclical unemployment (when all unemployment is frictional and structural) o natural unemployment expressed as a percentage of the labour force is called the natural unemployment rate  full employment is defined as a situation in which the unemployment rate equals the natural unemployment rate o influenced by many factors:  age distribution of the population  an economy with a young population has a large number of new job seekers every year and has a high level of frictional unemployment  scale of structural change  the same jobs using the same machines remain in place for many years, but when there is a technological upheaval millions of jobs are lost and the skill to perform them loses value  structural unemployment fluctuates with the pace and volume of technological change and the change driven by fierce international competition  real wage rate  real wage rates that bring unemployment are a minimum wage and an efficiency wage  an efficiency wage is a wage set above the market wage to enable firms to attract the most productive workers, get them to work hard, and discourage them form quitting  unemployment benefits  increase the natural unemployment rate by lowering the opportunity cost of job search Real GDP and Unemployment Over the Business Cycle  the quantity of real GDP at full employment is potential GDP o over the business cycle, real GDP fluctuates around potential GDP o the gap between real GDP and potential GDP is called the output gap  as the output gap fluctuates over the business cycle, the unemployment rate fluctuates around the natural unemployment rate  when the economy is at full employment, the unemployment rate equals the natural unemployment rate and real GDP equals potential GDP, so the output gap is zero  when the unemployment rate is less than the natural unemployment rate, real GDP is greater than potential GDP and the output gap is positive  when the unemployment rate is greater than the natural unemployment rate, real GDP is less than potential GDP and the output gap is negative  the timing of the fluctuations in real GDP and the unemployment rate don’t align perfectly and the unemployment rate lags real GDP o the general tendency for real GDP to rise and the unemployment rate to fall in an expansion and for real GDP to fall and unemployment rate to rise in a recession  the natural unemployment rate has been falling, and was 6% in 2010 Price Level, Inflation, and Deflation  price level is the average level of prices, and the value of money o
More Less

Related notes for Economics 1022A/B

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.