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Chapter 9 REVIEW.docx

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University of Ottawa
Serge Nadeau

Chapter 9 Unemployment and its Natural Rate Identifying Unemployment How is Unemployment measured? • Stats Canada produces monthly data regarding unemployment(Labour Force Survey) and classifies people as : Employed (Spent some of the week working) Labour force Unemployed (temporary laid off and looking for work) Not in the labour force (Not in the above classifications, such as retiree, student) • After placing people into appropriate categories, Stats Canada calculates” Unemployment rate: Number of unemployed x100 Labour force Labour Force Participation rate : Labour force x 100 Adult Population • The calculation of these figures reveals 3 interesting facts: 1. Women have lower rates of labour force participation than men in the same age groups 2. People aged 15-24 have much higher unemployment rates 3. In normal economic times, similarly aged men and women have similar unemployment rates • The unemployment varies between provinces, but is consistently most prominent in the Atlantic provinces Does the Unemployment Rate Measure What We Want it To? • More than 1/3 of the unemployed are recent entrants into the labour force ( recent grads and the ederly) • Statistics on unemployment are hard to interpret as some people consider themselves unemployed to collect EI and some people not in labour force are wanting to work but have given up (discouraged searchers) How long are the Unemployed Without Work?  • 2009 the average spell of unemployment was 15.6 weeks, however varied greatly from provinc to province • Of those unemployed: 1/3 < a month 2/3 < 3 months Why are There always Some People Unemployed? • Ideally wages would adjust to balance labour demanded and supplied, but there is always unemployment for several reasons: 1. Natural Rate of Unemployment ( the rate of unemployment to which the economy tends to return in the long run, 7 % ) 2. Cyclical Unemployment (arises due to short run economic fluctuations) 3. Frictional Unemployment ( takes time to match one’s skills to a job) Job Search( process of finding a job given taste and skills, ever changing economy makes frictional unemployment inevitable) Long run Public Policy and Job Search ( control amt. of frictional unemployment) Employment Insurance ( eases the burden of frictional unemployment by providing benefits
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