Chapter 9 - Unemployment & Its Natural Rate

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23 Apr 2012
Wednesday March 7th, 2012
Chapter 9
Unemployment and Its Natural Rate
Identifying Unemployment:
-Produced by Statistics Canada.
-Based on regular survey of 50,000 households = Labour Force Survey
-Based on “adult population” (15 yrs or older)
-BSL also produces the CLP statistics
Labour Force Statistics:
-Statistics Canada divides population into 3 groups:
1. Employed: A person is considered employed if he or she has spent most of the previous week
working at a paid job
2. Unemployed: A person is unemployed if he or she is on temporary layoff, is looking for a job, or
is waiting for the start date of a new job
3. Not in the labour force: everyone else
-The labour force is the total # of workers, including the employed and unemployed
-unemployment rate aka u-rate
-unemployment rate (u-rate): % of the labour force that is unemployed
u-rate = 100 x # of unemployment/labour force
-labour force participation rate: % of the adult population that is in the labour force
labour force population = 100 x labour force/adult population
Does the Unemployment Rate Measure What We Want It To?
-It is difficult to distinguish between a person who is unemployed and a person who is not in the labour
-Discouraged searchers, people who would like to work but have given up looking for jobs after an
unsuccessful search, don’t show up in unemployment statistics
-Other people may claim to be unemployed in order to receive financial assistance, even though they
aren’t looking for work
-people may misreport their labour market status to Statistics Canada, perhaps because they think it will
help them get public assistance. This also makes the unemployment rate a bit less accurate
- GDP is an imperfect indicator of society’s well-being, and the CPI tends to overstate increases in the
cost of living, yet unemployment rate remains highly useful
For example, when the unemployment rate rises, it is almost always true that things are getting
worse in the labour market
Why Are There Always Some People Unemployed?
-There’s always some unemployment, though the u-rate fluctuates from year to year
-Natural rate of unemployment
the rate of unemployment to which the economy tends to return in the long run
in Canada, it is estimated that the natural rate of unemployment is currently between 6 and 8
-unemployment is a serious and complicated problem with a variety of cause, to most effectively
address such a problem, we need to break it down and look at each cause separately
-we begin by noting that the causes of short-run fluctuations in unemployment are different than the
causes of the long-run average unemployment rate, called the “natural rate of unemployment”
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