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Chapter 21

ECON102 Chapter Notes - Chapter 21: Real Wages, Price Level, Unemployment Benefits

Course Code
Maryann Vaughan

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Jan 12, Jan 13 Lecture 3, 4 1
C21: Monitoring Jobs and Inflation
Employment and Unemployment (unemployment rate Canada=7.1%)
2 main reasons Why unemployment is a serious personal and social economic problem
1. Loss of incomes and production
oLoss of income: frightening prospect
oLoss production: lower consumption and lower investment in capital
Lowers the living standard in both the present and the future
2. Loss of human capital
oEx. manager loses his job when his firm downsizes; after trying to get back, he can't
compete with younger MBA graduates
oLoss of human capital is particularly acute for older workers
Labour Force Survey
Measures the unemployment rate of Canada each month
Statistic Canada conducts a Labour Force Survey (54,000 households)
Class: The Labour Force Survey deliberately excludes individuals in all of the following
1. Person younger than 15 years old
2. Persons residing in the Yukon, the Northwest Territories, Nunavut, and Aboriginal settlements
3. Full-time members of the armed forces
4. People in jail
Population divided into 2 groups
1. Working-age population: total number of people aged 15 years and older whoa re not in
institutional care (not in jail)
2. People too young to work (under 15 years of age) or in institutional care (in jail)
Working age population divided into 2 groups
1. In labour force: sum of employed and unemployed
oEmployed: person must have either a paid full-time job or a part-time job
Full time workers
Part time workers
Part time workers either want part time work (voluntary part time) or want full
time work (involuntary part time)
oUnemployed: don't have a job, but able and willing and available for work
Must be in one of these 3 categories
Temporary layoff with an exception of recall
Without work, but has looked for work in the past 4 weeks
Has ta new job to start within 4 weeks
2. Not in labour force: people in the working-age population who are neither employed nor

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Jan 12, Jan 13 Lecture 3, 4 2
2 Indicators of the state of the Labour Market
1. The unemployment rate: indicator of the extent to which people who want jobs can't find them
Unemployment rate: % of people in the labour force who are unemployed
oUnemployment rate fluctuates over the business cycle
Increases as a recession deepens
Reaches a peak value after a recession ends
Decreases as the expansion gets underway
2. The labour force participation rate
Labour force participation rate: % of working-age population who are members of the labour
Other Definitions of Unemployment
3 types of underemployed labour excluded from the official measure of unemployment
(imperfect measure)
1. Discouraged searchers
Discouraged searcher: a person who currently is neither working nor looking for work but has
indicated that he or she wants a job, is available for work, and has looked for work sometime in
the recent past but has stopped looking because of repeated failure
oThe official unemployment measure excludes discouraged searchers because they haven't
made specific efforts to find a job within the past 4 weeks
2. Long-term future starts
oSomeone with a job that starts more than 4 weeks in the future is not in the labour force
and not counted as unemployment…
Economic difference: potential source of underestimating the true amount of
3. Involuntary part-timers
oPart timers who would like full-time jobs and can't find them are part-time unemployed
but not counted in the official stats
Most Costly Unemployment
Most costly = long-term unemployment that results from job loss
Note: we are concerned with the DURATION of unemployment
Unemployment and Employment
Full unemployment: situation in which unemployment rate = natural employment rate
When the economy is at full employment, there is no cyclical unemployment
All unemployment is frictional and structural
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