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Chapter 21

Economics 1022 Chapter 21 notes

4 Pages

Course Code
Economics 1022A/B
Jeannie Gillmore

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Chapter 21 Employment & Unemployment  Unemployment: Loss of a job often causes: o Lost incomes and production o Lost human capital, which lowers the living standards in both present and future.  Labour force survey: A monthly survey conducted by Statistics Canada that asks 54000 households questions about age and job market status of each household member. o Working-age population: Total number of people aged 15 years and over  Labour force: Sum of the employed and unemployed  Employed:  Full-time worker  Part-time workers wanting part-time work (voluntary part-time)  Part-time workers wanting full-time work (involuntary part-time)  Unemployed:  Must be available for work  In one of three categories: o Without work but has made effort to find a job within the last 4 weeks o Laid off from a job and waiting to be called back to work o Waiting to start a new job within four weeks o (People who are neither employed nor unemployed are not classified in the labour force).  Labour market indicators: o Unemployment rate: % of people in the labour force who are unemployed  ⁄  Increases as recession deepens, reaches peak after recession ends.  Decreases as economy booms, reaches a trough after boom ends. o Involuntary part-time rate: % of people in the labour force who work part-time but want full-time jobs.  ⁄ o Labour force participation rate: % of working age population who are members of the labour force  ⁄ o Employment to-population ratio: % of people working age who have jobs  ⁄  Fluctuates with the business cycle, falling in a recession and rising in an expansion.  Other definitions of employment: o Marginally attached worker: A person who currently is neither working nor looking for a job, but has indicated that he or she wants a job and is available and has looked for work sometime in the recent past (excluded from labour force). o Discouraged worker: A marginally attached worker who has stopped looking for a job because of repeated failure to find one (excluded from labour force). Unemployment & Full Employment  Frictional unemployment: o Unemployment that rises from normal market turnover o Includes people entering and leaving the labour force, and creation and destruction of jobs o Permanent and healthy phenomenon in a dynamic, growing economy  Structural unemployment o Unemployment that arises when changes in technology or international competition 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 relocate o Difficult for older workers, who may decide to retire or take lower-skilled jobs as the alternative  Cyclical unemployment: Unemployment that fluctuates over the business cycle (recession)  Natural unemployment: o Unemployment that arises from frictions and structural changes (with no cyclical unemployment) o Natural employment rate: Natural unemployment expressed as a percentage of the labour force  Age distribution of the population: An economy with a younger population has a large number of job seekers and high levels of frictional unemployment.  Scale of structural change: Amount of structural change and unemployment depends on the pace and volume of technological change and the change driven by international competition  Real wage rate: Minimum wage and efficient wage (wage set above the going market wage to attract skilled workers) affects the natural employment rate.  Unemployment benefits: Increases the natural unemployment rate by lowering the opportunity cost of searching for jobs. o Full employment: A situation where unemployment rate equals the natural unemployment rate  Real GDP & Unemployment over the Cycle o At full employment,  Natural unemployment rate equals the unemployment rate  Real GDP equals potential GDP o Over the business cycle, real GDP fluctuates around potential GDP (output gap) o When the unemployment rate is less than the natural unemployment rate, real GDP is greater than potential GDP (vice versa). Price Level & Inflation & Deflation  Price level: The average level of price o Inf
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