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
Part-time workers wanting part-time work (voluntary part-time)
Part-time workers wanting full-time work (involuntary part-time)
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
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
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)
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