Textbook Notes (369,067)
Canada (162,366)
York University (12,903)
Economics (1,011)
ECON 1010 (256)
Jean Adams (10)

ECON Notes

5 Pages

Course Code
ECON 1010
Jean Adams

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CHAPTER 21: MONITORING JOBSAND INFLATION ECON1010 Week 3 • Unemployment is a problem because it creates: o Lost production o Lost human capital o Human misery • Unemployment rises in recessions and falls in boom years • When conducting a labour force survey: o Two groups:  Working-age population (over 15, not in institutional care)  Under-age or institutionalized o Labour force participation rate = % of working-age population in labour force/total working-age population • Underemployment rate is designed to measure the underutilization of labour resources; the rate can be imperfect because it excludes: o Marginally attached workers  Aperson who is not actively working or looking for work but has looked for work in the recent past and has indicated that they want and are available for a job  Adiscouraged worker is a marginally attached worker who has stopped looking for a job due to repeated failure o Part-time workers who want full-time jobs  Involuntary part-time rate: number of involuntary part-time workers/labour force • Long-term unemployment that results from job loss is the most costly • Three types of unemployment: o Frictional  Unemployment that arises from normal labour market turnover  Creation and destruction of jobs requires that unemployed workers search for new jobs  Increases in people entering the labour force and increases in unemployment benefits raise frictional unemployment  Permanent and healthy phenomenon in a growing economy o Structural  Unemployment created by changes in technology and foreign competition that changes the skills needed for jobs  Lasts longer than frictional unemployment o Cyclical  Higher than normal unemployment at a business cycle trough and lower than normal unemployment at business cycle peak • Natural Unemployment; Unemployment that arises from frictions and structural change when there is no cyclical unemployment; all frictional and structural unemployment • Natural unemployment rate = natural unemployment/labour force * % • Full employment: When unemployment rate = natural unemployment rate; occurs when cyclical unemployment does not exist • The natural unemployment rate changes over time due to: o Age distribution of population o Scale of structural change o Real wage rate o Unemployment benefits • GDP and unemployment over the cycle: o Potential GDP is the quantity of real GDP produced at full employment o Potential GDP corresponds to the capacity of the economy to produce output on a sustained basis o Real GDP – Potential GDP = Output gap o Output gap fluctuates and the unemployment rate fluctuates over the business cycle o When the output gap is negative, the unemployment rate exceeds the natural unemployment rate o • Low, steady, and anticipated inflation or deflation is not a problem • Unpredictable inflation is a problem because it: o Redistributes income and wealth  Income is redistributed in arbitrary ways between employers and workers and borro
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