ECON 1010 Chapter Notes - Chapter 21: Unemployment Benefits, Real Wages, Business Cycle

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24 Jul 2016
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Chapter 21 – Monitoring Jobs and Inflation
Employment & Unemployment:
Unemployment is a serious and social economic problem because of:
oLost Incomes and Production
Job losses are devastating for people that bear them and they make unemployment a
frightening prospect for everyone.
Unemployment benefits create a safety net but don’t fully replace lost earnings.
Lost production = decrease in consumption, decrease in investment in capital, lowering the
living standard in both the present and the future.
oLost Human Capital
Prolonged unemployment permanently damages a person’s job prospects by destroying human
capital.
The Labor Force Survey:
The working age population is the total number of people aged 15 years and over, divided into:
oThose in the labor force.
oThose that aren’t in the labor force.
To be counted in the survey as employed, a person must have either a full time or part time job.
To be counted in the survey as unemployed, a person must be available to work and:
On temporary lay off with an expectation of recall.
Without work but has been searching in the past 4 weeks.
Has a new job to start within the next 4 weeks.
4 Labor Market Indicators:
1) The Unemployment Rate:
% Of people in the labor force who are unemployed.
UR = # of People Unemployed X 100
The Labor Force
LF = # of People Employed + # of People Unemployed
2) The Involuntary Part Time Rate:
% Of people in the labor force who work part time but want full time jobs.
IPTR = # of Involuntary Part Time Workers X 100
The Labor Force
3) The Labor Force Participation Rate:
% Of the working age population who are members of the labor force.
LFPR = Labor Force X 100
Working Age Population
4) The Employment to Population Ratio:
% Of people of working age who have jobs.
EPR = # of People Employed X 100
Working Age Population
* The EPR fluctuates the business cyclefalls in a recession and rises with an expansion
Other Definitions of Unemployment:
3 types of employment are excluded from the official measure:
1) DISCOURAGED SEARCHERS
A person who currently is neither working or looking for work, but wants and is available for a job but stopped
looking due to repeated failure.
2) LONG TERM FUTURE STARTS
Someone with a job that starts more than 4 weeks in the future is not included in the labor force.
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