Economics, Lecture 8 - unemployment

Includes definitions and formulas

What happens during the ‘peak’ phase of a business cycle?

Real GDP reaches its maximum after rising during a recovery

What happens during the ‘recession’/’contraction’ (used interchangeably) phase of a business cycle?

It results in a downturn in the business cycle during which Real GDP declines over 2 consecutive quarters, and the unemployment rate rises.

What happens during the ‘trough’ phase of a business cycle?

Real GDP reaches its minimum after falling during a recession

What happens during the ‘recovery/expansion’ (used interchangeably) phase of a business cycle?

It results in an upturn in the business cycle during which Real GDP rises, and the economy approaches full employment.

Civilian labour force

People aged 16 years or older who are either employed or actively seeking employment, excluding members of the armed forces, homemakers, and individuals in institutions.

Employed

Anyone who works at least one hour a week for pay or at least 15 hours per week as an unpaid worker in a family business

Unemployed

Anyone who is 16 years of age and above who is actively seeking employment

Discouraged workers

A person who wants to work, but who has given up searching for work because he/she believe there will be no job offers

Underemployed

People who are working part-time but want to work full-time or people working below their skill levels.

Unemployment rate

The percentage of people in civilian labour force who are without jobs and are actively seeking jobs.

Unemployment rate formula

(Number of people unemployed / Labour force) × 100%

Labour force participation rate

The proportion of working-age population that engages actively in the labour market, either by working or looking for work

Labour force participation rate formula

(Labour force / Working-age population) × 100%

Frictional unemployment

Temporary unemployment caused by the time required of workers to move from one job to another / Normal search time required by workers with marketable skills who are changing jobs, entering, or reentering the labour force, or seasonally unemployed.

Structural Unemployment

Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities

Cyclical unemployment

Unemployment caused by the lack of jobs during a recession

Full employment / Natural rate of unemployment (used interchangeably)

The situation in which an economy operates at an unemployment level equal to the sum of frictional and structural unemployment