Ch. 6: Unemployment

Unemployment

The difference between the quantity of labour supplied and the quantity of labour demanded

Unemployment Rate

• Percentage of the labour force that is unemployed

• Labour force survey

• Must be actively looking and available for work within the past four weeks

• =(number of unemployed/ labour force) x 100

• UR= Incidence of unemployment/year X Average Duration of unemployment in the year

Problems with Official Unemployment Figures: Inactive Job Seekers

Could overstate the unemployment rate

Problems with Official Unemployment Figures: Discouraged Workers

• Persons who want a jobs but have given up looking

• Understate the rate

Problems with Official Unemployment Figures: Underemployed Workers

• Involuntary part-time work

• Under state the rate

Problems with Official Unemployment Figures: Marginal Workers

• Weak attachment to the labour force

• Come and go regarding status

To What Extend Does the Unemployment Rate Measure Economic Hardship?

• Measures the amount of unused labour and the amount of economic hardship

• Associated with unemployment is not as severe when families have more than one breadwinner

• Unemployment insurance reduces this

• Depends on the duration of the unemployment

  • Long term vs short term

Utilization of Labour

• AKA Employment Rate

• =(total number of employed/population) x 100

• Easier to determine

Three Main Characteristics of Unemployment in Canada

1. The unemployment rate has gradually increased since WW2

2. There have been large fluctuations in the unemployment rate

   • From 2% to 12% due to Recessions and Expansions

3. Unemployment rates tend to remain high for some period

Flow Amoung Three Labour Market

Frictional Unemployment

• Normal turnover of labour

  • Inevitable in a well-functioning labour market

• Recent grads

• Workers between jobs

Seasonal Unemployment

• Resulting from the decline in the number of jobs at certain times of the year

• UR seasonally adjusted

Structural Unemployment

• Resulting from a mismatching of workers and job opportunities based on either skills or geography

• Caused by Industrial restructuring and technological change

• Globalization is contributing to sectoral shifts

Cyclical Unemployment

• Arises because the economy does not generate enough jobs for those seeking one

• Natural: The unemployment rate that exists when the economy is functioning at full capacity

• The difference between the actual rate of unemployment and the natural rate

Why the Natural Unemployment Rate has Increased

• Natural UR = Frictional + Structural

• Demographic Shifts

• Employment Insurance

• Industrial Restructuring

• Technological Change