Chapter 21 Slides

Chapter 21: Unemployment Overview

• Covers vital topics related to unemployment, including definitions, types, causes, and patterns.

• Importance of understanding unemployment rate due to its significant influence on macroeconomic policies and promises by politicians.

1. Defining and Measuring Unemployment

• General Definition: An adult who is able and willing to work but cannot find a job is considered unemployed.

• Unemployed Resources: Refers to workers who could provide goods or services but are currently without a job.

• Labour and Capital:

  • Labour: Workers providing services.

  • Capital: Equipment or physical tools needed to produce output.

2. Consequences of Unemployment

• Lost Output & Income:

  • Reduced production of goods and services leads to lower incomes.

• Loss of Human Capital:

  • Long-term unemployment can lead to skill deterioration, complicating job retraining.

3. Counting the Number of Unemployed

• Conducted through the Labour Force Survey (LFS) by Statistics Canada.

• Monthly contact with 54,000 households to assess employment status.

4. Key Definitions in Labor Market

• Population: Approximately 37 million people in Canada.

• Working-Age Population: Individuals aged 15 and above.

• Labour Force: Sum of employed and unemployed individuals.

• Employed: Individuals working full-time or part-time.

• Unemployed: Individuals without jobs who have actively sought work, laid off, or awaiting job start.

5. Labor Market Indicators

• Unemployment Rate: (Number Unemployed / Number in Labour Force) x 100

• Participation Rate: (Number in Labour Force / Working-Age Population) x 100

• Employment Rate: (Number Employed / Working-Age Population) x 100

6. Canada’s Population Overview

• Total Population: 37,000,000

• Working-Age Population: 30,000,000

• Labour Force: 20,000,000 (Employed: 19,000,000, Unemployed: 1,000,000)

• Employment Breakdown: Full-Time: 15,000,000; Part-Time: 4,000,000 (Voluntary: 2,800,000; Involuntary: 1,200,000)

7. Unemployment Patterns

• Analyzed over time to evaluate labor market changes.

• Examination of unemployment rates by gender and region reveals significant disparities.

8. Historical Unemployment Trends (1976-2019)

• Sharp increase during recessions in 1982, 1991, and 2009; subsequently, a gradual decrease.

• Observations reveal lower unemployment in 2019 close to a 50-year low.

9. Gender Disparities in Unemployment

• Consistent trend: Male unemployment rate has been higher than female since 1990.

10. Participation Rates Over Time

• Stabilization of participation rates over the last 18 years: 70% for males, 61% for females.

11. Provincial Unemployment Variations

• Higher unemployment rates typically observed from western to eastern provinces.

12. Age-Based Unemployment Rates

• Youth unemployment rates are higher than those of other age groups (15 to 24).

13. Types of Unemployment

• Frictional Unemployment: Results from normal labor turnover (people entering/leaving the workforce).

• Structural Unemployment: Arises from mismatches in skills due to technological changes or market shifts.

• Cyclical Unemployment: Fluctuates with business cycles and economic conditions.

14. Short-Run Causes of Unemployment: Cyclical Factors

• Unemployment increases during recession periods due to falling GDP and reduced labor demand.

15. Short-Run Labor Demand Dynamics

• Labor demand is inversely related to wages; higher wages typically reduce demand.

• Labor supply is positively correlated with wages; more individuals seeking work at higher wages.

16. Long-Run Causes of Unemployment: Frictional and Structural Factors

• Economic growth averages around 2% per year, affecting potential real GDP growth.

• Distinctions between actual and potential GDP lead to varying unemployment levels.

17. Long-Term Unemployment Causes

• Frictional Unemployment is commonly due to voluntary job changes.

• Structural Unemployment results from skill mismatches in changing industries.

18. Natural Rate of Unemployment

• Comprised of frictional and structural elements, estimated at roughly 6% in Canada.

• This natural rate indicates unavoidable unemployment due to job transitions and skills mismatches.

19. Trends in Natural Rate of Unemployment

• Newly observed trends suggest a decline in the natural unemployment rate, attributed to:

  • Enhanced job advertising via the Internet leading to better job matches.

  • Increased education levels improving marketable skills.

  • Removal of mandatory retirement, allowing older workers to fill vacancies.

20. Frictional Unemployment Trends

• Evidence points towards rising employee turnover and changing job search behaviors among current workers.