Ch 9 Unemployment and the Labour Market 2024

Chapter 9: Unemployment and the Labour Market

How is Unemployment Measured?

• Labour Force Survey (LFS)

  • Conducted monthly by Statistics Canada.

  • Sample survey of 50,000 households collecting data on:

    • Unemployment

    • Types of employment

    • Length of the average work week

    • Length of unemployment

Categories in the Labour Force Survey

• Individuals are classified into one of three categories:

  1. Employed: Worked during the previous week for pay or profit.

  2. Unemployed: Actively looking for work in the last four weeks, on temporary layoff awaiting return to a job, or has definite arrangements for a new job within four weeks.

  3. Not in the labour force: Does not fit into either of the above categories.

Key Statistics Computed from LFS

1. Working-age population: Civilian, non-institutionalized individuals aged 15+ available for work.

2. Labour force: Sum of employed and unemployed individuals.

   • Formula: Labour Force = Employed + Unemployed

3. Employment rate: Percentage of employed people compared to the working-age population.

   • Formula: Employment Rate = (Employed / Working-age Population) x 100%

4. Unemployment rate: Percentage of unemployed individuals in the labour force.

   • Formula: Unemployment Rate = (Unemployed / Labour Force) x 100%

5. Labour force participation rate: Percentage of the working-age population involved in the labour force.

   • Formula: Labour Force Participation Rate = (Labour Force / Working-age Population) x 100%

Trends in Unemployment Rates (1976 - 2020)

• Historical context and fluctuations:

  • Unemployment peaks and declines during significant recessions (e.g., 2008-2009, 1981-1982).

  • April 2020 marked a significant spike in unemployment due to economic shutdowns.

Shortcomings of Unemployment Rate Measurement

• Cyclic nature of employment:

  • Does not capture the entire picture of labour market conditions.

  • Unemployment rates can understate the depth of economic downturns.

• Considerations of discouraged and underemployed workers:

  • Discouraged workers stop seeking employment due to market conditions.

  • Underemployed individuals either work part-time when desiring full-time or hold jobs beneath their skill level.

Economic Context of Unemployment

• Structural and cyclical factors affecting unemployment rates:

  • Natural and cyclical unemployment categories:

    • Natural Rate of Unemployment: Long-term average.

    • Cyclical Unemployment: Short-term fluctuations around this average.

Long-term Unemployment Dynamics

• Causes of Natural Unemployment:

  1. Frictional Unemployment: Caused by individuals transitioning between jobs.

  2. Structural Unemployment: Mismatch between worker skills and job requirements.

  3. Real Wage/Classical Unemployment: High wages reduce demand for labour, leading to excess supply.

Government Response to Unemployment

• Policies to mitigate unemployment impact:

  • Establishment of employment agencies.

  • Public training programs for transitions between industries.

  • Employment insurance (EI) to support unemployed individuals.

  • Emergency programs (CERB, CESB) during crises.

Equilibrium in the Labour Market

• Demand/Supply Model:

  • Interaction of labor demand (firms) and supply (workers) determines labor price (wage).

  • Equilibrium occurs when quantity demanded equals quantity supplied.

Market Surplus and Wage Dynamics

• Surplus of Labor: Occurs when supply exceeds demand, resulting in unemployment.

• Reasons wages may not decrease:

  1. Minimum wage laws set above equilibrium wages.

  2. Unions influence wage levels.

  3. Efficiency wages: Higher wages intended to boost productivity, even at the risk of surplus.

Cyclical Unemployment Dynamics

• Characteristics of Cyclical Unemployment:

  • Resulting from economic slowdowns.

  • Wages are often sticky, leading to delays in response to shifts in market conditions.

Conclusion

• Understanding these aspects of unemployment is crucial for analyzing economic health and formulating appropriate public policy.