Unemployment in Economics

Unemployment Overview

  • Definitions:
    • Equilibrium Unemployment (Natural Rate of Unemployment): The amount of unemployment normally experienced in an economy.
    • Cyclical Unemployment: Year-to-year fluctuations in unemployment around the natural rate; relates to short-term economic changes.

Measurement of Unemployment

  • Labour Force Survey (LFS): Conducted monthly by Statistics Canada, surveying the working-age population (aged 15+).
  • Categories:
    • Employed: Those who worked at least one hour in the previous week, including self-employed and those on temporary leave.
    • Unemployed: Those not currently working but actively searching for a job.
    • Not in Labour Force: Neither employed nor unemployed.
  • Labour Force: Total of employed and unemployed individuals.
    • Formula: Labour \, Force = Employed + Unemployed

Statistics Measured

  • Unemployment Rate (U):

    • Calculated as the percentage of the labour force that is unemployed.
    • Formula: U = \frac{No. \, of \, unemployed}{Labour \, Force} \times 100
    • Example: For 1,245,200 unemployed out of a labour force of 21,557,800, the unemployment rate is 5.8%.

  • Labour Force Participation Rate (LFPR):

    • Percentage of the adult population that is part of the labour force.
    • Formula: LFPR = \frac{Labour \, Force}{Adult \, Population} \times 100

  • Employment Rate (E):

    • Percentage of the adult population that is employed.
    • Formula: E = \frac{No. \, of \, employed}{Adult \, Population} \times 100

Employment and Unemployment Dynamics

  • Trends indicate monthly 300,000 new jobs created while an equal number leave the workforce.
  • Job-seeking dynamics often include:
    • Most unemployed people are still employed elsewhere while seeking new opportunities.
    • Unemployment periods are typically short (10 weeks or less), but longer terms lead to skill loss and can render individuals discouraged.

Types of Unemployment

  • Frictional Unemployment: Temporary unemployment during job searches.
  • Structural Unemployment: Arises when economic shifts alter required skills, leading to mismatches in the labour market.
  • Cyclical Unemployment: Occurs due to downturns in the economy.

Costs of Unemployment

  • Economic Impacts:

    • Long-term unemployment can reduce earning potential, leading to long-lasting financial reduction.
    • Government revenues drop while spending on unemployment benefits increases.

  • Social Consequences:

    • Relationships can suffer, resulting in health issues including anxiety or depression, and adverse outcomes for children of unemployed individuals.

Protecting Against Unemployment

  • Job Search Strategies:
    • Proactively engage in job searching beyond comfort zones to enhance chances of employment.
    • Create financial security by saving three to six months of expenses.
    • Continuously build skills and maintain a professional network for future opportunities.

Conclusion

  • Understanding unemployment involves multifaceted dynamics of the labour market, with implications affecting economic health and individual well-being.