1
unemployment an economic indicator which measures the percentage of the labour force which is unemployed. 2
Terms associated with unemployment statistics: labour force population all residents of Canada 15 years of age and over, except those living in Northwest, Nunavut, and Yukon Territories, on first nations reserves, in institutions, and full time members of the armed forces. labour force people in the labour force population who are working or who are actively looking for work. 3
participation rate the percentage of the entire labour force population that makes up the labour force. participation rate = labour force x 100 labour force population 4
Page 246 5
unemployment rate = labour force that is unemployed x 100 labour force 6
page 246 7
Limitations of the unemployment rate: Underemployment no distinction is made for part time work or people who are working in jobs not suited to their skills and education. Discouraged workers people who have given up looking for work are not included. ** Both the above cause the real rate to be understated. Dishonesty people claim to be actively looking for work but have no desire to hold a job causing the real rate to be overstated. 8
Types of Unemployment: Frictional workers who are between jobs or just entering the workforce. This is a permanent type of unemployment and represents approximately 3% of the labour force. Structural unemployed cannot fill the jobs that are available. Example: skills may become obsolete or location of work is not practical. Cyclical unemployment that results from fluctuations in production and spending. Seasonal unemployment due to the seasonal nature of jobs. 9
Full Employment: the highest reasonable expectation of employment for the economy as defined by the natural unemployment rate which includes frictional unemployment. The natural rate of unemployment is defined at between 6% and 7% so full employment is between 93% and 94%. 10
Page 249 11
The difference between the natural rate and the actual rate of unemployment is increasing because of: Structural change an increase in the service sector, technology, and removal of trade barriers have resulted in long term structural unemployment. Unemployment insurance people can take time looking for work due to this assistance causing an increase in frictional unemployment. Participation rates increase in numbers of young Canadians participating in the labour force. Due to lack of skills, more likely to lose jobs. 12
The Costs of Unemployment: Effects on individuals stress, discouragement, disrupt family life, lower self esteem, and financial troubles. Effects on the economy loses the output that the unemployed could produce. To measure the cost of the loss of output, the difference between potential output (what the economy is capable of producing) and actual output is determined. This is referred to as the output gap. Okun's Law states for every point that the unemployment rate exceeds the natural unemployment rate, the output gap increases by 2.5%. 13