CH 31 - Unemployment Fluctuations + the Nairu

CH 31 - Unemployment Fluctuations + the Nairu - CHAPTER 31...

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CHAPTER 31 UNEMPLOYMENT FLUCTUATIONS + THE NAIRU 31.1 EMPLOYMENT + UNEMPLOYMENT Canadian employment and the Canadian labor force increased along a strong upward trend throughout the 20 th C. the unemployment rate fluctuates significantly over the course of the business cycle Over the span of many years, increases in the labor force are more or less matched by increases in employment. Over the short-term, however, the unemployment rate fluctuates considerably because changes in the labor force are not exactly matched by changes in employment CHANGES IN EMPLOYMENT In most years, enough new jobs are created both to replace old jobs that have been eliminated and to provide jobs for the growing labor force. The result is a net increase in employment most years CHANGES IN UNEMPLOYMENT During periods of rapid economic growth, the unemployment rate usually falls. During recession periods or slow growth, the unemployment rate usually rises FLOWS IN THE LABOR MARKET The level of activity in the labor market is better reflected by the flows into and out of unemployment than by the overall unemployment rate Looking only at the level of employment or unemployment misses a tremendous amount of activity in the labor market as individuals flow from unemployment to employment or from employment to unemployment. In recent years in Canada, approximately 400,000 people per month flowed between employment + unemployment. This level of gross flows reflects the turnover that is a normal part of any labor market CONSEQUENCES OF UNEMPLOYMENT: Last Output Personal Costs 31.2 UNEMPLOYMENT FLUCTUATIONS Types of Unemploymnet: o Cyclical Unemployment = associated with output gaps due to deviations of GDP from Y* o Frictional Unemployment = which is a result of normal labor-market turnover o Structural Unemployment = caused by the need to reallocated resources among occupations, regions + industries as the structure demand and supply changes Together frictional unemployment, and structural unemployment make up the NAIRU. The actual unemployment rate is equal to the NAIRU when real GDP =
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CH 31 - Unemployment Fluctuations + the Nairu - CHAPTER 31...

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