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Econ- Chap 9 - Overview-ch 9 Measuring unemployment Is...

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Unformatted text preview: Overview-ch 9 Measuring unemployment Is unemployment measured Is correctly? correctly? Why is there unemployment? Public Policies and job search Principles of Macroeconomics: Canadian Edition Identifying Unemployment “A job loss means a lower living job standard in the present, anxiety about the future, and reduced self-esteem.” the The problem of unemployment is usually The divided into two categories: divided 1 . The Natural Rate of Unemployment The 2 . The Cyclical Rate of Unemployment Principles of Macroeconomics: Canadian Edition Identifying Unemployment Natural Rate of Unemployment represents Natural persistent joblessness that does not go away on its own even in the long-run. Refers to the amount of unemployment that the economy normally experiences. normally Cyclical Unemployment refers to the year-toCyclical refers year fluctuations in unemployment around its year natural rate. Deals with short-term fluctuations associated with the ups and downs of the business cycle. business Principles of Macroeconomics: Canadian Edition IDENTIFYING UNEMPLOYMENT IDENTIFYING Describing Unemployment – Three Basic Questions: How does government measure the How economy’s rate of unemployment? economy’s What problems arise in interpreting the What unemployment data? unemployment How long are the unemployed typically How without work? without Measuring Unemployment Monthly Unemployment Rate is Monthly calculated by Statistics Canada, surveying nearly 60,000 randomly selected households and categorizing each adult (i.e. >15 years old) as: 1 . Currently employed (have a paying job). Currently 2 . Unemployed but actively seeking a job. 3 . Not in the labour force (i.e. neither of Not above). above). Principles of Macroeconomics: Canadian Edition MEASURING UNEMPLOYMENT MEASURING Statistics Canada considers a person an adult if Statistics he or she 15 years or older. he A person is considered employed if he or she has person spent most of the previous week working at a paid job. job. A person is unemployed if he or she is on person temporary layoff, is looking for a job, or is waiting for the start date of a new job. for A person who fits neither of these categories, such person as a full-time student, homemaker, or retiree, is not in the labour force. not Measuring Unemployment Measuring The Labour Force is the number of employed Labour persons plus the number of unemployed. LF= plus E+U E+U The Unemployment Rate is: is: u = U/(LF) “u” is the unemployment rate “U” is the number unemployed U” “E” is the number employed “E+U” is the labour force Measuring Unemployment Measuring The Labour-Force Participation Rate illustrates the fraction of the population (15+)that has chosen to participate in the labour market. labour The Labour-Force Participation Rate is: is: LFPR = (LF) / Population(>15) Where LF= E+U DATA—2005 u=6.7% DATA—2005 u= U/LF US unemployment rate US Canadian unemployment Canadian Is Unemployment Measured Correctly? Correctly? In some cases, it is hard to distinguish In between a person who is unemployed and a person who is not in the labour force. person It is suggested that the “unemployment rate It is inaccurately low” because it doesn’t reflect: reflect: – Underemployed – Discouraged workers Is Unemployment Measured Correctly? Underemployed are those who are working part-time when they really want full-time work. work. Discouraged Workers are those who have Discouraged given up looking for work and report that they are no longer in the labour force, when in fact, they would be willing to work if offered a suitable, stable job. if Duration of Unemployment Duration Most of the economy’’s unemployment problem s is attributable to unemployed workers who are jobless for long periods of time. jobless The rate of unemployment is the product of the The number of jobless and their average duration of joblessness. – The average duration of unemployment (>14 The weeks) increased over time from 35% in 1977 to 47% in 1996 and declined after that. 47% MEASURING MEASURING Unemployment rate (“u-rate”): % of the labour force that is unemployed of u-rate= U/LF * 100 LFPR = LF/POP *100 LFPR LFPR UNEMPLOYMENT AND NATURAL RATE RATE Why is there unemployment? Why In an ideal labour market, wages would In adjust to balance the supply of labour and the demand of labour, ensuring all workers full employment. Four reasons why the ideal is missed: – Minimum-wage laws – Unions – Efficiency wages – Job search Why is there unemployment? Minimum-Wage Laws Minimum-Wage When a minimum-wage law forces the When wage to remain above the level that balances supply and demand, it creates a surplus of labour. surplus Why is there unemployment? Minimum-Wage Price of Minimum-Wage Laws Supply labour PM Surplus or Unemployment QD QS Demand Quantity of labour Why is there unemployment? Unions and Collective Bargaining Unions A union is a worker association that union bargains with employers over wages and working conditions. – A union is a type of cartel. The process by which unions and firms The agree on the terms of employment is called collective bargaining. collective Why is there unemployment? Unions and Collective Bargaining Unions A strike will be organized if the union and the firm strike cannot reach an agreement. cannot – A strike makes some workers better off and other strike workers worse off: (1) Striking workers worse off in the short-run. (2) Rehired workers better off in the long-run. long-run. By acting as a cartel with ability to strike or otherwise By impose high costs on employers, unions usually result in above equilibrium wages for their members. in Effects of unions At wages set above equilibrium: – a very large number of qualified workers are very willing to accept the jobs willing – there are very few jobs and seldom any job there openings for aspiring workers openings – workers tend to hold out accepting other jobs workers in hopes of one day landing the high-paying union job union Edition Why is there unemployment? The Theory of Efficiency Wage The Theory is that some firms can operate more Theory efficiently if wages are above the equilibrium above level. Even in the presence of an excess of labour, Even firms may be more profitable by keeping wages higher than equilibrium. wages Unemployment caused by this theory is similar Unemployment to that caused by the minimum-wage laws and unions. unions. Why is there unemployment? The Theory of Efficiency Wage The Higher than equilibrium wages are set to promote Higher the following goals of the firm: the – Worker Health: Better paid workers eat better and Worker thus are more productive. thus – Worker Turnover: A higher paid worker is less likely Worker to look for another job. to – Worker Effort: Higher wages motivate workers to Worker put forward their best effort. put – Worker Quality: Higher wages attract a better pool of Worker workers to apply for jobs. workers Why is there unemployment? Job Search Unemployment Job Search unemployment results from the fact that it Search takes time for qualified individuals to be matched with available jobs. available This unemployment is different from the previous This three types. It is not caused by a wage rate higher than equilibrium. It is caused by the time spent in searching or waiting for the “right” job. “right” Search results from quits, layoffs, entry, re-entry. Search quits, Situations of Job Search Unemployment Unemployment Search unemployment is inevitable Search because the economy is always changing. Situations that cause this type of unemployment include: of – New entrants into the job market New – Re-entrants into the labour force Re-entrants – Relocations Relocations – Job quitters Job Public Policy and Job Search Public Government programs try to facilitate the job Government search process in the following ways: search – – – Government-run employment agencies Government-run Government-run training programs Government-run Employment Insurance programs Employment These programs can either increase or These decrease the time it takes the unemployed to find new jobs. find Public Policy and Job Search Government-run employment agencies: – Gives out information about job vacancies in order Gives to match workers and jobs more quickly. to Government-run training programs: – Aim to ease the transition of workers from Aim declining to growing industries and to help disadvantaged groups escape poverty. disadvantaged Public Policy and Job Search Unemployment Insurance: – Increases the amount of search Increases unemployment without intending to. unemployment – Offers workers partial protection Offers against job loss. against – Partial payment of former wages for Partial a limited time period. limited Conclusion Conclusion Since unemployment can impose unusual Since hardships on individuals and families, it is an important concern of policy-makers. Public policies toward labour markets have Public had conflicting and sometimes contradictory effects. >>>Some policies may create U. effects. ...
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