Overviewch 9

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Overview-ch 9

• Measuring unemployment
• Is unemployment measured correctly?
• Why is there unemployment?
• Public Policies and job searches

Principles of Macroeconomics

Canadian Edition
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Identifying Unemployment

• A job loss means a lower living standard in the
  present, anxiety about the future, and reduced
  self-esteem.
• The problem of unemployment is usually divided
  into two categories
• . The Natural Rate of Unemployment
• . The Cyclical Rate of Unemployment

Principles of Macroeconomics

Canadian Edition
3
Identifying Unemployment

• Natural Rate of Unemployment represents
  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.
• Cyclical Unemployment refers to the year-to-year
  fluctuations in unemployment around its natural
  rate. Deals with short-term fluctuations
  associated with the ups and downs of the business
  cycle.

Principles of Macroeconomics

Canadian Edition
4
IDENTIFYING UNEMPLOYMENT

• Describing Unemployment
• Three Basic Questions
• How does government measure the economys rate of
  unemployment?
• What problems arise in interpreting the
  unemployment data?
• How long are the unemployed typically without
  work?

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Measuring Unemployment

• Monthly Unemployment Rate is calculated by
• Statistics Canada surveying nearly 60,000
  randomly selected households and categorizing
  each adult (i.e. gt15 years old) as
• . Currently employed (have a paying job).
• . Unemployed but actively seeking a job.
• . Not in the labour force (i.e. neither of
  above).

Principles of Macroeconomics

Canadian Edition
6
MEASURING UNEMPLOYMENT

• Statistics Canada considers a person an adult if
  he or she is over 15 years old.
• A person is considered employed if he or she has
  spent most of the previous week working at a paid
  job.
• A person is unemployed if he or she is on
  temporary layoff, is looking for a job, or is
  waiting for the start date of a new job.
• A person who fits neither of these categories,
  such as a full-time student, homemaker, or
  retiree, is not in the labour force.

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Measuring Unemployment

• A person is employed if he or she has spent most
  of the previous week working at a paid job.
• A person is unemployed if he or she is
• on temporary layoff
• is looking for a job
• is waiting for the start of a new job
• A person in neither category is not in the labour
  force.

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Measuring Unemployment

• The Labour Force is the number of employed
  persons plus the number of unemployed. LF EU
• The Unemployment Rate is
• u U/(LF)
• u is the unemployment rate
• U is the number unemployed
• E is the number employed
• EU is the labour force

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Measuring Unemployment

• The Labour-Force Participation Rate illustrates
  the fraction of the population that has chosen to
  participate in the labour market.
• The Labour-Force Participation Rate is
• PR (LF) / Population

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DATA--2005
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Is Unemployment Measured Correctly?

• It is hard to distinguish between a person who is
  unemployed and a person who is not in the labour
  force.
• It is suggested that the unemployment rate is
  inaccurately low because it doesnt reflect
• Underemployed
• Discouraged workers

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Is Unemployment Measured Correctly?

• Underemployed are those who are working part-time
  when they really want full-time work.
• Discouraged Workers are those who have 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.

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Duration of Unemployment

• Most of the economys unemployment problem is
  attributable to unemployed workers who are
  jobless for long periods of time.
• The rate of unemployment is the product of the
  number of jobless and their average duration of
  joblessness.
• The average duration of unemployment (gt14 weeks)
  increased over time from 35 in 1977 to 47 in
  1996 and declined after that.

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MEASURING

• Unemployment rate (u-rate) of the labour
  force that is unemployed
• u-rate U/LF 100
• LFPR LF/POP 100

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LFPR
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UNEMPLOYMENT AND NATURAL RATE
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Why is there unemployment?

• In an ideal labour market, wages would 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

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Why is there unemployment? Minimum-Wage Laws

• When a minimum-wage law forces the wage to remain
  above the level that balances supply and demand,
  it creates a surplus of labour.

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Why is there unemployment? Minimum-Wage Laws
Price of labour
Supply
PM
Surplus or Unemployment
Demand
Quantity of labour
QS
QD
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Why is there unemployment? Unions and Collective
Bargaining

• A union is a worker association that bargains
  with employers over wages and working conditions.
  
• A union is a type of cartel.
• The process by which unions and firms agree on
  the terms of employment is called collective
  bargaining.

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Why is there unemployment? Unions and Collective
Bargaining

• A strike will be organized if the union and the
  firm cannot reach an agreement.
• A strike makes some workers better off and other
  workers worse off (1) Striking workers worse
  off in the short-run. (2) Rehired workers better
  off in the long-run.
• By acting as a cartel with ability to strike or
  otherwise impose high costs on employers, unions
  usually result in above equilibrium wages for
  their members.

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Are unions good or bad for the economy?

• At wages set above equilibrium
• a very large number of qualified workers are
  willing to accept the jobs
• there are very few jobs and seldom any job
  openings for aspiring workers
• workers tend to hold out accepting other jobs in
  hopes of one day landing the high-paying union job

Edition
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Why is there unemployment? The Theory of
Efficiency Wage

• Firms operate more efficiently if wages are above
  the equilibrium level.
• Even in the presence of an excess of labour,
  firms may be more profitable by keeping wages
  higher than equilibrium.
• Unemployment caused by this theory is similar to
  that caused by the minimum-wage laws and unions.

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Why is there unemployment? The Theory of
Efficiency Wage

• Higher than equilibrium wages are set to promote
  the following goals of the firm
• Worker Health Better paid workers eat better
  and thus are more productive.
• Worker Turnover A higher paid worker is less
  likely to look for another job.
• Worker Effort Higher wages motivate workers to
  put forward their best effort.
• Worker Quality Higher wages attract a better
  pool of workers to apply for jobs.

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Why is there unemployment? Job Search
Unemployment

• Search unemployment results from the fact that it
  takes time for qualified individuals to be
  matched with available jobs.
• This unemployment is different from the previous
  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.

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Situations of Job Search Unemployment

• Search unemployment is inevitable because the
  economy is always changing. Situations that
  cause this type of unemployment include
• New entrants into the job market
• Re-entrants into the labour force
• Relocations
• Job quitters

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Public Policy and Job Search

• Government programs try to facilitate the job
  search process in the following ways
• Government-run employment agencies
• Government-run training programs
• Employment Insurance programs
• These programs can either increase or decrease
  the time it takes the unemployed to find new
  jobs,.

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Public Policy and Job Search

• Government-run employment agencies
• Gives out information about job vacancies in
  order to match workers and jobs more quickly.
• Government-run training programs
• Aim to ease the transition of workers from
  declining to growing industries and to help
  disadvantaged groups escape poverty.

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Public Policy and Job Search

• Unemployment Insurance
• Increases the amount of search unemployment
  without intending to.
• Offers workers partial protection against job
  loss.
• Partial payment of former wages for a limited
  time period.

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Conclusion

• Since unemployment can impose unusual hardships
  on individuals and families, it is an important
  concern of policy-makers.
• Public policies toward labour markets have had
  conflicting and sometimes contradictory effects.
  gtgtgtSome policies may create U.