Chapter Seven: Unemployment

The Big Ideas of the Chapter… The definition and causes of economic growth. The nature and cause of the business cycle. The nature of unemployment and its measurement. The definition of inflation and how it is measured. The overall effects of inflation on wealth and output.

What is the Unemployment Rate? Unemployment rate = (unemployed / labour force) × 100 What is the Labour Force? Persons 15 years of age and older who are not in institutions AND who are employed or are unemployed and seeking work.

The Current Situation in Canada

Labour Force Participation Rates

Test Preparation Key Questions 4 and 6 on Page 178.

Three Types of Unemployment Frictional Structural Cyclical

Frictional Unemployment Occurs when unemployed workers and firms are searching for the best available job-match. Includes workers who are temporarily between jobs because of moving to new location or occupation. The term 'frictional' is appropriate because it implies that no system is completely smooth.

Structural Unemployment Changes in technology etc. that alter the "structure" of the demand for labour. The skills of a worker are no longer demanded, like blacksmiths making horseshoes after automobiles were invented. The key difference between frictional and structural unemployment: structurally unemployed workers need retraining so it is more serious.

Cyclical Unemployment Caused by a decline in total spending. Begins during the recession phase of the business cycle. The result of an insufficient demand for goods

What is Full Employment? Full Employment is something less than 100 percent employment of the labor force. It occurs when there is no cyclical unemployment. Some frictional and structural unemployment exists and is necessary for growth.

What is Potential Output? Potential output occurs at the Natural Rate of Unemployment (NRU). This is when the economy is said to be producing its greatest potential output. The NRU occurs when the number of job seekers equals the number of job vacancies. The structurally and frictionally unemployed just need time to be hired.

What are the Economic Costs of Unemployment? The GDP Gap (Difference between Actual and Potential GDP). Okun`s Law (For every 1 percent above NRU, 2 percent of Potential GDP is Lost!). Unequal Burdens (Occupation, Age, Gender, Education). Social Costs and Tensions

Test Preparation Key Question 8. Page 178