SAYRE | MORRIS Seventh Edition Measuring the Economy: Unemployment and Inflation CHAPTER 4 4-1© 2012 McGraw-Hill Ryerson Limited

Unemployment When persons 15 years old and over are actively seeking work but do not have employment Working-age population the country’s total population, excluding: those under 15 years of age; those living in the three territories or on aboriginal reserves; and full-time members of mental and penal institutions or hospitals, and those in the armed forces © 2012 McGraw-Hill Ryerson Limited4- 2 LO1

Unemployment © 2012 McGraw-Hill Ryerson Limited4- 3 LO1 Total population34.2 Working-age population27.7 Labour force18.5 Employed17.0 Unemployed 1.5 Source: Adapted from Statistics Canada CANSIM Database, Tables and Population and Employment Canada 2010 (millions)

Unemployment Labour force members of the working-age population, who are either employed or unemployed Employed those who are in the labour force and hold paid employment Unemployed those who are in the labour force and actively seeking employment, but do not hold paid employment © 2012 McGraw-Hill Ryerson Limited4- 4 LO1

Unemployment Participation rate members of the working-age population, who are either employed or unemployed © 2012 McGraw-Hill Ryerson Limited4- 5 LO1 Participation Rate = labour force x 100 working-age population Participation Rate = labour force x 100 working-age population Canada’s participation rate for 2010: 18.5 x 100 = 66.8% 27.7

Unemployment Unemployment rate the percentage of those in the labour force who do not hold paid employment © 2012 McGraw-Hill Ryerson Limited4- 6 LO1 Unemployment rate = # unemployed x 100 labour force Unemployment rate = # unemployed x 100 labour force Canada’s unemployment rate for 2010: 1.5 x 100 = 8.1% 18.5

TABLE 4.3 Unemployment Rates, Canada Selected Years 1993– © 2012 McGraw-Hill Ryerson Limited LO1 YearTotal (%)Male (%)Female (%) Source: Adapted from Statistics Canada, CANSIM Database, Table

TABLE 4.3 Unemployment by Province © 2012 McGraw-Hill Ryerson Limited LO1 Unemployment % Newfoundland and Labrador 14.4 Prince Edward Island 11.2 Nova Scotia 9.3 New Brunswick 9.3 Quebec 8.0 Ontario 8.7 CANADA8.0 British Columbia7.6 Alberta6.5 Manitoba5.4 Saskatchewan5.2 Source: Adapted from Statistics Canada, CANSIM Database, Table

Types of Unemployment Frictional Unemployment unemployment caused by the fact that it takes time for people to find their first job or to move between jobs Structural Unemployment unemployment that results from a mismatch in the skills or location between jobs available and people looking for work. © 2012 McGraw-Hill Ryerson Limited4- 9 LO2

Types of Unemployment Cyclical Unemployment occurs as a result of the recessionary phase of the business cycle Discouraged Worker an individual who wants work but is no longer actively seeking it because of the belief that no opportunities exist © 2012 McGraw-Hill Ryerson Limited4- 10 LO2

Types of Unemployment Full Employment situation in which there is only frictional and structural unemployment cyclical unemployment is zero Natural Rate of Unemployment the unemployment rate at full employment © 2012 McGraw-Hill Ryerson Limited4- 11 LO2

Criticisms of the Official Rate The reported unemployment rate may be: Understated because part-timers are included as full-timers; Understated because it excludes discouraged workers; Overstated because of false information from some EI recipients; or Overstated because of false information from those working in the underground economy © 2012 McGraw-Hill Ryerson Limited4- 12 LO2

Costs of Unemployment GDP Gap the difference between potential GDP and actual GDP (real or nominal) © 2012 McGraw-Hill Ryerson Limited4- 13 LO2 GDP Gap = Potential GDP – Actual GDP

Costs of Unemployment Okun’s Law for every 1 percent of cyclical unemployment an economy’s GDP is 2.5 percent below its potential © 2012 McGraw-Hill Ryerson Limited4- 14 LO2 GDP gap = 2.5  cyclical unemployment (%)  actual GDP (real or nominal) Example: if UE = 8%, natural rate = 6%, GDP = $1622 b GDP gap = 2.5 x 2% x $1622 billion = $81.1 billion