1. Under 15 and/or Institutionalized (5.3 million) Not in labor force (9.3 million) Employed (17.3 million) Unemployed (1.4 million) Total population (4.3 million) Labor force (18.7 million) Unemployment rate = 1.4 million 18.7 million X 100 = 7.4% Unemployment rate = # of unemployed labor force X 100 LO2 1©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

2.  How the unemployment rate is understated: Part-Time Employment Statistics Discouraged Workers 2©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

3.  Frictional Unemployment  caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs  Structural Unemployment  caused by Changes over time in consumer demand and in technology alter the “structure” of the total demand for labour, both occupationally and geographically  Cyclical Unemployment  caused by a decline in total spending (or by insufficient aggregate demand)  Seasonal Unemployment  caused by seasonal factors 3©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

4.  Natural rate of unemployment (NRU)  NOT zero unemployment  Occurs when there is no cyclical unemployment  Not automatic  Varies over time 4©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

5.  GDP Gap  GDP gap = actual GDP – potential GDP  Can be negative or positive  Okun’s Law  Every 1% of cyclical unemployment creates a 2% GDP gap 5©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

6. 6©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

7.  Given for 2009:  Unemployment rate is 8.3%  Natural rate is 6.5%  Potential GDP is $1360 billion  What is the GDP gap?  8.3%  6.5% = 1.8% (gap in % terms)  1.8% X 2 = 3.6% (apply Okun’s Law)  3.6% of $1360 billion = $49 billion 7©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

8.  Unequal Burdens  Occupation  Age  Gender  Education 8©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

9. 9©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

10.  Unemployment means idleness  Increases poverty, heightens racial and ethnic tensions, and reduces hope for material advancement  Severe unemployment can lead to rapid and violent social and political change  higher unemployment linked to increases in suicide, homicide, and physical and mental illness 10©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

11. 11©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2

12. 12©2013 McGraw-Hill Ryerson Ltd.Chapter 7, LO2