Unemployment

Terms

Employed: People working Unemployed: People not working and actively searching for work Labor Force: = Employed + Unemployed

Rates

Unemployment Rate $=\frac{unemployed}{laborforce}\ast 100$ Employment Rate $=\frac{employed}{laborforce}\ast 100$ Participation Rate $=\frac{laborforce}{(15+)population}\ast 100$

Natural Unemployment

5% is the natural rate of unemployment

Hidden Unemployed

These are discouraged and underemployed workers Discourage Worker: People not working and not looking for work Underemployed Worker: Part time workers listed as full time workers

Types Of Unemployment

Structural

Technological

Automation and new technology to replace workers

Replacement

Outsourcing work to workers in foreign countries to replace current workers

Geographical

Unemployment only affects a specific region. Example: Atlantic and northern Canada have the worst poverty rates.

Frictional

Results from people switching jobs or graduating from school.

Cyclical

Caused by shifts in the business cycle

Seasonal

Caused by seasonal variations Jobs to be lost are fishing, farming, construction, etc.

Classical/Real Wage

Wages are driven too high (above the natural wage rate in the labor market) Caused by:

• Government raise minimum wage
• Unions negotiate too high of a wage

Benefit of Full Employment

• Maximizes the labour factor of production
• More consumer spending
  • Thus, less government intervention in wages
    • Less EI payments
    • Higher tax revenue
• Competition & Improvement

GDP Gap

Okun’s Law

For every 1% that unemployment rate exceeds its natural rate, a GDP loss of 2% occurs $GD{P}_{gap}=GDP\ast \frac{(unemploymentrate-naturalrate)\ast 2}{100}$

Societal Costs of Unemployment

• Less consumer spending
• Lower tax revenues
• Lower incomes
• Higher EI payments
• human/societal problem
• loss of skills
• loss of self esteem
• crime
• revolution