Labour Economics assignment 1
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Chapter16.pptxChapter Sixteen Unemployment
Meaning, Measurement and Canada’s Experience
© 2012 McGraw-Hill Ryerson Ltd.
Prepared by Dr. Amy Peng
Ryerson University
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Learning Objectives
Explain how unemployment and the unemployment rate are defined and measured.
Explain why the measurement of unemployment is often controversial, and describe alternative measures that can be used.
Summarize the salient features of Canada’s unemployment experience and how it compares to those of other developed countries.
Define the labour force participation rate and the employment rate, and explain why these measures are often used in addition to the unemployment rate to provide a complete picture of the state of the labour market.
Explain the meaning of the incidence and duration of unemployment and describe how each contributes to the extent of unemployment.
Describe the dynamic nature of the Canadian labour market and explain the implications of this feature for understanding movements in unemployment.
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Measuring Unemployment
Unemployment:
Those who are not currently employed and who indicate by their behaviour that they want to work at the prevailing wages and working conditions
Labour Force Survey (LFS):
Conducted monthly by Statistics Canada
People categorized as unemployed if they did not work but were actively searching for work
People categorized as employed if they did any work for a pay
Employed plus unemployed make the labour force
Unemployment rate is defined as the number of unemployed divided by the labour force
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Canadian Experience
1929: The Great Depression unemployment rate soared to 20%
During the World War II the unemployment rate fell
In the recession periods of 1957–58, 1974–75, and 1981–82 the unemployment rate increased
After a brief economic slowdown in 2001, the Canadian economy experienced strong growth in the first part of the 21st century. By 2006, the unemployment rate had fallen to 6.0 percent, its lowest level since the early 1970s.
The global financial crisis that began in 2008 esulted in a deep recession in many countries. Canada’s economic downturn was less severe but the unemployment rate rose to 8.3 percent in 2009
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Unemployment in Canada, 1921–2010
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Alternative Measures of Labour Force Activity
Unemployment rate is used to measure the aggregate labour market activity and the degree that the labour force is utilized
The employment and labour force participation rates focus on the fraction of the working age population that are employed and in the labour force respectively
Unemployment rate measures the fraction of the labour force that is out of work and searching for a job
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Labour Force Participation, Employment, and Unemployment, Canada, 1946–2010
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International Differences in Unemployment
In the 1950s, unemployment rates were higher in the U.S than those in Australia and Japan
With the first OPEC oil shock in 1973, unemployment rose in a few European countries
During the 1990s further increases in unemployment took place in France, Germany, and Italy
Since 2000, unemployment rates have remained low in English speaking countries
The worldwide financial crisis and the associated 2008-09 recession resulted in dramatically higher unemployment in many advanced economies.
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Civilian Unemployment Rates, 1970-2010 (approximating U.S. concepts)
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Hidden Unemployment
Individuals may be without work and yet they desire to work but are not classified as unemployed
During recession where few jobs are available, the phenomenon of the discouraged worker appears
Discouraged workers are not employed and yet are not seeking work because they think that no work is available
The number of discouraged workers increases during a recession
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Labour Force Dynamics
Labour Market Stocks and Flows:
Flows that occur each month between the labour force of employed, unemployed, and not in the labour force
On average every month 235,000 unemployed workers obtain jobs
190,000 workers lost or left jobs and joined the pool of job searchers
Average net monthly flow was 45,000
The probability of an unemployed worker becoming employed is 0.22
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Labour Force Dynamics
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The average net monthly flow is 235,000 - 190,000 =45,000 from U to E.
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Decomposition of Unemployment by Reason, 2000–2010
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Labour Force Dynamics
Incidence and Duration of Unemployment:
The incidence of unemployment: is the proportion of individuals who become unemployed in any period
The duration of unemployment: is the length of time spent in the unemployment state before obtaining employment or leaving the labour force
Incidence: measures the probability of a member of the group becoming unemployed
Duration: measures the length of time the individual can be expected to remain unemployed
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Labour Force Dynamics
Incidence and Duration of Unemployment:
Incidence of unemployment: measured as a fraction of labour force
Amount of unemployed is affected by both incidence and duration
UR = I (incidence) X D (duration)
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Incidence and Duration of Unemployment by Age and Sex, Canada, 2010
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Changing Perspectives on Unemployment
The data collected to date leads to the following conclusions:
The labour force is highly dynamic
About half the flow into unemployment is due to individuals losing their jobs
Even in 2010 (a time of above-normal unemployment) the average duration of unemployment was approximately three months, with only about one-fifth of all unemployment spells lasting more than six months.
The age groups with highest unemployment rate have lowest duration, but the highest incidence of unemployment
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International Differences in Long-Term Unemployment
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Unemployment Rate as a Summary Statistic
Unemployment rate is widely used as an economic indicator of:
Aggregate state of the economy
Tightness/Looseness of the labour market
Measure of the amount of unutilized labour supply
Increasing in periods of low or negative economic growth
Measures the extent of hardship in an economy, region, or time period
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Summary
Unemployment definition and measures
Canadian experience: history of events
Hidden unemployment: timing, causes, and consequences
Labour market stock and flows followed by statistics
Incidence and duration of unemployment plus research findings
Unemployment rates as a summary statistic
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