Chapter 15 Flashcards
In the long run, increases in the labour force are more or less matched by increases in what?
Employment
In the short run, the unemployment rate fluctuates considerably because changes in the labour force are not exactly matched by change in what?
Employment
In most years enough new jobs are created to offset the number of jobs lost, providing jobs for the growing labour force. This increases what in most years?
Net employment
During periods of rapid economic growth the unemployment rate usually what?
It usually falls
During recessions or periods of slow growth the unemployment rate usually what?
Rises
The actual amount of employment is determined both by what?
The demand for labour and by the supply of labour.
What are the 3 main causes of the increase in Canada’s labour force?
- A rising population, which boosts entry into the labour force of people born 15 to 25 years previously.
- Increased labour force participation by various groups, especially women.
- Net immigration of working-age persons.
What do the official data not include, making it understate the full effects of recessions on unemployment?
Discouraged workers
Underemployed workers
What are the 2 costs associated with unemployment?
Lost output
Personal costs
What is NAIRU?
It is the non-accelerating inflation rate of unemployment (this includes frictional and structural unemployment, a.k.a. full employment)
What is cyclical unemployment?
It is unemployment not due to frictional or structural factors (real GDP <Y*)
In “market-clearing” theories, what does real GDP equal to?
Y*
What is the only unemployment in “market-clearing” theories?
Frictional and structural
What is the unemployment rate always equal to?
NAIRU
What are the 2 causes of the fluctuations in employment and real wages as described by market-clearing theories?
- Changes in technology that affect the marginal product of labour will lead to changes in the demand for labour.
- Changes in the willingness of individuals to work will lead to changes in the supply of labour.
Whatever unemployment exists must be caused by what?
Frictional or structural causes, the two components of the NAIRU
What do market-clearing theories of the labour market assume?
That real wages always adjust to clear the labour market.
People who are not working are assumed to have what?
Voluntarily withdrawn from the labour market.
Is there involuntary unemployment?
No
When the wage rate does not change enough to equate quantity demanded with quantity supplied, there will be unemployment in ___ and labour shortages in ___.
Slumps
Booms
Why do wages not quickly adjust to eliminate involuntary unemployment?
- Long-term employment relationships
- Menu costs
- Efficiency wages
- Union Bargaining
When GDP is equal to potential output, the unemployment rate is equal to what? This means that there is only what kind of unemployment?
NAIRU
Frictional and structural
What is frictional unemployment?
The normal turnover of labour causes frictional unemployment to persist, even if the economy is at potential output.
What is structural unemployment?
The mismatch in skills, industry, or location between available jobs and unemployed workers
Greater labour force participation by groups with high unemployment rates increases what?
NAIRU
What is hysteresis?
It is the greek word for “lagged effect”, therefore it represents models where a recession causes a significant group to encounter unusual difficulty obtaining their first jobs, they will be slow to acquire important skills. When demand increases again, this group of workers will take longer to find jobs and the NAIRU will be higher than it would have been had there been no recession.
In a heavily unionized labour force, people who are currently employed (insiders) may use their bargaining power to prevent what?
New entrants from entering the labour force (outsiders).
If outsiders are denied access to the labour market, their unemployment will fail to exert downward pressure on ___, and the NAIRU will tend to ___.
Wages
Rise
Canadian labour markets are increasingly affected by changes in demand and supply conditions ___ ___ ___ ___.
Elsewhere in the world
As Canadian labour markets require more frequent and larger adjustments to economic events occurring in other parts of the world, the NAIRU will tend to ___.
increase
Any government policy that reduces labour market flexibility is likely to ___ the NAIRU.
increase
What do advocates of stabilization policy say about how much the government can and should reduce cyclical unemployment?
Advocates of stabilization policy call for expansionary fiscal and monetary policies to reduce persistent recessionary gaps.
What do advocates of hands-off approach say about how much the government can and should reduce cyclical unemployment?
Advocates of the hands-off approach rely on normal market adjustments to remove recessionary gaps.
Employment insurance (EI) helps people cope, but contributes to ___ unemployment.
search
Frictional unemployment is ___.
inevitable
Structural unemployment is often drive by ___
technological change
What are the 2 approaches to reducing structural unemployment?
- Resist change
- Assist adjustment
Fiscal and monetary policies generally seek to reduce the most persistent of ___ gaps.
recessionary
Social policies (i.e. employment insurance) seek to reduce the sting of ___
Unemployment
