Chapter 9 Flashcards
How does Statistics Canada classify individuals in the labour market?
Employed – People currently working for pay.
Unemployed – People without a job who are actively seeking work.
Not in the labour force – People not seeking work, such as retirees, students, and homemakers.
How is the labour force participation rate calculated?
Labour Force Participation Rate = (Labour Force / Adult Population) × 100
How is the unemployment rate calculated?
Unemployment Rate = (Unemployed / Labour Force) × 100
What are the three main types of unemployment?
Frictional Unemployment – Temporary unemployment due to job searching or transitioning.
Structural Unemployment – Mismatch between skills and job availability, often due to technological change.
Cyclical Unemployment – Unemployment caused by fluctuations in the business cycle.
What is the natural rate of unemployment?
The rate of unemployment that the economy normally experiences, including frictional and structural unemployment but not cyclical unemployment.
What is the difference between discouraged searchers and the unemployed?
Discouraged searchers want to work but have stopped looking for a job, so they are not counted as unemployed in official statistics.
What is an efficiency wage?
A wage above equilibrium that firms voluntarily pay to increase worker productivity by reducing turnover, improving effort, and attracting higher-quality workers.
How do minimum wage laws contribute to structural unemployment?
If the minimum wage is set above equilibrium, it causes labour supply to exceed labour demand, leading to surplus unemployment.
What was the economic impact of Fresco v. CIBC (2020, 2022)?
The court ruled that overtime pay must be provided even if not pre-approved, reinforcing workers’ rights under the Canada Labour Code.
How did the rise of the Japanese auto industry affect the Canadian labour market?
It increased competition, making demand for Canadian autoworkers more elastic, forcing unions to accept lower wage increases or risk job losses.
How does employment insurance (EI) impact the labour market?
EI reduces income uncertainty, but it also increases frictional unemployment by decreasing the urgency to find a job.
How do unions impact wages and employment?
Higher wages – Unionized workers earn 10-20% more than non-unionized workers.
Lower employment – By pushing wages above equilibrium, unions reduce labour demand and cause structural unemployment.
What type of unemployment is a factory worker laid off due to automation and struggling to find a new job because of a lack of tech skills?
Structural unemployment – The worker’s skills are outdated due to technological change.
What happens to the unemployment rate and labour force participation rate when a student graduates and starts looking for a job?
The unemployment rate increases (new job seeker), and the labour force participation rate increases (more people in the workforce).
What happens to employment if a country raises its minimum wage above the market equilibrium?
Unemployment increases because labour supply exceeds labour demand.
What type of unemployment is a worker who is fired for poor performance but finds a new job within two weeks?
Frictional unemployment – The worker is between jobs but will be re-employed quickly.
What type of unemployment occurs when a city’s only coal mine shuts down, and workers struggle to find jobs elsewhere?
Structural unemployment – Jobs in that industry no longer exist.
Why is frictional unemployment inevitable?
The economy constantly evolves, with new industries emerging and others declining. Job searching and transitioning take time.
How does a binding minimum wage create unemployment?
If the minimum wage is above equilibrium, firms demand fewer workers while more people want jobs, creating a labour surplus.
How do efficiency wages impact employment?
Efficiency wages increase unemployment by setting wages above equilibrium, but they boost productivity and reduce turnover.
Why do governments provide employment insurance (EI)?
To reduce income uncertainty, but it also increases unemployment duration by lowering the incentive to find work quickly.
How does collective bargaining affect unemployment?
Unions negotiate higher wages, but at the cost of fewer jobs, leading to structural unemployment.
What are the three labour market classifications used by Statistics Canada?
Employed – People currently working for pay.
Unemployed – People without a job who are actively seeking work.
Not in the labour force – People not seeking work, such as retirees, students, and homemakers.
What is the formula for the unemployment rate?
Unemployment Rate = (Number of Unemployed / Labour Force) × 100
What is the difference between nominal wages and real wages?
Nominal wage – Wage measured in current dollars, not adjusted for inflation.
Real wage – Wage adjusted for inflation, reflecting true purchasing power.
What is underemployment, and how does it affect the labour market?
Underemployment occurs when workers have jobs that do not fully utilize their skills or when they work part-time but want full-time employment. It is not counted in the unemployment rate, which can distort economic data.
What is the natural rate of unemployment, and what does it include?
The natural rate of unemployment is the rate the economy experiences in the long run, including frictional and structural unemployment, but not cyclical unemployment.
What is discouraged worker unemployment, and why is it significant?
Discouraged workers want to work but have stopped looking for a job. They are not counted in the unemployment rate, which can make labour market conditions appear better than they really are.
What is the impact of a binding minimum wage on employment?
If the minimum wage is above equilibrium, labour supply exceeds labour demand, leading to structural unemployment.
How do efficiency wages create unemployment?
Firms pay wages above equilibrium to improve productivity and reduce turnover, but higher wages reduce demand for labour, creating unemployment.
What is collective bargaining, and how does it impact unemployment?
Higher wages – Unionized workers earn 10-20% more than non-unionized workers.
Lower employment – By pushing wages above equilibrium, unions reduce labour demand and cause structural unemployment.
A country has: Population = 1,000,000, Labour Force = 600,000, Unemployed = 50,000. What is the unemployment rate?
(50,000 / 600,000) × 100 = 8.33%
If 30,000 discouraged workers start looking for jobs again, what happens to the unemployment rate?
The labour force increases, meaning the unemployment rate temporarily rises because there are now more unemployed people actively searching.
Why do unemployment rates tend to underestimate true unemployment during recessions?
Many discouraged workers stop looking for jobs, meaning they drop out of the labour force and are not counted as unemployed.
What type of unemployment is a factory worker who loses their job due to automation and lacks the skills for a new job?
Structural unemployment – The worker’s skills are outdated due to technological change.
What happens to the unemployment rate when a student graduates and starts looking for a job?
The unemployment rate increases because a new job seeker enters the labour force.
What happens to employment if a country raises its minimum wage above equilibrium?
Unemployment increases because more workers want jobs, but fewer are hired.
What type of unemployment is a worker who is fired but finds a new job within two weeks?
Frictional unemployment – The worker is between jobs but will be re-employed quickly.
What was the legal impact of Fresco v. CIBC (2020, 2022)?
The court ruled that overtime pay must be provided even if not pre-approved, reinforcing workers’ rights under the Canada Labour Code.
How does Employment Insurance (EI) affect job search behaviour?
EI reduces income uncertainty, but it also increases frictional unemployment by decreasing the urgency to find work.
How does a recession affect cyclical unemployment?
Cyclical unemployment rises because businesses cut jobs due to lower demand.
How does the Japanese auto industry impact Canadian autoworkers?
It increases global competition, making demand for Canadian workers more elastic, forcing unions to accept lower wage increases or risk job losses.
