The Labour Market: Unemployment Flashcards
Employment-Population Ratio
During a recession, the employment-population ratio declines and the unemployment rate increases.
Employment population ratio: proportion employed relative to total working age population
During an expansion, the employment-population ratio increases, and the unemployment rate decreases.
Supply & Demand of Labor
Supply & Demand of Labor: Recessions
Unemployment
In order to be classified as unemployed in Canada, an individual of working age (16 years and older) must be:
- Available for work
- Looking for work
- Unable to find work
Unemployment Rate
Unemployed / Labour Force
Differences in the measurement of unemployment: Canada and the US
Why is the unemployment rate higher in Canada than in the U.S.?
Differences in how unemployment is measured account for about 0.8 to 0.9 percentage points of the unemployment rate gap.
In the U.S., a “passive” job searcher is not counted as an unemployed person
hence more likely to be classified as Not in the Labor Force in the U.S.
In the US, the age of the sample commences at 16 years, whereas in Statistics Canada’s Labour Force Survey, it is 16 years of age.
In Canada, military reserves are not measured.
In both countries, institutionalized persons are not covered (i.e. prisoners - Incarceration rate is much higher in the U.S.).
The unionization rate is also higher in Canada: 30% versus 10%
Employment insurance rules
More likely to receive benefits in Canada; for longer
Labour Markets
Labour markets serve as a proxy for the overall health of the economy.
Fundamentally, workers create GDP
Natural Rate of Unemployment
The rate of unemployment that would obtain in “normal times” reflecting:
- Labour mobility
- Changing jobs/industries
- Leaving and re-entering the labour force
- Immigration
There is always some unemployment. The natural rate of unemployment is the average level around which the unemployment rate fluctuates.
Usually, this is estimated for a particular year by averaging all the unemployment rates from 10 years earlier and 10 years later.
Okun’s Law
An increase in unemployment above its natural level leads to a fall in GDP relative to potential.
One way to think about potential GDP and natural unemployment is as trends in these variables.
Payroll Jobs
Growth in payroll jobs are better predictors