Unemployment

Question 1

An employed person

Answer 1

Someone who worked full-time or part time during the past week

Question 2

An Unemployed person

Answer 2

Someone who did not work during the past week, but had actively sought work in the previous four weeks, and was available for work

Question 3

2 factors cause the official unemployment rate to understate actual unemployment

Answer 3

• Part time workers are counted as “employed” even when they really want full time work
• “Discouraged workers” who want a job, but are not actively seeking one, are not counted as being in the labour force, so they are not part of the unemployment statistic.

Question 4

Population is divided into 3 groups

Answer 4

1. Those under age 15 or institutionalised
2. Those not in the labour force (sah parents, retirees)
3. Those in the labour force

Question 5

Who are in the Labour Force

Answer 5

Those age 15 and over who are willing and able to work, and actively seeking work within the last 4 weeks. The labour force is divided into employed and unemployed.

Question 6

Unemployment rate

Answer 6

The percentage of the Labour Force that is not employed

Question 7

The unemployment rate is calculated by random survey of 54,000 households nationwide

Question 8

Unemployment rate formula

Answer 8

Question 9

Types of Unemployment

Answer 9

1. Frictional Unemployment
2. Structural Unemployment
3. Cyclical Unemployment

Question 10

Frictional Unemployment

Answer 10

Regarded as somewhat desirable, because it indicates that there is mobility as people change or seek jobs. Frictional unemployment is usually a short term type of unemployment.

Question 11

Structural Unemployment

Answer 11

Occurs when certain skills become obsolete or geographic distribution of jobs changes. This can be a long term type of unemployment.

Question 12

Cyclical Unemployment

Answer 12

Caused by the recession phase of the business cycle. As firms respond to insufficient demand for their goods and services, output and employment are reduced.

Question 13

Extreme unemployment during the Great Depression in 1933 (25%) is an example of cyclical unemployment

Question 14

Full Employment (Nf)

Answer 14

Does not mean zero unemployment but zero cyclical unemployment.
The full employment rate of unemployment (Macroeconomic goal) is also referred to as the “NRU” or Natural Rate of Unemployment.

Question 15

Natural rate is achieved when the labour markets are in balance; the number of job seekers equals the number of job vacancies.

Question 16

The Natural rate of unemployment is defined as the rate of unemployment that would occur in an economy if there were no cyclical unemployment. In other words, it is frictional unemployment plus structural unemployment. It is not observable but estimated.

Question 17

The GDP Gap (Unemployment)

Answer 17

Difference between potential and actual GDP where potential GDP reflects the level of GDP associated with the natural rate of unemployment.

Question 18

Orkun’s law

Answer 18

Okun’s law predicts that a 1% drop in employment tends to be accompanied by a drop in GDP of around 2%.