Chapter 11 - Notes

11.1 - Unemployment and Employment

• Working age population: people aged 15 or older (excluding those in Canadian Armed Force or institutionalized - those who live in a nursing home, mental health residential facility or prison)
• Those who work at least one hour during the week for pay of some kind, then they are considered employed
  • Also considered are people who have jobs but are temporarily absent
• Unemployed are people in the working-age population without jobs but who are trying to get jobs
  • Criteria:
    • Part of working-age population
    • Not currently working
    • Actively searching for work
    • Able to accept a job if it were offered
• Labour force is employed plus unemployed
• Not in the labour force: If you're in the working-age population but you're neither employed or unemployed - that could be in school, retired, taking care of another family member
• Labour force participation rate: $$\text{Labour force participation rate} = \frac{\text{Employed + Unemployed}}{\text{Working-age Population}}\times 100$$
• Labour force participation rate differs between men and women
• Unemployment rate: $$\text{Unemployment rate} = \frac{\text{Unemployed}}{\text{Labour force}}\times 100$$$$\text{Unemployment rate} = \frac{\text{Participation Rate} - \text{Employment Rate}}{\text{Participation Rate}}$$
• Unemployment rate is never zero and fluctuates.
  • When economy grows, unemployment rate tends to fall
  • When economy slows down, unemployment rate tends to rise
• Equilibrium unemployment rate is the long-run unemployment rate to which the economy tends to return
• Long term unemployment: When someone spends more than six consecutive months unemployment
  • May lose skills which makes it even harder to find employment

11.2 - The Dynamics of the Labour Market

• Discouraged searchers: People who want to work but are not currently searching
• There are also people who are considered "waiting"
• Underemployed: People who want a full-time job but aren't getting the full-time hours or if the job you're getting isn't adequately using your skills
• Involuntary part time: If you have a part-time job but want a full-time position.

11.3 - Understanding Unemployment

Types of Unemployment

1. Frictional Unemployment
   • Unemployment due to the time it takes for employers to search for workers and for workers to search for jobs
   • Even if labour supply equals labour demand, the matching of workers to employers isn't instantaneous
2. Structural Unemployment
   • Unemployment because wages don't fall to bring labour demand and supply into equilibrium
   • Since wages are higher than equilibrium, more people want to work, but employers off fewer jobs
   • Things that lead to this are unions, government policies
3. Cyclical Unemployment
   • Unemployment due to a temporary downturn in the economy
   • Explains why unemployment rate rose during 2008-2009 recession and why it fell after the economy recovered
   • Calculated by:

Frictional Unemployment Factors

• Efficiency of technology, networks and other resources that help workers find jobs
  • The better workers are at identifying jobs best suited for them, the less time they spend looking for a job and thus lower the frictional unemployment
• Distribution of skills among workers compared to distribution of skills needed by employers
  • The more diverse workers and jobs are, the more difficult it is for workers and employers to find the right match
  • Mismatched skills or not adapting to new technologies also affects frictional unemployment
• Workers' access to financial support when they're looking for work
  • EI can lead to a longer unemployment

Personal referrals help to find jobs

Structural Unemployment Factors

• 
• Efficiency wages - when employers deliberately pay above the market wage
  • Many workers want that job but there end up being more unemployed in the hopes they get that job
• Unions can keep wages high for some workers
• Job protection regulations make it hard to fire workers
  • Makes employers more hesitant and causes employees to be more slack-off ish
• The minimum wage keeps wages from falling below the set minimum wage
  • Usually affects teenagers

11.4 - The Cost of Unemployment

Economic Costs

• The unemployed often end up with lower wages and worse career opportunities even after finding work again
  • Earnings loss is especially worse if they lost their job during a recession
  • Men laid off during mass layoffs lose ~1.4 years of earnings when unemployment is low, but ~2.8 years when unemployment is high
• Permanent unemployment can arise from periods of high unemployment
  • Workers lose skills, contacts, and hope — known as hysteresis: when a period of high unemployment leads to a permanently higher equilibrium unemployment rate
    • Higher unemployment -> skills loss/discouragement -> higher equilibrium unemployment rate
  • Even when the economy recovers and jobs are available, it still takes people longer to find them
• High unemployment means government gets less tax revenue but has to spend more on the social safety net

Social Costs

• Unemployed people are sadder, more stressed, more likely to experience depression, anxiety, poverty, and divorce
• Long-term unemployment is associated with even worse outcomes
  • Greater permanent earnings losses, more health problems
  • Job loss nearly doubles chance of dying a year later, and death rates stay higher for decades
• Children of unemployed parents suffer too
  • Worse academic outcomes, worse mental health, worse employment outcomes as adults
  • Parent losing a job while child is in high school = child is less likely to go to college/university

Protecting Yourself from Unemployment

• Do more job searching than you want to — apply if marginal benefit of applying exceeds marginal cost
• Build up a nest egg (3-6 months of expenses saved)
• Keep building new skills so you stay adaptable
• Keep an eye out for better opportunities even while employed
• Tap into your networks and referrals if you become unemployed
• Avoid long-term unemployment — sometimes take the "not perfect" job and keep searching while employed