Labour Market & Economic Growth (Chapter 15 & 17) ECO1006F

Labour Market Indicators

• The working-age population is the total number of people between 15 and 64 years old.
• The labour force is the total number of people employed plus the number of unemployed.
• Employed individuals are those who are aged 15-64 years, did any work for at least one hour, or had a job or business but were not at work.

Unemployment Definition

• Unemployment definitions vary slightly between countries, but most use the same general definition.
• The two main categories of unemployment definitions are Official (Narrow) Unemployment and Extended (Broad) Unemployment.

Official (Narrow) Unemployment Definition

• Unemployed persons are those aged 15-64 years, not employed in the reference week, actively looking for work or trying to start a business in the four weeks preceding the survey interview, and available for work.
• Or, those who had not actively looked for work in the past four weeks but had a job or business to start at a definite date in the future and were available.

Extended (Broad) Unemployment Definition

• Unemployed persons are those aged 15-64 years, not employed in the reference week, and available to work but did not look for work because they are discouraged from looking for work.

Influences on Natural Unemployment

• The age distribution of the population affects natural unemployment, with a young population having a high level of frictional unemployment and an ageing population having a low level.
• The real wage rate influences natural unemployment, with a rate above the market equilibrium level creating a surplus of labour and increasing the natural unemployment rate.
• Unemployment benefits increase the natural unemployment rate by lowering the opportunity cost of job search.

Unemployment and Real GDP

• The unemployment rate fluctuates around the natural unemployment rate, causing real GDP to fluctuate around potential GDP.
• When the unemployment rate is above the natural rate, real GDP is below potential GDP.
• When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP.

Output Gap

• The output gap equals real GDP minus potential GDP, expressed as a percentage of potential GDP.

Test your understanding of labour market indicators, types of unemployment, and the link between unemployment and real GDP. Assess your knowledge of labour demand and supply, and the sources of economic growth. Review the key concepts from Chapter 15 and 17 of ECO1006F.