Principles of Macroeconomics PDF - Canadian Edition

PowerPoint Presentations for Principles of Macroeconomics Eighth Canadian Edition by Mankiw/Kneebone/McKenzie Adapted for the Eighth Canadian Edition by Marc Prud’Homme Univer...

PowerPoint Presentations for Principles of Macroeconomics Eighth Canadian Edition by Mankiw/Kneebone/McKenzie Adapted for the Eighth Canadian Edition by Marc Prud’Homme University of Ottawa Copyright © 2020 by Nelson Education Ltd. 9-1 UNEMPLOYMENT AND ITS NATURAL RATE Chapter 9 Copyright © 2020 by Nelson Education Ltd. 9-2 UNEMPLOYMENT AND ITS NATURAL RATE  The problem of unemployment is usually divided into two categories:  The long-run problem  The short-run problem  The economy’s natural rate of unemployment refers to the amount of unemployment the economy normally experiences. Copyright © 2020 by Nelson Education Ltd. 9-3 UNEMPLOYMENT AND ITS NATURAL RATE  Cyclical unemployment is the year-to-year fluctuations in unemployment around the natural rate.  It is closely associated with the short-run ups and downs of economic activity. Copyright © 2020 by Nelson Education Ltd. 9-4 UNEMPLOYMENT AND ITS NATURAL RATE  Some of the relevant facts that describe unemployment are:  How is unemployment measured?  What problems arise in interpreting the unemployment data?  How long does the typical spell of unemployment last?  Explanations for the economy’s natural rate of unemployment are:  Job search  Minimum-wage laws  Unions Copyright © 2020 by Nelson Education Ltd. 9-5  IDENTIFYING UNEMPLOYMENT HOW IS UNEMPLOYMENT MEASURED?  Every month, Statistics Canada (SC) conducts the Labour Force Survey (LFS).  Sample of 54 000 households where data are produced on:  Unemployment  Types of employment  Length of the average workweek  Duration of unemployment Copyright © 2020 by Nelson Education Ltd. 9-6  IDENTIFYING UNEMPLOYMENT HOW IS UNEMPLOYMENT MEASURED? (CONT’D)  Statistics Canada places each adult (aged 15 and older) in each surveyed household into one of three categories:  Employed  Unemployed  Not in the labour force Copyright © 2020 by Nelson Education Ltd. 9-7  IDENTIFYING UNEMPLOYMENT HOW IS UNEMPLOYMENT MEASURED? (CONT’D)  A person is employed if he or she spent some of the previous week working at a paid job.  A person is unemployed if he or she is on temporary layoff or is looking for a job.  A person who fits neither of the first two categories, such as a full-time student, homemaker, or retiree, is not in the labour force. Copyright © 2020 by Nelson Education Ltd. 9-8 FIGURE 9.1 The Breakdown of the Population in 2017 Copyright © 2020 by Nelson Education Ltd. 7-9  IDENTIFYING UNEMPLOYMENT HOW IS UNEMPLOYMENT MEASURED? (CONT’D)  Once the surveyed individuals are categorized, Statistics Canada will compute various statistics to summarize the state of the labour market.  Labour force is the total number of workers, including both the employed and the unemployed. Copyright © 2020 by Nelson Education Ltd. 9-10  IDENTIFYING UNEMPLOYMENT HOW IS UNEMPLOYMENT MEASURED? (CONT’D)  Unemployment rate is the percentage of the labour force that is unemployed.  Labour force participation rate is the percentage of the adult population that is in the labour force. Copyright © 2020 by Nelson Education Ltd. 9-11 Active Learning Calculate Labour Force Statistics  Compute the labour force, u-rate, adult population, and labour force participation rate using the following data: Adult population of Canada by group (× 1000) No. of employed 18 055 No. of unemployed 1 346 Not in labour force 10 145 Copyright © 2020 by Nelson Education Ltd. 9-12 Active Learning Answers Labour force = employed + unemployed = 18 055 + 1 346 = 19 401 U-rate = 100 × (unemployed)/(labour force) = 100 × 1 346/19 401 = 6.9% Adult population = labour force + not in labour force = 19 401 + 10 145 = 29 546 LF part. rate = 100 × (labour force)/(population) = 100 × 19 401/29 546 = Copyright 65.7% © 2020 by Nelson Education Ltd. 9-13 TABLE 9.1 The Labour-Market Experiences of Various Demographic Groups Copyright © 2020 by Nelson Education Ltd. 9-14 FIGURE 9.2 Canadian and Regional Unemployment Rates, 1966–2017 Copyright © 2020 by Nelson Education Ltd. 9-15 FIGURE 9.3 Labour-Force Participation Rates for Women with Young Children Copyright © 2020 by Nelson Education Ltd. 9-16  IDENTIFYING UNEMPLOYMENT DOES THE UNEMPLOYMENT RATE MEASURE WHAT WE WANT IT TO?  Because people move into and out of the labour force often, statistics on unemployment can be difficult to interpret.  Unemployed people who are not trying hard to find a job.  People calling themselves unemployed in order to receive unemployment insurance.  People who are officially unemployed but are working “under the table.”  Discouraged searchers are individuals who would9-17 Copyright © 2020 by Nelson Education Ltd. TABLE 9.2 Alternative Measures of Labour Underutilization Copyright © 2020 by Nelson Education Ltd. 9-18  IDENTIFYING UNEMPLOYMENT HOW LONG ARE THE UNEMPLOYED WITHOUT WORK?  In 2017, the average spell of unemployment lasted 17.8 weeks.  From Table 9.2:  One-third of those suffering through a spell of unemployment are unemployed for a month or less.  Three-fifths are unemployed for less than three months.  Policy solutions directed toward fixing the unemployment problem should be directed at those suffering prolonged Copyright © 2020 by Nelson Education Ltd. 9-19  IDENTIFYING UNEMPLOYMENT WHY ARE THERE ALWAYS SOME PEOPLE UNEMPLOYED?  There are always workers without jobs, even when the overall economy is doing well.  Natural unemployment rate is the rate of unemployment to which the economy tends to return in the long run.  The natural rate of unemployment in Canada is between 6 percent to 7 percent.  The observed unemployment rate fluctuates around the Copyright © 2020 by Nelson Education Ltd. 9-20 FIGURE 9.5 Observed and Natural Unemployment Rates, 1966–2018 Copyright © 2020 by Nelson Education Ltd. 9-21 Quick Qui z How is the unemployment rate measured? How might the unemployment rate overstate the amount of joblessness? How might it understate it? Copyright © 2020 by Nelson Education Ltd. 9-22  IDENTIFYING UNEMPLOYMENT WHY ARE THERE ALWAYS SOME PEOPLE UNEMPLOYED? (CONT’D)  This chapter focuses on the determinants of the natural (long-run) unemployment rate.  There are four reasons for explaining unemployment in the long run. The first one is the existence of frictional unemployment.  Frictional unemployment is unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills. It is often thought to explain relatively short spells of unemployment.  Job search is the process by which workers find appropriate jobs given their tastes and skills. It is one reason why economies always experience some unemployment.  Changes in the composition of demand among industries or regions are called sectoral shifts. Copyright © 2020 by Nelson Education Ltd. 9-23 TABLE 9.4 Job Creation and Destruction Copyright © 2020 by Nelson Education Ltd. 9-24  IDENTIFYING UNEMPLOYMENT WHY ARE THERE ALWAYS SOME PEOPLE UNEMPLOYED? (CONT’D)  Even if some frictional unemployment is inevitable, the precise amount is not.  The faster information spreads about job openings and worker availability, the more rapidly the economy can match workers and firms.  The Internet, for instance, may help facilitate job search and reduce frictional unemployment.  In addition, public policy may play a role by reducing the time it takes unemployed workers to find new jobs, it can reduce the Copyright © 2020 by Nelson Education Ltd. 9-25 economy’s natural rate of unemployment.  IDENTIFYING UNEMPLOYMENT WHY ARE THERE ALWAYS SOME PEOPLE UNEMPLOYED? (CONT’D)  Government programs try to facilitate the job search in various ways:  Government-run employment agencies, which give out information about job vacancies.  Public training programs, which aim to ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty.  Employment insurance (EI) is a government program that partially protects workers’ incomes when they become Copyright © 2020 by Nelson Education Ltd. 9-26 unemployed. Quick Qui z Would an increase in the world price of oil affect the amount of frictional unemployment? Is this unemployment undesirable? What public policies might affect the amount of unemployment caused by this price change? Copyright © 2020 by Nelson Education Ltd. 9-27  MINIMUM-WAGE LAWS  Let’s now examine how structural unemployment results when the number of jobs is insufficient for the number of workers.  Minimum-wage laws (the second reason for explaining unemployment in the long run) affect unemployment by setting the wage above the equilibrium level.  The quantity of labour supplied exceeds the quantity of labour demanded, and workers are unemployed because they are waiting for jobs to open up. Copyright © 2020 by Nelson Education Ltd. 9-28 FIGURE 9.6 Unemployment from a Wage above the Equilibrium Level Copyright © 2020 by Nelson Education Ltd. 9-29 Quick Qui z Draw the supply curve and the demand curve for a labour market in which the wages are fixed above the equilibrium level. Show the quantity of labour supplied, the quantity demanded, and the amount of unemployment. Copyright © 2020 by Nelson Education Ltd. 9-30  UNIONS AND COLLECTIVE BARGAINING  A Union (the third reason for explaining unemployment in the long run) is a worker association that bargains with employers over wages and working conditions.  When a union bargains with a firm, it asks for higher wages, better benefits, and better working conditions than the firm would offer in the absence of a union.  Collective bargaining is the process by which unions and firms agree on the terms of employment.  Strike is the organized withdrawal of labour from a firm by a union.  When a union raisesCopyright the ©wage above 2020 by Nelson the Education Ltd. equilibrium level, it9-31  UNIONS AND COLLECTIVE BARGAINING  Workers who remain employed are better off.  Workers who lose their jobs are worse off.  It is believed that unions cause conflict between the insiders and the outsiders.  Critics of unions argue that they are merely a type of cartel.  Advocates of unions contend that unions are  A necessary antidote to the market power of the firms that hire workers.  Important for helping firms respond efficiently to the Copyright © 2020 by Nelson Education Ltd. 9-32 concerns of workers. Quick Qui z How does a union in the auto industry affect wages and employment at General Motors and Ford? How does it affect wages and employment in other industries? Copyright © 2020 by Nelson Education Ltd. 9-33 THE THEORY OF EFFICIENCY WAGES  Efficiency wages (the fourth reason for explaining unemployment in the long run) are above-equilibrium wages paid by firms in order to increase worker productivity.  According to this theory, higher wages may increase the efficiency of workers and increase the profitability of the firm, even if it causes a surplus of labour (or unemployment).  Possible efficiency-wage theories:  Worker health  Worker turnover  Worker effort  Worker quality Copyright © 2020 by Nelson Education Ltd. 9-34 Quick Qui z Give four explanations for why firms might find it profitable to pay wages above the level that balances quantity of labour supplied and quantity of labour demanded. Copyright © 2020 by Nelson Education Ltd. 9-35 Classroom Activity Who is Unemployed? Classify each of the following individuals in one of the following categories: employed, unemployed, or not in the labour force. 1. Steve worked 40 hours last week in a Music Supply store. 2. Last week, Elizabeth worked 10 hours as a computer programmer for the National Video Company and attended night classes at the local college. She would prefer a full-time job. 3. Roger lost his job at the R-gone Manufacturing Company. Since then he has been trying to find a job at other local factories. Copyright © 2020 by Nelson Education Ltd. 9-36 Classroom Activity Who is Unemployed? (cont’d) 4. Linda is a homemaker. Last week she was occupied with her normal household chores. She neither held a job nor looked for a job. 5. Linda’s father is unable to work. 6. Scott has a Ph.D. He worked full-time but doesn’t like his job as a dishwasher. He has applied for jobs with three companies and five universities. As soon as he gets an offer, he’ll quit his current job. 7. Mary-Helen has been out of work for a full year. She would take a job if it was offered, but Copyright no © 2020 local by Nelson companies Education Ltd. are hiring. She 9-37is THE END Copyright © 2020 by Nelson Education Ltd. 9-38