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Formulas

- Employment Rate=number of employed/labour force x 100
- Unemployment Rate=number unemployed/labour force x 100
- Participation Rate=total labour force/total employable population x 100

The Employment Rate

In the year 2000, total number of employed in Canada was 14.9 million. This amounts to a 93.2 per cent national employment rate.

The Unemployment Rate

In the year 2000, total number of unemployed Canadians was `slightly over a million. This amounts to a 6.8 per cent national unemployment rate

The Participation Rate


In the year 2000, the total number of participation rate was 65.9 per cent. The higher the participation rate, the higher proportion of available human resources actually employed and contributing to a nation's aggregate production.

Types of employment

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Full Employment

Full employment is the lowest possible rate of unemployment, making allowances for the portion of unemployment that is inevitable and necessary to keep the rate of price inflation from accelerating. The full employment rate normally includes frictional and structural unemployment and excludes cyclical and seasonal unemployment. The reason why cyclical is excluded is because, this type of unemployment can be effectively controlled by stabilizing the downturns and upswings of the business cycle.
1960 - Economic Council of Canada concluded that a 3 per cent rate of unemployment was reasonable
1966 - Unemployment rate in Canada reached 3.4 per cent
1980 - Full employment rate doubled to 6 per cent in order to reflect increases in the rate of frictional and structural employment

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mid 1990 - Most definitions of full employment included natural unemployment rate between 6 and 7 per cent. Frictional unemployment alone is now estimated to create 3 per cent unemployment at any given time

The Costs of Unemployment

Unemployment can create stress, financial hardship,discouragement, and low self-esteem for jobless workers and families.Human and social costs are difficult to calculate in terms of dollars and cents they must be carefully considered in any assessment of the full impact of unemployment. The emphasis is placed on costs that affect the economy as a whole rather than on individual well-being.
The cost of unemployment for the entire economy is reflected by the GDP gap. The greater the GDP gap, the greater the value of national production lost because of the underemployment of labour resources.

The economic cost of unemployment can be measured as the difference between potential GDP (the level of output that the economy would be able to produce with full employment) and actual GDP (output actually produced by the economy and recorded in the national income and product accounts).
Okun's Law: For every 1 per cent that the actual unemployment rate exceeds the full employment rate, there is a 2 per cent gap in the GDP

Average annual unemployment rates in Canada, 1966-2000

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This graph shows that changes in the level of unemployment seem to follow a cyclical pattern of peaks and valleys The general trend has been upward. Rates averaged about 4 per cent during the late 1960s and climbed to 10 per cent during the 1990s. Here are a list of reasons explaining this gradual escalation of unemployment rates:
  • Globalization has led to increased replacement unemployment as manufacturing jobs continue to migrate to countries with cheaper labour costs
  • High Employment Insurance benefits act as a disincentive to permanent employment.
  • Automation has created technological unemployment as workers continue to be replaced by machines
  • Greater economic freedom and worker mobility have resulted in an increased number of Canadians who are between jobs during any reporting period
The years in this graph that on the peak level are: 1971, 1978, 1983, and 1992. Periods with low unemployment that appear on the troughs are: 1969, 1974, 1979, and 1989. Lowest Unemployment rate on the graph is 1966 and the highest is 1983.

What would you expect the unemployment rate to be in ten years? Leave your comments/thoughts below
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Expansion and Contraction

National production records reveal a continuously alternating pattern of economic slow down, recover, and expansion. These fluctuations are generally referred to as business cycle (see down below). It displays the four general phases which are: peak, recession, trough, and expansion.
Most significant economic downturn since 1926 occurred during the Great Depression of the 1930s. In Canada, between 1929 and 1933, unemployment approached 20 per cent and real GDP declined by 20 per cent. As the economy declines, workers are laid off in response to decreasing demand for the goods and services being produced so this means that unemployment rates climb drastically during a period of contraction. If this contraction is seen to last longer than six consecutive months, the economy is said to be in a recession.
Periods of expansion generally follow recessionary periods. During the first part of an expansionary period, the economy is said to be in the recovery mode.

Business Cycle

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Inflation and Employment

Keynisian Theory: the business cycle model implies that fluctuations in aggregate production levels will cause economies to alternate between periods of inflation or unemployment. During a recession, levels of unemployment are relatively high. With more workers unemployed, consumer spending is adversely affected. Both the amount of money in circulation (money supply) and the rate at which money changes hands through business transactions (velocity of money) are also adversely to reduce aggregate demand and inflationary pressures in the economy: thus, prices generally stabilize
Two types of inflation:
1) demand-pull inflation - results from excessive increases in consumer demand, relative to available aggregate production
2) cost-push inflation - results from the passing down of increased operating costs from producer to consumer
*Therefore, rapid expansion synonymous with inflation, and recession is synonymous with unemployment.

Phillips researched the link between inflation and unemployment rates and that eventually evolved from these studies was a diagram known as Phillips curve, showing a stable and predictable inverse relationship between inflation and unemployment rates. Below is Phillip's curve:

Phillips Curve:

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Effects of Taxation

- discourage investment and corporate expansion
- where consumer and investor confidence is high, lower levels of corporate taxation help to create a business climate conductive to expansion and greater employment opportunities
- levels of personal taxation affect both the disposable income left to consumers and investors and the government's ability to finance the infrastructure improvements necessary to promote increased productivity and economic activity
- have adverse effects on employment levels
- can reduce aggregate demand
- prompt firms to cut employment in order to protect profit levels in a declining marketplace


CITATION

Bolotta, Angelo. Economics Now: Analyzing Current Issues. Don Mills, Ont.: Oxford UP, 2002. Print.


"Unemployment." Web. 22 Apr. 2012. http://www.angelfire.com/biz7/chapter23/FrictionalUnemployment.html.



"Economy Watch - Follow The Money." Unemployment Types. 22 Apr. 2012 <http://www.economywatch.com/unemployment/types/>.