Chapter 13: Unemployment
WHAT IS UNEMPLOYMENT?
One of the biggest problems facing Canada and any country is the waste of its human
resources. Canadians aged 15 and over who are without work and are actively seeking
employment are classified as unemployed.
 Unemployment rate – is % of members of the labour force who are unemployed.
Some discouraged workers are not officially unemployed because they give up
looking for work even though they still want to work. Full employment Canada is
not 0% because people always looking for a better job or temporarily out of work.
 Regional rates – traditionally unemployment rates have been highest in Atlantic
Canada & Quebec and lowest in Ontario and Alberta
 Unemployed Young adults – ages 15-24 > ages 25
 Unemployed Women > Unemployed Men
Types of Unemployment
 Seasonal – loss of jobs due to changes in the climate and other seasonal
conditions (e.g. construction, farming, fishing)
 Frictional – temporarily unemployed due to the time required to change jobs (e.g.
students leaving school)
 Structural – is the loss of jobs due to:
1. long-term changes in consumer demand (e.g. horses to cars)
2. the decline in natural resources (e.g. cod on Atlantic coast)
3. the development of new technologies (e.g. farm machinery)
4. shifts in trade between nations (e.g. NAFTA)
Retraining and education is the key solution
 Cyclical / Inadequate-Demand
1. trough – low point of business cycle with high unemployment
2. recovery – improving employment as spending increases
3. peak – high levels of employment because of high spending
4. recession – high prices and decreasing demand lead to lower levels of
employment
Great Depression
 1930s saw a prolonged period of high unemployment (>20%) in Canada and
throughout the world that caused great misery
Unemployment since 1945
 Canada has not seen the return of the Great Depression, but still faced the
problem of the business cycle with unemployment rates hitting 12% in the early
80s over 10% in the early 90s
Macro- and micro-economics
 macro-economics is the study of the economy as a whole (e.g. consumption)
 micro-economics is the study of the economic actions of individuals and groups
of individuals (e.g. consumers in Markham)
-2The Leaky Bucket
 simple bucket – a model of how an economy functions
 simple economy I – all consumption (C) is spent by businesses on productive
resources
 simple economy II, with savings (S) – leakage from bucket of savings
 simple economy III, with savings, and investment (I) – injection of investment
offsets the leakage of savings
 causes of changes in savings – influenced by income and spending patterns
 causes of changes in investment – future expectations, interest rates
1. S = I  Equilibrium and stability
2. S < I  Expanding economy as injections > leakages
3. S > I  Contracting economy as leakages > injections
 simple economy IV, with government injections – injection of government
spending (G) is offset by leakage taxation (T)
 simple economy V, with foreign trade – injection of exports (X) make up 25% of
Canadian income and are offset by leakage of imports (M) which are directly
related to income levels
 summary
1. M + T + S = X + G + I  Equilibrium and stability
2. M + T + S < X + G + I  Expanding economy as injections > leakages
3. M + T + S > X + G + I  Contracting economy as leakages > injections
FISCAL POLICY AND EMPLOYMENT
Government spending and taxing decisions are called fiscal policy and they have a
significant impact on employment levels
 automatic stabilizers – changes in G & T that occur automatically with changes in
the economy (e.g. employment, income and output) that stabilize the economy
 discretionary fiscal policy – deliberate change in G & T by the gov’t attempting to
stabilize the economy
 tax leakage – a decrease in T slows this leakage
 import leakage – an increase in taxes on imports slows this leakage
 government spending injection – an increase in G helps fill the bucket
 export injection – subsidies and loans to exporting companies can help as can
lower exchange rates for the Cdn. $
Multiplier Effect
 1 / savings rate  10% saving rate means 1 / .10 = 10
Limitations of fiscal policy to combat unemployment
Reality much more complex than theory. Politicians want to stay in power, so they fear
unpopular policies despite their correctness.
-3Timing of fiscal policy
It is difficult to know for sure where we are on the business cycle which makes it difficult
to know what type of policy is most correct
 recognition lag – time between onset of recession and knowing it has started
 decision lag – time needed to decide which policy is most correct
 implementation lag – time needed for policy to take effect
National and regional effects
 Atlantic Canada has different problems than Central Canada
MONETARY POLICY
 Easy money policy
1. B of C buy bonds
2. B of C lowers bank rate
 Tight money policy
1. B of C sells bonds
2. B of C raises bank rate
Limitations
1. excess reserves – depends on how banks and consumers react
2. timing problem – recognition time lag