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“This lecture. We re going to be looking. Nat unemployment and inflation. The syllabus includes includes looking at what employment.
Nand unemployment are we re also going to be taking look at what nfull employment is and how it relates to unemployment and lastly. We re going to be looking at inflation. Nand deflation. Let s start off with employment and.
Unemployment so why is unemployment actually a problemwe nhear it all the time unemployment rates are high. But why is that actually a bad thing well unemployment means that someone has nlost their job and to lose their job means that they ve also nlost their income and when someone loses their income. It leads nto somewhat of a domino effect and this domino effect goes as follows a nloss in income results in a loss in production. Which then results in a loss in consumption nwhich results in a loss of investment and causes lower standards of living in the present nand.
The future. We also have the loss of human capital and human capital. Is simply the skills. The nknowledge and the experience possessed by an individual prolonged exposure to unemployment.
Actually ndamages a person s job. Prospects because they lose human capital. Let s take a look at a few definitions before nmoving on to labour market indicators. The working age population is defined as the ntotal number of people aged 15 years and over the labour force.
Which is a part of this nworking age population is simply the members that are either employed or unemployed. The number of people in the labour force is nequal to the number of people employed. Plus. The number of people unemployed to be employed a person must have either na full time or a part time job to be unemployed.
There are a couple of conditions nthat must be satisfied first of all a person must be available for nwork and they must satisfy one of the following three criteria they could either be on temporary layoff with nan expectation of recall and. This recall could be at any point in time they could be without work. But has looked nfor work in the past 4 weeks..
And that s a key part of the definition. 4. Weeks or they have a new job and they re going nto be starting it within 4 weeks those are the criteria. One of the last 3 nand.
The first one that i mentioned at the beginning must be met you could also not be in the labour force nat. All that s simply just people who are of working nage who are not employed or unemployed. The first labour market indicator that we re ngoing to look at is the unemployment rate. You hear this one all the time.
The unemployment rate is simply the percentage nof. People in the labour force. Who are unemployed and this indicates the extent to which people nwant to find jobs. But can t find them the unemployment rate is calculated as the nnumber of people unemployed divided by the labour force multiplied by 100 let s take a look at this example here.
A country has a working age population of n22 million 16. Million of these people are employed 2 million are unemployed and 1 nmillion of the employed are working part time half of whom wish to work full time. What is the unemployment rate. There are a lot of variables here so let s nonly take into account.
The ones that we actually need to find the unemployment rate. Which is the number of people unemployed and nthe labour force. The number of people employed is 16 million. The number of people unemployed is 2 million.
We re not explicitly given the labour force nhere. But we can calculate that let s start of with the unemployment rate. The number of people unemployed is given to nus 2 million simple as that but the labour force is not give to us. But if you remember we do know that the nlabour force is equal to the number of people employed.
Plus. The number of people unemployed both of those values are actually given to nus. We have 16 million people that are employed nplus 2..
Million. People that are unemployed and that gives us our labour force of 18 million npeople to calculate the unemployment rate. We re njust going to plug it into the equation. We have 2 million people that are unemployed ndivided by 18 million people that are employed.
Plus. Unemployed. Which is the labour force that gives us our unemployment rate of 111 . Our next labour market indicator is the involuntary npart time rate.
The involuntary part time rate is simply the npercent of people in the labour force who work part time jobs. But want full time jobs. This is calculated as the number of involuntary npart time workers divided by the labour force multiplied by 100 let s take a look at an example. We have the same numbers from last time.
We re ngiven all the same values. But this time we need the number of involuntary npart time workers and the labour force the number of involuntary part time workers nis simply 05. Million. If you notice you might think that are employed working part time.
But if we read the question closely it says nhalf of these people wish to work full time. So the other half are actually okay with working npart time it s only. 05. Million people or 500000.
People nthat are actually working part time and want to work full time. These are the only people counted as involuntary npart time workers. We also have the labour force. Which is 18 nmillion.
It s the same way of calculation as we did nfor the last example and it s 18 million now all we need to do is plug it into the nequation we have 05. Million. Divided by 18 million nmultiplied by 100 and that gives us 28..
now i want to make a distinction here because nwe have. 05. Million but we can also say 500000. What we want to do is that we want to make nsure the the units in both the numerator and denominator are kept constant just so that nwe get the right value let s move on to the next labour market indicator nand.
This is the labour force participation rate. This is simply defined as the percentage of nthe working. Age population who are members of the labour force. This is calculated by simply dividing the nlabour force by the working age population and multiplying.
It by 100 let s use the same example here. But let s ntake out the stuff that we don t need to calculate the labour force. We already nknow. We take 16 million that are employed plus.
The 2 million. That are unemployed and nwe add them together and we get 18 million. The working age population is actually also njust given to us 22 million. We re going to take those two values.
We re ngoing to take the labour force. We re going to divide that by the working age population that s 18 million divided by 22 million and nwe re going to multiply that by 100 that ll give us our labour force participation nrate of 818. . Now the next one that we re going to be looking.
Nat. Is the employment to population ratio. And this is simply the percentage of people nof working age who have jobs. This is an indicator of the availability of njobs and the ability to match skills of people to jobs.
This is simply calculated as the people employed ndivided by the working age population multiplied by 100 let s look at the same example again keep in mind that this particular ratio fluctuates nwith. The business cycle. It falls during a recession and rises in an nexpansion..
But let s go back to the example and let s ntake out the stuff that we don t need the working age population is 22 million nand. The employed is 16 million. So we have the employed of 16 million and nwe have the working age population of 22 million now. We re simply going to plug that into the nequation again and get 16 million divided by 22 million times.
100 gives us 727. . And that is our employment. To population ratio.
There are a couple other definitions of unemployment nwhich are not actually considered in the official definition of unemployment. One of them is discouraged workers. A discouraged worker is a person who is either ncurrently. Neither looking for work.
He s neither working nor looking for work. But has indicated nthat. They actually want a job is available for work and has actually looked for work nin. The recent past.
But has stopped due to repeated failure. The official definition does not include discouraged nsearchers. Because they haven t actually made efforts to find jobs in the past 4 weeks. We also have long term future starts and this is somebody with a job who starts nmore than 4 weeks in the future they re just classified as not in the labour nforce.
But this is in some way if you think about nit. They are kind of unemployed they want to work. But they don t have a job. We also have involuntary part time workers and these are part time workers who want a nfull job and can t find them.
But they re ” ..
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