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Chapter 9: Problem 4

Between 2008 and \(2009,\) total employment in Canada decreased by 277000 workers, but the number of unemployed workers increased by \(400000 .\) How are these numbers consistent with each other?

Short Answer

Expert verified
The labor force increased by 123,000, making the numbers consistent due to changes in the labor force size.

Step by step solution

01

Understand the Problem

We need to understand how total employment can decrease by 277,000 workers while the number of unemployed workers increases by 400,000. This seems inconsistent at first glance, but it is possible if the size of the labor force changes.
02

Identify Key Variables

Let the initial size of the labor force (total employed and unemployed) be represented as \( L_1 \) and the final size be \( L_2 \). The number of unemployed workers initially is \( U_1 \) and finally is \( U_2 = U_1 + 400000 \). The number of workers employed initially is \( E_1 \) and finally is \( E_2 = E_1 - 277000 \).
03

Express the Labour Force Equation

The labor force in any period consists of employed and unemployed workers. Therefore, the initial labor force is \( L_1 = E_1 + U_1 \) and the final labor force is \( L_2 = E_2 + U_2 \).
04

Calculate Changes in the Labor Force

Using our expressions from the previous step, substitute the changes: \( L_2 = (E_1 - 277000) + (U_1 + 400000) \). By simplifying, we get \( L_2 = L_1 + 123000 \).
05

Verify Consistency

Since \( L_2 = L_1 + 123000 \), the labor force increased by 123,000 despite the decrease in total employment. This makes the initial observations consistent with each other, accounting for new or returning entrants to the labor market who increased the unemployed count more than the decrease in employed workers.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Labor Force Participation
Labor force participation reflects the active segment of the population that is either employed or actively seeking employment. It essentially tells us how many people are engaged in the workforce compared to those who are retired, studying, or choosing not to work. When analyzing the events between 2008 and 2009 in Canada, the increase in the labor force by 123,000 people helps explain why unemployment numbers rose by more than employment numbers decreased.

This can occur due to several factors:
  • New Entrants: People entering the workforce for the first time, such as graduates or previously retired individuals.
  • Re-entrants: Individuals who had left the workforce returning to seek or start work again.
  • Population Growth: As the population increases, more individuals may join the labor force over time.
The change in the labor force size can significantly impact unemployment figures, even where actual employment doesn't decrease as sharply.
Employment Changes
The concept of employment changes refers to the net increase or decrease in the number of employed individuals within a specific time frame. In the exercise, Canada experienced a significant reduction in employment by 277,000 workers during the period in question. Such employment changes can result from numerous factors:

  • Economic Conditions: Recession or economic downturns can lead to job losses as businesses cut costs.
  • Industry Shifts: Changes in industry demand, such as technological advancements, may render certain jobs obsolete.
  • Policy Changes: Government policies can impact hiring practices across various sectors.
A decrease in employment number means that less people are working, which, in this case, led to more individuals being categorized as unemployed or leaving the labor research altogether.
Macroeconomic Indicators
Macroeconomic indicators are essential tools to gauge the overall health of an economy, reflecting trends in production, employment, and prices. Changes in these indicators help economists and policymakers understand economic performance and develop appropriate responses.

From 2008 to 2009, the changes in employment and unemployment in Canada can be linked to several macroeconomic indicators:
  • Gross Domestic Product (GDP): A contraction in GDP may indicate an overall weakening economy, leading to job losses.
  • Unemployment Rate: An increase in unemployment signals trouble in the job market.
  • Labor Force Participation Rate: Changes in how many people are working or actively seeking work reflect the labor market's dynamic.
These indicators provide valuable insight into why employment decreased while the number of unemployed increased, as they show shifts in economic activity, population dynamics, and trends that influence workforce behavior.

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Most popular questions from this chapter

Are the following workers more likely to experience short-term or long-term unemployment? Explain. a. a construction worker laid off because of bad weather b. a manufacturing worker who loses her job at a plant in an isolated area c. a stagecoach-industry worker laid off because of competition from railroads d. a short-order cook who loses his job when a new restaurant opens across the street e. an expert welder with little formal education who loses her job when the company installs automatic welding machinery

Some workers in the economy are paid a flat salary and some are paid by commission. Which compensation scheme would require more monitoring by supervisors? In which case do firms have an incentive to pay more than the equilibrium level (as in the worker-effort variant of efficiency-wage theory)? What factors do you think determine the type of compensation firms choose?

(This problem is challenging.) Suppose that Parliament passes a law requiring employers to provide employees some benefit (such as dental care) that raises the cost of an employee by \(\$ 4\) per hour. a. What effect does this employer mandate have on the demand for labour? (In answering this and the following questions, be quantitative when you can.) b. If employees place a value on this benefit exactly equal to its cost, what effect does this employer mandate have on the supply of labour? c. If the wage is free to balance supply and demand, how does this law affect the wage and the level of employment? Are employers better or worse off? Are employees better or worse off? d. If a minimum-wage law prevents the wage from balancing supply and demand, how does the employer mandate affect the wage, the level of employment, and the level of unemployment? Are employers better or worse off? Are employees better or worse off? e. Now suppose that workers do not value the mandated benefit at all. How does this alternative assumption change your answers to parts (b), (c), and (d) above?

As shown in Figure \(9.3,\) the overall labour-force participation rate of men declined between 1976 and 1997\. This overall decline reflects different patterns for different age groups, however, as shown in the following table. $$\begin{array}{|c|c|c|c|c|} \hline & \begin{array}{c} \text { All } \\ \text { Men } \end{array} & \begin{array}{c} \text { Men } \\ \mathbf{1 5 - 2 4} \end{array} & \begin{array}{c} \text { Men } \\ \mathbf{2 5 - 5 4} \end{array} & \begin{array}{c} \text { Men 55 } \\ \text { and Over } \end{array} \\ \hline \mathbf{1 9 7 6} & 78 \% & 68 \% & 95 \% & 48 \% \\ \hline \mathbf{1 9 9 7} & 72 & 63 & 91 & 33 \\ \hline \end{array}$$ Which group experienced the largest decline? Given this information, what factor may have played an important role in the decline in overall male labourforce participation over this period?

It can be shown that an industry's demand for labour will become more elastic when the demand for the industry's product becomes more elastic. Let's consider the implications of this fact for the Canadian automobile industry and Unifor, the union that represents Canadian autoworkers. a. What happened to the elasticity of demand for Canadian cars when the Japanese developed a strong auto industry? What happened to the elasticity of demand for Canadian autoworkers? Explain. b. As the chapter explains, a union generally faces a tradeoff in deciding how much to raise wages because a larger increase is better for workers who remain employed but also results in a greater reduction in employment. How did the rise in auto imports from Japan affect the wage employment tradeoff faced by Unifor? c. Do you think the growth of the Japanese auto industry increased or decreased the gap between the competitive wage and the wage negotiated by Unifor? Explain.
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