Under 15and/or
Institutionalized (5.3 million)
Not inlaborforce
(9.3 million)
Employed(17.3 million)
Unemployed(1.4 million)
Total population (4.3 million)
Labor force (18.7 million)
Unemployment rate =
1.4 million
18.7 million
X 100 = 7.4%
Unemployment rate =
# of unemployed
labor force
X 100
LO2 1©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2
How the unemployment rate is understated:• Part-Time Employment Statistics• Discouraged Workers
2©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2
Frictional Unemployment caused by workers voluntarily changing jobs and by
temporary layoffs; unemployed workers between jobs
Structural Unemployment caused by Changes over time in consumer demand
and in technology alter the “structure” of the total demand for labour, both occupationally and geographically
Cyclical Unemployment caused by a decline in total spending (or by
insufficient aggregate demand) Seasonal Unemployment
caused by seasonal factors3©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2
Natural rate of unemployment (NRU)NOT zero unemploymentOccurs when there is no cyclical
unemploymentNot automaticVaries over time
4©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2
GDP Gap GDP gap = actual GDP – potential
GDP Can be negative or positive
Okun’s Law Every 1% of cyclical unemployment
creates a 2% GDP gap
5©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2
Given for 2009: Unemployment rate is 8.3% Natural rate is 6.5% Potential GDP is $1360 billion
What is the GDP gap? 8.3% 6.5% = 1.8% (gap in % terms) 1.8% X 2 = 3.6% (apply Okun’s Law) 3.6% of $1360 billion = $49 billion
7©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2
Unemployment means idleness Increases poverty, heightens racial and
ethnic tensions, and reduces hope for material advancement
Severe unemployment can lead to rapid and violent social and political change
higher unemployment linked to increases in suicide, homicide, and physical and mental illness
10©2013 McGraw-Hill Ryerson Ltd. Chapter 7, LO2