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Employment and Unemployment - Unemployment and Inflation (1/3) | Principles of Macroeconomics - YouTube
Channel: Inspirare
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In this lecture we're going to be looking
at unemployment and inflation.
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The syllabus includes looking at what employment
and unemployment are.
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We're also going to be taking a look at what
full employment is and how it relates to unemployment.
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And lastly, we're going to be looking at inflation
and deflation.
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Let's start off with employment and unemployment.
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So why is unemployment actually a problem?We
hear it all the time: unemployment rates are
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high; but, why is that actually a bad thing?
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Well, unemployment means that someone has
lost their job.
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And to lose their job means that they've also
lost their income.
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And when someone loses their income, it leads
to somewhat of a domino effect.
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And this domino effect goes as follows: a
loss in income results in a loss in production,
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which then results in a loss in consumption,
which results in a loss of investment, and
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causes lower standards of living in the present
and the future.
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We also have the loss of human capital.
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And human capital is simply the skills, the
knowledge, and the experience possessed by
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an individual.
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Prolonged exposure to unemployment actually
damages a person's job prospects because they
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lose human capital.
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Let's take a look at a few definitions before
moving on to labour market indicators.
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The working age population is defined as the
total number of people aged 15 years and over.
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The labour force, which is a part of this
working age population is simply the members
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that are either employed or unemployed.
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The number of people in the labour force is
equal to the number of people employed plus
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the number of people unemployed.
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To be employed, a person must have either
a full-time or a part-time job.
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To be unemployed, there are a couple of conditions
that must be satisfied.
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First of all: a person must be available for
work and they must satisfy one of the following
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three criteria.
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They could either be on temporary layoff with
an expectation of recall (and this recall
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could be at any point in time).
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They could be without work but has looked
for work in the past 4 weeks; and that's a
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key part of the definition; 4 weeks.
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Or, they have a new job and they're going
to be starting it within 4 weeks.
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Those are the criteria; one of the last 3,
and the first one that I mentioned at the
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beginning must be met.
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You could also not be in the labour force
at all.
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That's simply just people who are of working
age who are not employed or unemployed.
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The first labour market indicator that we're
going to look at is the unemployment rate.
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You hear this one all the time.
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The unemployment rate is simply the percentage
of people in the labour force who are unemployed.
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And this indicates the extent to which people
want to find jobs but can't find them.
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The unemployment rate is calculated as the
number of people unemployed divided by the
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labour force, multiplied by 100.
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Let's take a look at this example here.
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A country has a working-age population of
22 million; 16 million of these people are
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employed, 2 million are unemployed, and 1
million of the employed are working part-time,
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half of whom wish to work full-time.
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What is the unemployment rate?
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There are a lot of variables here so let's
only take into account the ones that we actually
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need to find the unemployment rate.
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Which is the number of people unemployed and
the labour force.
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The number of people employed is 16 million.
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The number of people unemployed is 2 million.
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We're not explicitly given the labour force
here, but we can calculate that.
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Let's start of with the unemployment rate.
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The number of people unemployed is given to
us.
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2 million, simple as that.
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But the labour force is not give to us.
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But, if you remember, we do know that the
labour force is equal to the number of people
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employed plus the number of people unemployed.
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Both of those values are actually given to
us.
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We have 16 million people that are employed
plus 2 million people that are unemployed.
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And that gives us our labour force of 18 million
people.
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To calculate the unemployment rate, we're
just going to plug it into the equation.
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We have 2 million people that are unemployed,
divided by 18 million people that are employed
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plus unemployed, which is the labour force.
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That gives us our unemployment rate of 11.1%.
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Our next labour market indicator is the involuntary
part-time rate.
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The involuntary part-time rate is simply the
percent of people in the labour force who
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work part-time jobs, but want full-time jobs.
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This is calculated as the number of involuntary
part-time workers divided by the labour force
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multiplied by 100.
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Let's take a look at an example.
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We have the same numbers from last time; we're
given all the same values.
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But this time we need the number of involuntary
part-time workers and the labour force.
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The number of involuntary part-time workers
is simply 0.5 million.
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If you notice, you might think, "oh isn't
it 1 million because we have 1 million people
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that are employed working part time."
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But if we read the question closely it says
half of these people wish to work full-time.
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So the other half are actually okay with working
part-time.
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It's only 0.5 million people, or 500,000 people
that are actually working part-time and want
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to work full-time.
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These are the only people counted as involuntary
part-time workers.
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We also have the labour force which is 18
million.
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It's the same way of calculation as we did
for the last example.
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And it's 18 million.
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Now all we need to do is plug it into the
equation.
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We have 0.5 million divided by 18 million
multiplied by 100%, and that gives us 2.8%.
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Now I want to make a distinction here, because
we have 0.5 million, but we can also say 500,000.
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What we want to do is that we want to make
sure the the units in both the numerator and
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denominator are kept constant just so that
we get the right value.
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Let's move on to the next labour market indicator,
and this is the labour force participation
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rate.
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This is simply defined as the percentage of
the working age population who are members
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of the labour force.
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This is calculated by simply dividing the
labour force by the working age population
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and multiplying it by 100.
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Let's use the same example here, but let's
take out the stuff that we don't need.
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To calculate the labour force: we already
know, we take 16 million that are employed
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plus the 2 million that are unemployed and
we add them together, and we get 18 million.
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The working age population is actually also
just given to us: 22 million.
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We're going to take those two values, we're
going to take the labour force, we're going
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to divide that by the working-age population.
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That's 18 million divided by 22 million, and
we're going to multiply that by 100.
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That'll give us our labour force participation
rate of 81.8%.
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Now, the next one that we're going to be looking
at is the employment to population ratio.
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And this is simply the percentage of people
of working age who have jobs.
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This is an indicator of the availability of
jobs and the ability to match skills of people
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to jobs.
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This is simply calculated as the people employed
divided by the working age population multiplied
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by 100.
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Let's look at the same example again.
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Keep in mind, that this particular ratio fluctuates
with the business cycle.
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It falls during a recession and rises in an
expansion.
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But let's go back to the example and let's
take out the stuff that we don't need.
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The working age population is 22 million,
and the employed is 16 million.
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So we have the employed of 16 million and
we have the working age population of 22 million.
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Now we're simply going to plug that into the
equation again and get 16 million divided
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by 22 million times 100 gives us 72.7%.
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And that is our employment to population ratio.
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There are a couple other definitions of unemployment
which are not actually considered in the official
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definition of unemployment.
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One of them is discouraged workers.
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A discouraged worker is a person who is either
currently neither looking for work; he's neither
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working nor looking for work but has indicated
that they actually want a job, is available
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for work, and has actually looked for work
in the recent past, but has stopped due to
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repeated failure.
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The official definition does not include discouraged
searchers because they haven't actually made
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efforts to find jobs in the past 4 weeks.
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We also have long-term future starts.
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And this is somebody with a job who starts
more than 4 weeks in the future.
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They're just classified as not in the labour
force.
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But, this is in some way, if you think about
it, they are kind of unemployed.
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They want to work but they don't have a job.
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We also have involuntary part-time workers.
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And these are part-time workers who want a
full job and can't find them, but they're
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not actually counted in the official statistics
of unemployment.
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