Labour
Every month, Statistics Canada conducts a Labour Force Survey asking 54,000 household question about the age and job market status of each member of the household. Statistics Canada divides the population up into labour force categories shown here:
The total population is divided into the working age population and others. The working age population is divided into those in the labour force and those not in the labour force. The labour force is divided into the employed and the unemployed. The employed are either full time or part time, and the part time employed are either voluntary or involuntary part time.
I like to call this type of model above a waterfall graph. Don’t ask me why that is not a technical term and I invite you to make your own name for this if you like.
The following link will take you to Statistics Canada where you can look at the data Statistics Canada works with. The reference period can be changed to narrow in on the data you are curious about.
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410028701
While the data is available in the table format Statistics Canada also releases the monthly statistics in a narrative format in The Daily.
Editor’s note – The Daily is an interesting site to peruse if you are interested in broad trends. Of course the data is subject to lags (which we will look at in this course more closely in or fiscal policy model) but it provides updates from many different indicators not just labour that can help you build business plans, forecast the macroeconomy, look at trends in industries and population. When I go in here to prepare for this course I end up spending some time. If you like seeing the macro perspective on topics, I encourage you to put this in your bookmarks.
From the survey and the categories Statistics Canada calculates four indicators of the state of the labour market. They are:
- The unemployment rate
- The involuntary part-time rate
- The labour force participation rate
- The employment – to -population ratio
The unemployment rate is the indicator of the extent to which people who want jobs can’t find them. The unemployment rate is the percentage of people in the labour force who are unemployed. Unemployed is defined as people who are without work, have looked for work in the past four weeks, and areavailable for work. That is,
Unemployment rate = Number of people unemployed x 100
Labour Force
Labour force = the number of people employed – number of people unemployed
The involuntary part-time rate is the percentage of people in the labour force who work part time but want full time jobs.
Involuntary part time rate = Number of involuntary part time workers x 100
Labour Force
The labour force participation rate is measured as the percentage of the working age population who are members of the labour force.
Labour force participation rate = Labour Force x 100
Working age population
The employment to population ratio is the percentage of working age people who have jobs.
Employment to population ratio = Number of people employed x 100
Working Age Population
Now you have the calculations for the four labour market indicators. Let’s work with some data. I have chosen February 2020 as the month we will work with because for now I think we can just look at data without being overwhelmed by covid shocks. Let’s look at “normal” data.
| Labour force characteristics | February 2020 |
| Population | 31,027,700 |
| Labour force | 20,323,200 |
| Employment | 19,189,400 |
| Full-time employment | 15,608,800 |
| Part-time employment | 3,580,600 |
| Unemployment | 1,133,800 |
Based on the data above what is the unemployment rate for February 2020?
Statistics Canada releases employment indicators monthly in a bulletin called the daily.
Check out the June 2020 site here:
The previous release link will take you backwards in time so you can see the trends in employment during different months.
While the definition of unemployment is a correct measure used widely. Statistics Canada also recognizes other definitions which defines three types of unemployed labour:
- Discouraged Searchers
- Long-Term Future starts
- Involuntary part-timers
Discouraged searchers are not looking for work or currently working but have indicated they want to work, are ready and willing to work and has looked for work in the recent past. However, they have stopped looking after repeatedly failing to find employment. Within the official definition of “unemployed” these people would not fit because they are not actively seeking work but in all other considerations they are unemployed.
Long-Term future starts is someone who has secured a job but it does not start until four weeks or more into the future. Officially this person would be categroized in statistics Canada data as not in the labour force.
Involuntary part-timers are people who would like to work full time but can only find part time work. In the official statistics these people would be counted as “unemployed” although they are not truly unemployed.
Unemployment and Full Employment
There is always some unemployment in an economy. We have looked at the AS-AD model and know what a macroeconomy at full employment looks like but what does full employment really mean when it comes to labour? What it does not mean is that all people of working age are employed. This is because there is always some unemployment in an economy. The economy is a complex system of interactions. Three of the types of interactions that impact the economy and employment are frictional, structural and cyclical.
Frictional Unemployment is the flow of people moving out of and into employment opportunities. Consider someone who has become unhappy in their job and has found another job. There may be a gap between the old job ending and the new job beginning. There are also life stages that impact a person’s employment. The transition between school and working, becoming a parent and not working for a time, moving from one job to another, and retiring from work. There are also impacts from job destruction and creation in the marketplace. Some jobs become obsolete and others are created in the marketplace, causing employers to seek workers and workers to seek employment. This process of searching for the best fit creates maximization of human capital (the skills, education and interests of people). All of these are considered a normal turnover of employment and a healthy and permanent characteristic of a growing economy and is referred to as frictional unemployment.
Structural Unemployment arises from changes in technology or international competition that impact the skills needed for certain jobs or the location of jobs.
In 2015 Canfisco Cannery in Prince Rupert, once one of the largest fish canneries in the world closed as reported by CBC:
In structural employment scenarios workers either relocate or need retraining to enter the workforce. Older workers experience the negative impacts of structural unemployment most acutely as they are more close to retirement and retraining or relocating may not be realistic. They may choose to take a lower paid job to remain in their community or to choose an early retirement option.
Cyclical Unemployment is the higher than normal unemployment that is created during a recessionary period in the business life cycle. Workers who experience layoffs during a recession and then are rehired when the business cycle returns to an expansionary period have experienced cyclical unemployment.
During a recessionary period in the business cycle we will see higher than normal unemployment.
‘Natural’ Unemployment is a term used to describe where there is unemployment that arises only from structural and frictional employment. The natural unemployment as a percentage of the labour force is called the natural unemployment rate.
Full employment (which you know from the AS-AD model) is a situation where the unemployment rate equals the natural unemployment rate so any unemployment that exists is only from frictional and structural employment. There is no cyclical unemployment. When you think of the full employment AS-AD model consider that full employment is not actually zero unemployment but it is the point that government’s want to get to because it is where only structural and frictional unemployment exists. There is still unemployment but it is not from cyclical fluctuations. Look at the diagram below.
Are you getting tired of it yet? We are still looking at this! The best graph for economics!
You know how I say this graph represents full employment GDP? Well it’s not is it? Because if your economy was operating right here for a full year it still means that people are changing jobs and that the dissolution of jobs is happening and new jobs are appearing. This full employment model is telling us that cyclical unemployment is at zero. Unemployment still exists just not due to cyclical fluctuations.
