Question:

a) Consider the following flows (in thousand of people) between the various labour market states in a particular month:

UE  = 240 000; UNLF = 180 000; EU = 190 000; NLFU = 220 000; ENLF = 280 000; NLFE = 250 000, where U indicates the state of unemployment, E the state of employment and NLF being not in the labour force.

(i) What is the change in the number of unemployed people in this particular month?

(ii) What is the change in the number of  employed people  in the same period?

b) A recession in the United States will negatively affect exports of Canadian manufacturing industries to the U.S. 

(i) Show graphically in a labour market diagram the likely effect on unemployment in Canada. In your graph start out with a labour market initially in equilibrium.

(ii) Which of the inflows into and outflows from unemployment will be most affected by the decline of manufacturing industries?

c) Three indicators are commonly used to describe the state of the labour market and changes in the labour market in terms of a growing slack or tightening: the employment (E) to working age population (P) ratio (E/P); the labour force (L) participation rate (L/P) and the unemployment (U) rate (U/L). The interrelationship between these three indicators is given by the following identity:

            E/P = L/P (1 - U/L).

            Using the three indicators in this identity

(i) show a condition under which the labour market unambiguously has improved;

(ii) show a condition under which the labour market has unambiguously deteriorated.