The table below shows the percentage of the labour force accounted for by youths (15 to 24 years old) and older workers (25 years and older) over several years. Suppose that because of their lower skills and greater turnover, youths have a higher unemployment rate than older workers (see Figure 30 -4).

a. Suppose that in Year 1 real GDP is equal to potential GDP, and the unemployment rate among older workers is 6 percent but is 14 percent among youths. What is the economy's NAIRU?

b. Now suppose that for the next eight years real GDP remains equal to potential and that the unemployment rates for each group remain the same. Compute the value of the NAIRU for each year.

c. Explain why the NAIRU rises even though output is always equal to potential.

Transcribed Image Text:

FIGURE 30-4 Canadian Unemployment Rates by Demographic Groups, 2015 20 Unemployment Rate (% of labour force) Si 15 15.6 11.4 6.8 6.0 5.9 5.5 5.2 15-24 25-44 45-64 15-24 25-44 45-64 Men Women Both Sexes All Ages Unemployment is unevenly spread among different groups in the labour force. In 2015, when the overall unemploy- ment rate was 6.8 percent, the unemployment rates for youths (of both sexes) were considerably higher.