Question

2. a) During a certain month, the total number of people employed in the economy declined by 155,000. However, the unemployment rate also declined from the previous month. Explain how this might be possible.

     b) Homemakers are not currently included in employment or labor force statistics. What would be the impact on the labor force participation rate and the unemployment rate if they were instead counted as “employed”?

Answer 1

2a.

The unemployment rate is the ratio of the number of people who are unemployed to the total labor force in the country.

The total labor force is different from the total number of people in the working age bracket. The working age bracket also includes those people who are willfully unemployed.

Thus, we can say that:

Total number of people in the working age bracket = Number of people employed + number of people unemployed + number of people willfully unemployed.

Also,

Total labor force= Number of people employed + number of people unemployed

Now when there is a fall in the total labor force in a country, the number of people employed in the economy falls. A decline in the total labor force also decreases the denominator of the unemployment ratio, thus leading to a fall in the unemployment rate.

For example:

Number of unemployed= 500

Total labor force= 1000

Unemployment rate= 500/1000= 1/2= 0.5

If there is a fall in the total labor force by 100,

Number of unemployed= 400

Total labor force= 900

Unemployment rate= 400/900= 0.44

Reasons for a fall in the labor force may by retirement, or mothers quitting jobs to become home makers, among other examples.

2b.

Homemakers are currently not included in the labor force statistics. If homemakers were to be included in the labor force statistics, the number of people unemployed will remain the same (as women were previously not considered as unemployed) but the labor force increases. Thus, the numberator remains constant while the denominator increases.

Thus, this will lead to a fall in the unemployment rate.

Thus,

Total labor force: INCREASES

Total unemployed: Remains constant

Total employed: INCREASES

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