Question

You know the following information about an economy. The population is 230 million, the unemployment rate is 8% (i.e. 0.08), and the employment-to-population ratio is 50%. How many unemployed people are in this economy?

Answer 1

Let the number of unemployed be x people

Unemployment rate = 8% or 0.08

Unemployment rate = Number of unemployed/Labor force

0.08 = x/LF

x = 0.08LF

Employment-to-population ratio is 50% or 0.5

Population = 230 million

Employment-to-population ratio = Employment/Population

0.5 = Employment/230 million

Employment = 230 million * 0.5 = 115 million

Thus, the number of employed in the economy is 115 million

Labor force = Number of employed + Number of unemployed

LF = 115 million + x

LF = 115 million + 0.08LF

LF - 0.08LF = 115 million

0.92LF = 115 million

LF = 115 million/0.92

LF = 125 million

The labor force in the economy is 125 million.

Calculate the number of unemployed -

Number of unemployed = 0.08LF = 0.08 * 125 million = 10 million

Thus,

The number of unemployed people in this economy is 10 million.