Question

2. Problems and Applications Q2

Indicate what happens to the unemployment rate and the labor-force participation rate in each of the following scenarios.

Scenario	Effect On...
	Unemployment Rate	Labor-Force Participation Rate
After an unsuccessful job search, Paolo gives up looking and retires.	Decreases	Decreases
Sharon, a stay-at-home mom, starts looking for a job as her kid enters elementary school.
Van has a birthday, becomes an adult, and starts working in a restaurant.
Amy dies working long hours at the office.

Answer 1

Unemployment Rate = (Number of Unemployed / Labor Force) * 100

Labor Force = Number of Employed + Number of Unemployed

LFPR = Labor Force / Civilian Non-Institutionalized Population

where the Labor Force = Employed + Unemployed.

1. Paolo is no longer considered as unemployed since he has given up looking for work. So unemployment rate will fall and LFPR will also fall.

2. Sharon will be considered unemployed and unemployed rate will increase. She will be part of labor force and so LFPR will also increase.

3. Unemployment rate falls. LFPR increases as labor force and adult population increase by one.

4. Unemployment rate increases and LFPR decreases.