Question

The country's population is 200 million. In 2007, 15 million are under age 16, 20 million are retired, and 30 million adults identify themselves as being out of the labor market. Currently, there are 110 million people employed.

a) What is the unemployment rate in 2007?

b) In 2008, the number of employed workers fell to 100 million, but the number of people under age 16, the number retired, and the number of adults out of the labor market stayed constant. What is the unemployment rate now?

c) In 2009, the number of employed workers fell even more to 90 million. Now, 45 million adults identify themselves as being out of the labor market, but the number of people under age 16 and retired is the same. What is the unemployment rate?

d) The situation in part (c) describes what kind of worker? How does this impact the meaning of the unemployment rate?

Answer 1

(a)

Labor force (Million) = Population - People under 16 - Number retired - Number out of labor force

= 200 - 15 - 20 - 30

= 135

Number unemployed (Millions) = Labor force - Number employed = 135 - 110 = 25

Unemployment rate = Number unemployed / Labor force = 25 / 135 = 0.1852 = 18.52%

(b)

Number unemployed (Millions) = Labor force - Number employed = 135 - 100 = 35

Unemployment rate = Number unemployed / Labor force = 35 / 135 = 0.2593 = 25.93%

(c)

Labor force (Million) = 200 - 15 - 20 - 45 = 120

Number unemployed (Millions) = Labor force - Number employed = 120 - 90 = 30

Unemployment rate = Number unemployed / Labor force = 30 / 120 = 0.25 = 25%

(d)

The situation describes an increase in discouraged workers. Ceteris paribus, an increase in number of discouraged workers increases unemployment rate.