Question

Explain the difference between the Labor Force Participation Rate and the Unemployment Rate.

Why can the Unemployment Rate increase during a change from bad economic to good economic conditions?

Answer 1

Unemployment rate is the part of labour force which is not able to get job /employment. labour force participation rate is the proportion of population that has entered the market and is either employed or unemployed. The difference is that while unemployment rate considers only unemployed people labour force participation rate considered as both employed and unemployed

When there is a change from bad economic condition to good economic condition that is when the recession is gradually ending unemployment starts increasing and it reaches its peak just before the recession ends. this happens because employers do not want to increase jobs unless they are sure that recession has ended. this implies that the unemployment rate is maximum just when the recession ends