Question

Suppose a hypothetical country known as the “Penguin Island” has a civilian working age population of 2.5 million people and of these about 4/5th of them are in the civilian labor force and ½ million people are unemployed.

a. What is the labor force participation rate?

b. What is the unemployment rate?

c. If some desperate workers join the labor force lately, does the unemployment rate increase or decrease? Why?

Answer 1

Part A ) Labour force participation rate = labour force / working age population

= 4/5^th of the working age population are in labour force

Which means, labour force participation rate = 80%

Part B ) Unemployment rate = (Unemployment rate/Labour force )*100

= 0.5Mn/(4/5*2.5Mn)*100

= (0.5Mn/2)*100

= 25%

Part C ) Since desperate workers join the labour force, this would increase the total labour force. Further, they are unemployed, so there is a rise in unemployment as well.

Now, since the same amount of people are added in the numerator and denominator, it would slightly raise the unemployment rate.

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