Question

What is the relationship between increases in the number of discouraged workers and the level of output produced in an economy? Does an increase in the number of discouraged workers increase or decrease the unemployment rate? Justify your answer.

Answer 1

Answer) The number discouraged workers indicate that there is a sense of disharmony among the workers and the industrial captain. This could arise due to mismatch between profit maximization by firm and wage maximization by the workers. Such as fall in wages or cut in dearness allowance of the firms in order to raise the level of profit.

All these steps results in aggravation of resentful workers. Ultimately leading to a fall in the total production by the firms. An increase in the number of discouraged workers could lead to a surge in the level of unemployment. Particularly voluntary unemployment whereby the workers are intentionally not working in a enterprise.