Question

Part 1- The towns of Sawyer and Thatcher each have a labor force of 1,500 people. In Sawyer, 100 people were unemployed for the entire year, while the rest of the labor force was employed continuously. In Thatcher, every member of the labor force was unemployed for 1 month and employed for 11 months.


a. What is the average unemployment rate over the year in each of the two towns?

Instructions: Enter your responses rounded to one decimal place.

Sawyer:    %.

Thatcher:    %.


b. What is the average duration of unemployment spells in each of the two towns?

Instructions:  Enter your responses as whole numbers.

Sawyer:    month(s).

Thatcher:    month(s).


c. The costs of unemployment are higher in

Part 2- The following information is for the fictitious nation Alpha:

Working-age population = 1.6 million

Labor force = 992,000

Number Employed = 922,560

Instructions: Enter your responses as percent values.

a. The unemployment rate for Alpha is  %.

b. The labor force participation rate for Alpha is  %.

Answer 1

Part 1 A

Labor force of each town=1,500

Unemployed force in town Sawyer= 100

Unemployed force in town Thatcher= 1500 for 1 month and 0 for 11 months

Average unemployment rate in Sawyer town= Unemployed force/Labor force=(100/1500)*100=6.7%

Average unemployment rate in Thatcher town= Unemployed per month/labor force={[1(1500/1500) + 11(0/1500)]/12}*100= 8.3%

In the case of Thatcher the whole value is divided by 12 as the number of months are 12 and the unemployment rate to be calculated is per month.

Part 1 B

Average duration of unemployment in town Sawyer= 12 months as every month some people of the force were unemployed

Average duration of unemployment in town Thatcher= 1 month as everyone was unemployed for a single month.

Part 1 C

Cost of unemployment will be higher in town Thatcher as the entire labor force is unemployed for a whole month than the cost of unemployment in town Sawyer.

Part 2

Working-age population = 1.6 million

Labor force = 992,000

Number Employed = 922,560

Unemployed labor force= Total labor force-employed labor force= 69,440

Unemployment rate for Alpha= Unemployed force/total labor force= (69,400/992,000)*100=7%

The labor force participation rate= Labor force total working age population= (992,000/1.6million)*100=62%