24.c.i Measurement of Unemployment
Measuring unemployment is very important in developing policies to make efficient use of the labor resources to optimize production and have a successful economy.
Using the classifications done by the BLS, calculations can be done to figure out unemployment rates and statistics.
Total Adult Population = #Employed + #Unemployed + #not in the labor force
Labor Force = Total number of workers (those willing and able to work)
= #Employed + #Unemployed
Unemployment Rate = % of labor force that is unemployed
= (#Unemployed/labor force) x 100
Labor-force Participation Rate= % of total adult population that is in the labor force
= (Labor force/adult population) x 100
**varies demographically
In a textbook world, these calculations would be very simple. However, complications in interpretation and measurement arise due to the fact that the labor force is constantly changing as people are constantly entering and leaving the labor force. In addition, unemployment is inaccurately measured because some unemployed people say they are looking for a job but aren’t and just collect unemployment benefits or are being paid “under the table”. Other people are those “discouraged workers” that have stopped looking for work due to being discouraged by their unsuccessful search.
Problem 1: A teenager decides to work during the last quarter of school, but then decides to stay home everyday during the summer. In the fall he looks for a job but has not been able to find one yet. How is the rate of unemployment and labor-force participation affected when he doesn’t work during the summer and when he starts looking for a job in the fall?
Answer: During the summer when he is not working, there will be no affect on the unemployment rate as the people that who do not want to work and are not looking for a job are not included in the calculation of unemployment rate. But since the labor-force participation rate is calculated from the whole adult population, the labor-force participation rate will fall. While he is looking for a job, he becomes part of the labor-force, thus both the unemployment rate and the labor-force participation rate will rise.
Problem 2: If the unemployment rate falls, can we be certain that more workers have jobs?
Answer: No. The unemployment rate falls when unemployed workers leave the labor force.
Problem 3:
Total population = 150
Adult population = 100
#Unemployed = 5
#Employed = 90
Based on the information above, what is the:
1) labor force
2) unemployment rate
3) labor-force participation rate
Answer: labor force = 95
Unemployment rate = 5.3%
Labor-force participation rate = 95%