Question

We have the following labor market data at the beginning of January:
Population over 16   - 30,000
Employed - 18, 900
Unemployed - 2,100

a) Find the unemployment rate, labor force participation rate and the employment to population ratio.

b) Suppose that over the course of the month 378 people who were employed on 1 January lost their jobs and 525 people who were unemployed on 1 January found a job.

Find the monthly separation (s) and job-finding (f) rates. (Assume that the labor force participation is constant.)

c) Suppose that the separation (s) and job-finding (f) rate stay constant. Find the unemployment rate on 1 February and 1 March.

Answer 1

(a) Labor force = employed + unemployed

Labor force = 18900 + 2100

Labor force = 21000.

• Unemployment rate = (Unemployed / labor force) * 100

=> unemployment rate = (2100 / 21000) * 100

=> unemployment rate = 10%

• labor force participation rate =(Labor force / Population over 16)*200

labor force participation rate = (21000 / 30000)*100

=> labor force participation rate = 70%

• Employmet to population ratio = (employed / population over 16)*100

=> empployment to population ratio = (18900 / 30000)*100

=> employment to population ratio = 63%

(b) Separation rate is the fraction of employed workers that become separated from their jobs.

Separation rate = (378 / 18900)

Separation rate = 0.02 = 2%

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Job finding rate is fraction of unemployed workers that find jobs.

Job finding rate = (525 / 2100)

Job finding rate = 0.25 = 25%

(c) On January 1, employed = 18900; unemployed = 2100

over the course of the month 378 people who were employed on 1 January lost their jobs and 525 people who were unemployed on 1 January found a job..

On February 1, employed = 18900 - 378 + 525 = 19047

On February 1, unemployed = 2100 - 525 + 378 = 1953

Labor force = employed + unemployed = 19047 + 1953 = 21000

Unemployment rate = (Unemployed / Labor force)* 100

unemployment rate = (1953 / 21000) * 100 = 9.3%

Unemployment rate on Feb 1 is 9.3%

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Separation rate =2%

So, 2% of employed worker will lose their job in Feb month

No. of people lose their job in Feb month = 0.02 * 19047 = 380.94

No. of people lose their job in Feb month = 391 (Approx)

Job finding rate = 25%

So, 25% of unemployed worker will get job in Feb month.

No. of people get new job in Feb month = 0.25 * 1953 = 488.25

No. of people get job in Feb month = 488 (Approx)

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over the course of the month 391 people who were employed on 1 Feb lost their jobs and 488 people who were unemployed on 1 Feb found a job..

On March 1, employed = 19047 - 391 + 488= 19144

On March 1, unemployed = 1953 - 488 + 391 = 1856

Labor force = employed + unemployed = 19144 + 1856= 21000

Unemployment rate = (Unemployed / Labor force)* 100

unemployment rate = (1856 / 21000) * 100 = 8.83%

Unemployment rate on March 1 is 8.83%