Question

Now use the bathtub model of unemployment to explain what happens to the unemployment level? Use the mathematical relationship to substantiate your answer and explain it in words. [Hint: You need to think whether the job finding rate or job separation rate or both changes in response to widespread workplace closures.]

Answer 1

The Bathtub model of unemployment, explains or relates the unemployment to the bathtub. this is because as in bathtub there is both inflow and outflow of water, so what is the current level of water in the tub depends on the rate of inflow and outflow. Similarly if we are determining the level of unemployment the there is bot peoples who are getting new jobs and people who are loosing their job, so the level of unemployment depends on the rate of grtting or lossing job.

To Explain mathematically let us take-

• E is employed people
• U is unemployed people
• L is labour force
• S is job separation rate
• F is job finding rate

As we know-

L=E+U i.e. Labourforce is equal to employed people plus unemployed people

Now

Delta U= SE+FU

This equation means that change in unemployment in any period is equal to job separation rate times employment minus job finding rate times unemployed people.

In simple terms Aggregate unemployment rate at any particular time is the difference between the employed people who lost their job and the unemployed people who found new jobs.

When there is widespread workplace closure then there is change in both job finding rate and job separation rate. Some people loss their job while others find new jobs.