Question

Suppose a hypothetical country known as the “Wonderland” has a civilian working-age population of 2.5 million people and of these about 4/5th of them are in the civilian labor force and ½ million people are unemployed. a) What is the labor force participation rate? b) What is the unemployment rate? c) If some desperate workers join the labor force lately, does the unemployment rate increase or decrease? Why?

Answer 1

Answer
A)
Labour force participation rate is the percentage of the total working population (16-64 excluding retired) who are currently employed or are looking for jobs .Therefore it is the number of people employed or looking for jobs .
LFPR = total labour force /Civilian population *100
Labour force = 4/5 *2.5 million =2 million


LF PR = (2,000,000 /2,500,000)*100
=80 %

B)
Unemployment rate is the percentage of the total labour force which is able to and willing to work at the existing wage rate but is unable to get work .

UR = (Unemployed labour force / total labour force )*100
note - Total labour force include both employed and unemployed labour force
Unemployment rate = (0.5 million /2 million) *100
= 25%

C)
The people who are not actively looking for jobs are not considered a part of the labour force. However when the desperate labour starts looking for work it becomes the part of labour force .Therefore , the denominator increases .

The unemployment rate will increase if the new workers also remain unemployed . Both numerator(unemployed ) and denominator (labour force ) increase by same value but increase numerator relative to previous numerator is greater than increase in denominator.
Eg   (0.5 million /2 million) *100
= 25%
now if 1 million desperate workers join and are also unemployed
=1.5 million /3 million
50 % .

Unemployment rate increases .

Unemployment rate will decrease only if the new desperate workers get employed . Only denominator will increase,and so the rate will decrease.


Do rate