Question

Working-age population

250 million

Not in Labor Force

85 million

Discouraged workers

2 million

Involuntary part-time workers

8 million

Unemployed

15 million

Employed

150 million

a. Compute the labor force participation rate. (1pt)

b. Compute the official unemployment rate (U-3). (2pts)

c. Suppose that 2 million jobless people (i.e., unemployed) suddenly quit looking for a job. How does it affect the labor force participation rate and the official unemployment rate (U-3)? Compute both the labor force participation rate and the unemployment rate. (2pts)

Answer 1

a. We can calculate the Labour Force Participation Rate by dividing the number of people actively participating in the labor force by the total number of people eligible to participate in the labor force.

We are given that Working Age Population is 250 million and Not in Labour Force is 85 million. Thus, active Labour Force is (250 - 85) = 165 million. This makes the Labour Force Participation Rate:

b. Official Unemployment Rate U3 doesn't include the Discouraged workers and Part Time workers. Thus, accordingly U3 is the ratio of he actively unemployed and the labour force.

This is the official unemployment rate.

c. Since 2 million people who were unemployed, suddenly quit looking for job, then Labour Force will decrease by 2 million and become 163 million. The unemployed will also reduce from 15 million to 13 million. This will change the U3 which will become:

Thanks!