Question

Q.1 Suppose that we have the following data:

Employed at the beginning of the month	18,496
Unemployed at the beginning of the month	3,264
Population over 16 at the beginning of the month	32,000

A) What is the labor force participation rate, the employment to population ratio and the unemployment rate? Type in the formulas and the numerical answers.

B) Suppose that over the course of the month 370 employed people lost their job and 751 unemployed people found jobs. Estimate the job-finding rate and the separation rate.

C) Assuming that the bathtub model is correct, what is the long-run unemployment rate?

D) Suppose that advances in AI make reviewing resumes of job applicants easier for HR professionals and as result the job-finding rate goes up to 0.35. What do you think will happen to the separation rate? What is your qualitative prediction about the unemployment rate?

Answer 1

Employed at the beginning of the month = 18496

Unemployed at the beginning of the month = 3264

Population over 16 at the beginning of the month = 32000

Ans (a)

employment to population ratio=18496/32000*100

=.578*100=57.80%

let us see unemployment rate

Then unemployment rate=3264/32000*100

=0.102*100=10.2%

Ans(B)

Attrition rate formula= Total Employees left during the time/ Total number of employees working X 100.

here 370 people lost or left the job

Then Attrition=370/18496*100

  0.0200*100

=2.00%

we know that job finding rate would be the rate is calculated by taking the number employed, divided by the total unemployment and multiplying by 100 to get the percentage.

Then Job finding rate=751/3264*100

=00.2300857843137255*100=23.00857843137255

=23.00%

Ans (C)

According to Bathtub Model: we can think of the unemployment rate as the amount of water in a bathtub. Changes in the amount of water in the tub are determined by the rate at which water pours into the tub relative to the rate at which it drains out.

For example, if the inflow of water is equal to the outflow, the amount of water in the tub remains constant. But if the rate of water flow into the tub is suddenly increased by turning the faucet to its maximum level, then the water level rises rapidly.

To formulate the bathtub model, we need to use a little bit of math. Let ut be the unemployment rate, st the inflow rate, and ft the outflow rate. The evolution of the unemployment rate can be written as:

Ut+1= Ut+St(1-Ut)-ftUt

Ans (D)

As per details given by the help of AI that job finding rate goes up to .35 or less that 1% means here we have lesser requirement for finding jobs it’s mean if our hiring or finding job percent goes upto less than 1% then our separation also goes similar.

So we can predict that separation percentage goes upto the mark of our finding jobs percentage.