Question

Question 7 You read in the news that in the month of March the labor force participation rate in the US suffered a sharp decline to 62.7% and the headline unemployment rate (the one commonly used) shot up from 3.5% to 4.4%. Economists think this sharp decline in the participation rate suggests that the U.S. headline unemployment rate of 4.4% is significantly understating the deterioration in the economy. a) Is it possible that the headline participation rate decreases while, simultaneously, the unemployment rate increases? Why or why not? Explain briefly. b) According to your answer in (a), would economists then be correct? Explain briefly. c) Are there other measures of unemployment that would give a more accurate description of the labor market situation? If so, which? Explain briefly

Answer 1

a) Let's consider the two concepts together that is headline participation rate and unemployment, we can provide more comprehensive picture of the US job market. If the participation rate decreases combined with higher unemployment rate shows a sign bearish job market. It is possible in the US economy today because of the covid 19 pandemic which adversely affect the US economy. Now they are experiencing the inverse relationship between participation rate and unemployment rate.

b) The above situation can be corrected gradually. Now more americans received unemployment benefits due to pandemic. So the economists have a great hope to reduce unemployment by around 3.5% in the coming months.

c) US bureau of labour statistics uses 6 measures of unemployment.they are U1,U2,U3,U4,U5,U6. the accurate description of labour market depicted from U3 to U6. People are willing to work but sue to some economic conditions they cannot work recently... There are different forms of unemployment. CPS( current population survey) and CES( current employment statistics)  are the two important measures of unemployment.