Topic Essay: How do we explain today’s unusually low unemployment rate, at a time when the...

Topic Essay:

How do we explain today’s unusually low unemployment rate, at a time when the labor participation rate is not especially low?

For many years, the U.S. unemployment rate has been the main measure of the employment picture in the economy. Since the 1960s, the labor participation rate dropped steadily, until about the last decade, when it started drifting up. So in a way, the current very low U.S. unemployment rate is somewhat misleading, because it from a base of fewer working-age Americans choosing to be in the workforce.

Expert Solution

Labor participation rate and unemployment rate are factors used to determine the strength of the US job market. The main difference between both of them are that the labor participation rate shows the people who are presently working and the unemployment rate shows the people in the work force who don't have a job at present. Unemployment rate does not consider people outside work force.

Labor participation rate was very low in US in the 1960s. It was due to recession that so many people gave up their jobs. But the scenario changes. And now, as per the Federal Bureau of Labor Statistics, the rate of labor participation in US comes to 63.2%. This percentage can be find out by aggregating the employed persons and active job seekers and dividing the sum by the total working-age population.

If the participation rate is very high with a very low unemployment rate, it shows that there is a strong job market. 1990s was the such a period and was one of the most significant period in job.

When the labor participation rate decreases during recession periods, the unemployment rate will be high. For the past decade, the labor participation rate looks quiet good, but the overall trend not looks so good. And the unemployment rate is too low.

But, it cannot be said that a job market analysis can be done only by considering labor participation rate and unemployment rate only. Students who is below the age of 16 and the elder people at the edge of retirement can also be the factor to determine the status of job market.

Thus, the basic reason for an unfair job market is that there were rise in college students and increased retirement of baby boomers. This makes the number of active people inside the workforce less.

Rahul Sunny answered 1 month ago

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