Question

Suppose that you have the following information for Country X:
Population: 100,000
Employed: 60,000
Unemployed: 3,000
Not in labor force: 37,000
a. Calculate the size of the labor force, the labor force participation rate, and the unemployment rate.
b. Provide examples of individuals who would be classified as “not in the labor force.”
c. What economic factors might shift a woman from “not in the labor force” to in the labor force? Discuss.
d. Suppose an economic downturn occurred. How would you expect this change to affect the number of employed, the number of unemployed, and the number classified as “not in the labor force”? Explain

Answer 1

a) Size of labor force = employed+unemployed

=60000+3000=63000

Labor force participation rate = labor force/population

=63000/100000 = 63%

Unemployment rate = unemployed/labor force

=3000/63000 = 4.76%

b) Individuals who would be classified not in the labor force

A retired person who volunteers at a local library

Students just graduated and volunteering part-time

People who have been out of work for almost a year and became discouraged and gave up on job search

People who lost the job and after looking for work gave up on job search

People who are taking some years off from work to look after their child

c) Women who took years off to look after their child would be considered not in the labor force but once they decide to work again due to an increase in wage,a good job offer and starts looking to find work then they would be considered back in the labor force.

d) When an economic downturn happens then it increases the unemployment rate as a lot of people are laid off from the job. The employer would mostly hire low skilled workers who would be paid less and discourage workers from looking for work so most people would be considered out of the labor force.

So, most of the previously employed people will become unemployed whereas most unemployed people may find work due to the demand for low skilled workers and most people will drop out of the labor force.