Question

why unemployment rate is an imperfect measure of a nations overall level of well-being ?

Answer 1

The unemployment rate is the percentage of those who would like to work but do not have jobs. The Bureau of Labor Statistics calculates this statistic monthly based on a survey of thousands of households.

The unemployment rate is an imperfect measure of joblessness. Some people who call themselves unemployed may actually not want to work, and some people who would like to work have left the labor force after an unsuccessful search.

One reason for unemployment is the time it takes for workers to search for jobs that best suit their tastes and skills. Unemployment insurance is a government policy that, while protecting workers’ incomes, increases the amount of frictional unemployment.

A second reason why our economy always has some unemployment is minimum-wage laws. By raising the wage of unskilled and inexperienced workers above the equilibrium level, minimum-wage laws raise the quantity of labor supplied and reduce the quantity demanded. The resulting surplus of labor represents unemployment.

A third reason for unemployment is the market power of unions. When unions push the wages in unionized industries above the equilibrium level, they create a surplus of labor.

A fourth reason for unemployment is suggested by the theory of efficiency wages. According to this theory, firms find it profitable to pay wages above the equilibrium level. High wages can improve worker health, lower worker turnover, raise worker quality, and increase worker effort.

Because of all the above reasons, unemployment rate may not be a perfect measure of a nations overall level of well-being