Question

Discouraged searchers and underemployed workers

By keeping track of discouraged workers and underemployed workers, Statistics Canada gets a clearer picture of the true employment situation than if it looked at only the number of unemployed workers.

Which of the following statements correctly describe discouraged searchers? Check all that apply.

They are employed workers who want to earn higher wages.

They are not in the labour force.

They are part-time workers who want to work full-time.

They would like to have jobs.

Consider a hypothetical economy in which the labour force consists of 200 people. Of those, 160 people are employed full-time and 40 people are unemployed. The government of this economy follows the same conventions as Statistics Canada in computing its employment figures. The unemployment rate is simply the number of unemployed people divided by the number of people in the labour force. Initially, then, the unemployment rate is (40/200) x 100% = 20.0%.

Suppose a reduction in foreign demand for this economy's products causes an economic recession—a prolonged period of declining output. The following table offers two different possible scenarios resulting from the recession. Calculate the unemployment rate associated with each scenario.

		Unemployment Rate
Scenario A:	Firms reduce work hours by 25%. The number of underemployed workers rises as firms respond to the reduction in the demand for their products by reducing the hours of each employed person from 40 to 30 hours per week.
Scenario B:	Firms reduce employment by 25%. The number of unemployed workers rises as firms respond to the reduction in the demand for their products by laying off 40 previously employed workers.

The unemployment rate in scenario A   the true extent of underemployment in the economy, because Statistics Canada counts part-time workers as employed.

Answer 1

The following statements correctly describe discouraged searchers-

-They are not in the labor force.

-They would like to have jobs.

UR = Unemployed/Labor force*100

.

		Unemployment Rate
Scenario A:	Firms reduce work hours by 25%. The number of underemployed workers rises as firms respond to the reduction in the demand for their products by reducing the hours of each employed person from 40 to 30 hours per week.	20%
Scenario B:	Firms reduce employment by 25%. The number of unemployed workers rises as firms respond to the reduction in the demand for their products by laying off 40 previously employed workers.	40%

The unemployment rate in scenario A understates the true extent of underemployment in the economy, because Statistics Canada counts part-time workers as employed