Question

3. What is the definition of an "unemployed" person according to the U.S. Bureau of Labor Statistics?

(a) Find out the U.S. rates of unemployment for 1978-2017 and plot them into a graph.

(b) The unemployment rate has gone down, which means the economy is doing really well. True or false? Explain.

(c) What are the three types of unemployment? Explain each one.(d) What is the natural rate of unemployment?

Answer 1

According to U.S. Bureau of Labor Statistics, "unemployed" person is defined as a person who does not have a job, has actively looked for work in the prior four weeks and is currently available for work.

(a) US rates of unemployment for 1998-2017 are as follows; the rate of unemployment between 1998 to mid-2008 remained between 4% to 6% and showed an increasing trend from 2008 to 2010 reaching 10% rate of unemployment.After reaching its peak, the rate declined steadily to reach at 4% level till 2017.

(b) The unemployment rate has gone down implies economy is doing really well is true but the decline should be to an extent that it does not cross the natural level of unemployment which is at a full potential output. If unemployment rate crosses this threshold then it induces demand to rise substantially which puts a constraint on the given level of production and price level are pressurized to rise and cause inflation which is a tough task to counterbalance.

(c) The three types of unemployment are as;

1. Cyclical unemployment which is created by the uncertainty in the business cycle. for example recession in the economy induces unemployment.

2.Structural unemployment is created when there is a difference between the skills held by the workers and skills required for the job; it adheres to a structural change in the firms caused by any policy change or technological change.

3.Frictional unemployment is related to job search process, it is short termed and it occurs when workers leave their old jobs and but haven't found new ones.

d) The natural rate of unemployment is a combination of frictional, structural and surplus unemployment. It exists for a healthy economy as well when national output is a potential level.