Question

1. Suppose election season is coming up and you hear a politician say, “We should aim for zero unemployment!” As an economics student, you jump to analyze this claim with your macroeconomic knowledge. First, provide the specific definition of unemployment.
2. Do you think the unemployment rate can ever fall to 0%? Why or why not? Be sure to include some or all of the different types of unemployment in your justification.
3. What are some policies that can lower the unemployment rate?
4. Pose a question to the class about GDP. Make it an insightful one that can start a discussion.

Answer 1

Unemployment refers to individuals not having paid employment but is available to work.

Unemployment rate =Unemployed /Labor force *100

Labor force = Employed +unemployed

Unemployed are - 16 years and older, have been actively looking for work and available for work for the past 4 weeks

The unemployment rate cannot fall to zero as based on the different types of unemployment it is not practical to have zero percent. The 2 types that gain precedence are structural and frictional unemployment, the former is unemployment due to technological advances and the latter is unemployment due to a change or shifting of jobs. Zero percent would mean that the present generation or economies will have to sacrifice technological advancement for attaining zero unemployment and today with globalization and integration this is impractical and impossible. For attaining the goal of zero unemployment one will have to continue the same job basically cannot change or shift jobs and this, in reality, is undesirable. Also, the inverse relationship between inflation and unemployment makes zero unemployment impractical.

The unemployment rate can be reduced by reducing interest rates and taxes as this will boost up aggregate demand along with employment subsidies which will induce firms to employ more. Labour market regulation should be eased as can improve flexibility along with education and training that can boost employment and mobility.

GDP doesn't include the estimations from the black market although studies suggest that the underground economy can provide the economy with around $ 400 to 500 billion as revenue and the government can easily legalize the black market so as to reap this benefit. Why is the government not legalizing the black market activities ?