Question

The total population of Country A can be categorized as follows:

• 110 people are employed part-time, by choice
• 120 people are employed part-time, but would prefer to work full-time
• 130 people are employed full-time
•   50 students are working in part-time, work-study positions
•   40 people are not employed but are actively seeking work
•   30 people are not working and are not looking for a job
•   10 people are considered discouraged workers
•   35 people are marginally-attached
•   60 people are under age 16
•   15 people are retired, not working and not looking for work
  
  a.  The (U3) unemployment rate is equal to _____ %
  b.  Is this economy “fully-employed” according to the U.S. definition?  Why or why not?

  c. True or False.  Underemployed individuals are counted as “employed” even though they are not fully using their skills.  Justify your answer.

  d. True or False.  Cyclical unemployment is a result of recessions and economic downturns and is not considered part of the natural rate of unemployment.  Justify your answer.

Answer 1

a.

The unemployment rate is the percentage of unemployed people in the labor force containing unemployed and employed persons all over 16 years of age.

The total person employed is: 110+120+130+50=410

Total person unemployed is: 40

Therefore, the total labor force is: 410+40=450

Hence, the unemployment rate is: (40/450) x 100 = 8.9%

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b.

According to the US definition, full-employment implies there is no cyclical unemployment due to recession and the economy is using all its available resources efficiently. This is not evident from the statistics above that the unemployment rate calculated above is not due to cyclical reasons. Therefore, by definition, the economy may or may not be at the full employment level.

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c.

A person who has done any job for pay or profit for more than 15 hours a week during the survey is termed as employed. They are counted as part-time workers if they have worked less than 35 hours of work in a week. They are not fully employed and available for full-time work. Therefore, the statement is: TRUE

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d.

Cyclical unemployment refers to unemployment due to cyclical fluctuation in the economy. The cyclical fluctuation is the deviation of GDP from its trend and called either recession or inflation. When the ecnomy slips into recession firms lay off workers due to lack of demand. The unemployment that occurs due to lack of demand is cyclical unemployment. On the other hand, full employment refers to the non-accelarating inflation of unemployment or the NAIRU. At this level the economy using its full resources but there is still some person who is between a job or searching for right job according to their skill. These people consist of NAIRU and never let the unemployment falls to zero. The cyclical unemployment is over this unemployment rate and only occurs due to recession. Therefore, the statement is : TRUE