Question

if a country had an adult population (those 15 years of age and over) of 200 million and a labor force of 160 million, and 140 million people were employed, what would be its labor force participation rate and its unemployment rate? b. If 20 million new jobs were created in the country and it attracted to the labor force 20 million of the people who were previously not in the labour force, what would be its new labour force participation rate and its unemployment rate? c. Beginning from the situation in (a), if 10 million unemployed people became discouraged and stopped looking for work, what would be the country’s new labour force participation rate and its unemployment rate? d. Beginning from the situation in (a), if 1 million refugees enter the economy as residents where only 20% of these become employed as workers while the rest decides not to look for a job what is now the new population, labour force, employed population and the corresponding new labour force participation unemployment rates?

Answer 1

Labor force participation rate (LFPR) = Labor force / Adult population

Unemployment rate (UR) = Unemployed / Labor force = (Labor force - Employed) / Labor force

(a)

LFPR = 160 / 200 = 0.8 = 80%

UR = (160 - 140) / 160 = 20 / 160 = 0.125 = 12.5%

(b)

New number employed (million) = 140 + 20 = 160

New labor force (million) = 160 + 20 = 180

New LFPR = 180 / 200 = 0.9 = 90%

New UR = (180 - 160) / 180 = 20 / 180 = 0.1111 = 11.11%

(c)

Discouraged workers are excluded from labor force.

New labor force (million) = 160 - 10 = 150

New number unemployed (million) = 20 - 10 = 10

New LFPR = 150 / 200 = 0.75 = 75%

New UR = 10 / 150 = 0.0667 = 6.67%

(d)

New adult population (million) = 200 + 1 = 201

New employed (million) = 140 + (1 x 0.2) = 140 + 0.2 = 140.2

New labor force (million) = 160 + (1 x 0.2) = 160 + 0.2 = 160.2

New LFPR = 160.2 / 201 = 0.797 = 79.7%

New UR = (160.2 - 140.2) / 160.2 = 20 / 160.2 = 0.1248 = 12.48%