Question

a) considering the way unemployment rate is calculated, how could unemployment rate and employment rate increase at the same time

b) explain how the labour market decisions of workers could lead to your answer in part a)

Answer 1

a)The key here is understanding how the unemployment rate is calculated and understanding what the labor force means. To calculate the unemployment rate, you’d take the number of unemployed divided by the labor force. And the labor force = the number of people employed plus those who are unemployed. So yes, we can have an increase in the number of people who are employed as more of the unemployed gain a job. They switch from being unemployed to employed.

Discouraged workers are those who gave up looking for work, so they’re not counted as unemployed because they dropped out of the labor force. So if enough discouraged workers re-entered the labor force to be counted as unemployed, it is possible for the unemployment rate to increase at the same time the employment rate went up.

b)Their is inverse relation between wages & demand for labor. There is a direct relation between wages & supply of labour. .The demand curve depends on the marginal product of labor and the Price of commodity it produces .

Remember in the short run it depends upon number of variables such as, preference for work, the type of skills and training required and wages available in alternative occupations.

So in short run supply of labour force may decrease but in long run when wages increase emploment level increases and many workers who were not willing to work at current wage rate become a part of labour supply and thus unemployment level also increases.