Question

Question 1

1. In Tommynation the current unemployment rate is recorded as 5.2%.  Further, the number of people in the labour force is known to be 269,475.  Use this information to find the following.

1. Calculate the number of people unemployed.
   
2. The working age population is 365,547. Calculate the labour force participation rate.

2. Following from part a), suppose that the size of the labour force decreases by 23,000. What would happen to the unemployment rate? Assume that the number of people unemployed does not change. Explain your answer by referring to the relevant equation, supported with the necessary calculations.                                                          
   
3. Tim lost his job in a manufacturing factory. The factory went bankrupt due to lost of competitiveness in the domestic market over cheap imported products. Tim is now unable to find a job that utilizes his skills. Is Tim frictionally unemployed, structurally unemployed or cyclically unemployed? Explain your answer.                       (2marks)
   
4. The economy is at full employment. Explain and elaborate this statement in terms of unemployment rate and GDP.                                                                          

Answer 1

Question 1

(a)

(i)

Unemployment rate = 5.2% or 0.052

Labor force = 269,475

Calculate the number of people unemployed -

Number of people unemployed = Labor force * Unemployment rate

Number of people unemployed = 269,475 * 0.052 = 14,012

The number of people unemployed is 14,012.

(ii)

Working age population = 365,547

Labor force = 269,475

Calculate the labor force participation rate -

Labor force participation rate = (Labor force/Working age population) * 100

Labor force participation rate = (269,475/365,547) * 100

Labor force participation rate = 73.72%

The labor force participation rate is 73.72%.

(b)

Labor force decreases by 23,000.

New labor force = Initial labor force - Decrease in labor force = 269,475 - 23,000 = 246,475

Number of unemployed = 14,012

Calculate the unemployment rate -

Unemployment rate = (Unemployed/New labor force) * 100

Unemployment rate = (14,012/246,475) * 100

Unemployment rate = 5.68%

The unemployment rate is 5.68%.

The unemployment rate increased from 5.2% to 5.68%.

Thus,

The unemployment rate has increased.

(c)

It has been stated that Tim has lost his job and is unable to find a job that utilize his skills.

The unemployment that arises due to mismatch of skills being in demand and the skills possessed by the person is referred to as structural unemployment.

So,

Tim is structurally unemployed.

(d)

The economy is at full employment.

In terms of GDP, this means that economy is producing its potential level of GDP.

In terms of unemployment rate, this means that unemployment in economy is at its natural rate or natural rate of unemployment prevails in the economy.

In other words, there is no cyclical unemployment in the economy.