Question

Discuss why pundits suggest that the unemployment rate fails to accurately describe the current employment situation.

Answer 1

The unemployment rate is calculated by the below formula

Unemployment rate = no. of unemployed person/ Labor Force( includes employed and unemployed)

While we are taking the total no. of unemployed person , it is to be noted that there are several types of unemployment i.e ) Unemployment could be because of several reasons. Different types of unemployment are listed below

1. Structural unemployment : unemployment occurs due to the decline in the Industry. For Eg:- When consumers moved from Cassette to CDs , the Cassette companies faces fall in  sales ,  as a result the jobs in these companies also declines.

2.Seasonal unemployment: occurs when the work is of seasonal in nature.For Eg:- An umbrella manufacturing company could loose sales during off rainy season, as a result jobs in this industry may decline during this off period

3.Frictional unemployment: occurs when they loose the current job and are in search of a new one. This unemployment could be because of several reasons such as higher salary, change in role etc.

4. Voluntary unemployment: situation when individuals choose not to work at the current wage rate or other reasons.

The Unemployment rate will not give a clear picture of type of unemployment, as a result we are unable to identify the current employment situation. Also to find the current employment situation, the analyzes has to be done at least monthly.