Question

1. In the last 2 months, 40 million Americans have claimed unemployment. We have seen the U.S.A. unemployment rate increase to 14.7%. If the adult population of the United States is 215 million, calculate the Labour Force participation rate. Comment, what do you think are the short term, and long term impact of this level of unemployment. Justify your reasons. State policies that the government can implement to help the this situation.
2. The natural rate of unemployment in Thailand is about 1% and the labor force participation rate is about 68%. Interpret these values. What does it mean for the Thailand’s economy and population? Why is the U-rate so low?

Answer 1

Values and information given in the question,

Adult Population of United States = 215 million

Number of people Unemployed= 40 million

Increase in the percentage of unemployment=14.7%

To find: Labour force participation rate

The labour force participation rate is nothing but the percentage of working age population in the country given the unemplyement rate.

The formula to calculate labour force participation rate is,

Where, the labour force is the total adult population - number of people unemployed.

That is, 215million-40million=175million.

Thererfore, we get the labour force participation rate to be  

Generally, unemployment is said to have a short period when it lasts for less than or equal to 6 months, The effects of of unemployment in short run are,

• Poverty and huger and other inter-related problems, as the income capacity of the country falls and thus the people indulge in either viscious cycle or less of subsistence income. Thus poverty increases.
• Due to lack of money or income, the poor families tend to indulge small children in work and thus having lack of education opportunities. There is rise in illiteracy.
• A situation of Deflation develops in the economy due to all the above mentioned point.

Whereas when the same unemployment extends to a year or more is termed as Long term Unemployment, effects of this are,

• It can lead to bad health, depreesion or anxiety to a person

Talking about health, it can cause both either mental health issue or physical health issue.

• Since, the person losses the self-esteem he has earlier he can even face social isolation.
• Due to lack of income, he/she try to decrease the fertility rate and they don't even have adherence to proper health services the life expectancy rate falls.
• There can be other negative effects like, increase in crime rate, drug abuse, homelessness. Thus leading to adverse economic and social effects.

The following are some policy suggestions, that government can implement

• To provide Education & Training and skill development, in order to reduce occupational immobility
• Should reduce tax rates, and interest rate to enable high Aggregate demand
• Should reduce labour regulation to promote more labour participation
• Should subsidise some firms for employemnt in order to increase employment rate

The Case Study of Thailand states that the natural rate of unemployment is 1% and the labour force participation rate os 68%, From the following information we can interpret that the country has number of job opportunities available for the pool of job-seekers. But the main reason for the unemployment being so low is the structural imbalance and uninformed labour. Due this the main labour force is pushed into the agricultural sector and rapidly pushing the unemployment rate down. Apart from these the other reason supporting the arguments are low birth rate, lack of social insurance & security and major presence of informal sectors.