Question

Question 1

1. The current size of the labour force in Tommynesia is 298,555.  It is also known that the labour force participation rate is 61.7%.   Use this information to find the following.                                                                                                                     

1. Calculate the working age population.
2. There are 25,535 people unemployed. Calculate the unemployment rate.

                                                                                                                                               

2. Following from part a), suppose that the size of the labour force decreases by 35,000. 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. Tommy currently struggles to find a job as a practicing economist.  This is because he has not been up to date with the relevant forecasting skills used in the industry. Is Tommy frictionally unemployed, structurally unemployed or cyclically unemployed? Explain your answer.                                                                                                                                                                              

4. What is the difference between underemployment and marginal attachment to the labour market? Explain and elaborate.                                                                                                                                             

Answer 1

We now that, Labr force participation rate = (labor force/ working age population)

a.

Labor force = 298,555

Participatio rate = 61.7% = 0.617

i.

Working age population = Labor force/Labor force participation rate

= 298,555/ 0.617

= 184208.435

ii

Unemployed = 25,535

Unemployment rate = No. of Unemployed/ Labor force

= 25,535/298,555

= 0.085

b.

Labor force decreases by 35000 = 298555 - 35000 = 263555

Unemployment rate = No. of Unemployed/ Labor force

= 25,535/263555

= 0.096

c.

Tommy is structurally unemployed.

Structural Unemployment is caused due to the mismatch of skills of the individual and the skills demanded of workers by employers. in this case the skills of the individual becomes obsolete. Hence, Tommy is structurally unemployed.

d.

Underemployment means that an individual is employed in a sector which does not use his skills regularly and is kept idle.

Whereas, the marginal attachment to the labor market means discouraged workers who want a job and are currently available for work but have given up actively searching for work and believe that they cannot find work.