Question

Informal work at home​ (e.g., preparing​ meals, taking care of​ children) is not counted as part of GDP. Such work also does not constitute employment in​ labor-market statistics. With these observations in​ mind, consider two​ economies, each with 100​ people, divided into 25 households each composed of four people. In each​household, one person stays at home and prepares the​ food, two people work in the nonfood​ sector, and one person is unemployed. Assume that the workers outside food preparation produce the same actual and measured output in both economies.

In the first​ economy, EatIn, the 25​ food-preparation workers​ (one per​ household) cook for their families and do not work outside the home. All meals are prepared and eaten at home. The 25​ food-preparation workers in this economy do not seek work in the formal labor market​ (and when​ asked, they say they are not looking for​ work). In the second​ economy, EatOut, the 25​ food-preparation workers are employed by restaurants. All meals are purchased in restaurants.

Fill in the table for each country.

	EatIn	EatOut
Employment
Unemployment
Labor force
Unemployment rate	​ %	%
Participation rate	​%	%

Answer 1

Total adult population for each economy = 100.

In EatIn, 2 people per household are employed.

Therefore, employment = 2*25 = 50

In EatOut, 3 people per household are employed.

Therefore, employment = 3*25 = 75

In EatIn, 1 person per household is unemployed, i.e., 25 people are unemployed. Since, the person take care of the food preparation is not looking for job, that person cannot be considered to be termed unemployed according to the definition of unemployment.

In EatOut, again, 25 people are unemployed.

Total labor force = employed+unemployed

EatIn= 50+25 = 75

EatOut = 75+25 = 100

Unemployment rate = No. of unemployed people / Labor force

EatIn = 25/75 = 1/3 = 33.33%

EatOut = 25/100 = 1/4 = 25%

Participation rate = labor force / adult population

EatIn = 75/100 = 0.75 = 75%

EatOut = 100/100 = 1 = 100%.

	EatIn	EatOut
Employment	50	75
Unemployment	25	25
Labor force	75	100
Unemployment rate	33.33%	25%
Participation rate	75%	100%