Question

During the last 3 months of 2016, the employment-population ratio was unchanged, and the labor force participation rate was decreasing. Shouldn’t both of these data series move in the same direction? Briefly explain how it is possible that they didn’t.

Answer 1

Employment to population ratio means the ratio of number of people employed to working age population.

Labour force participation rate means the ratio of labour force to working age population or adult population

Labour force = Number of employed + Number of unemployed.

If the employment to population ratio is kept constant which means there is no change in working age population or number of people employed in the country. If the labour force participation rate is decreasing which means the number of people in the labour force are decreasing than the working age population. So when comparing both the scenario there is a decline in the labour force but the employed people are same. Which means the unemployment population is declining.

So when the unemployed people are decreasing without increase in unemployed population means the people who are actually looking for work under unemployment is decreasing which means that they are getting discouraged that they won't get any work. If this is the scenario than the discouraged workers will increase to such an extent which will cause chaos to the economy and also there will be internal disturbance as people will loose their coolness after certain period of time.

So both the labour force participation rate and employment to population ratio can move in upward direction but not in downward direction.