Working at home (preparing meals, taking care of children is not counted as part

Question

Working at home (preparing meals, taking care of children is not counted as part of GDP. Such work aso doesn't constitute employment in labor- market statistics. With these observations in mind, consider two economies, each with 100 people, divided into 25 households, each with 100 people, divided into 25 households, each composed of 4 people. In each household, one person stays at home and prepares the food, 2 people work in the non food sector, and one is unemployed. Assume that the workers outside food preparation produce the same actual and measured output in both economies.

In the first economy, Eat- in, the 25 food preparations workers (one perhousehold) cook for their families and do not work outside the home. All meals are prepared and eaten ast home. The 25 food preparations workers in this economy do not sek work in the formal labor market (and when asked, they said they're not lookinf for work). In the second economy, EatOut, the 25 food preparations workers are employed by restaurants. All meals are prepared in restaurants.

Calculate the measured employment and unemployment and the measured labor force for each economy. Calculate the measured unemployment rate and participation rate for each economy. In which economy is GDP higher?

Explanation / Answer

In the first economy where out of 4 people in every household, two people work in non food sector the labour force available for employment is 50 percent of the population but the employment rate is 100 percent since all people seeking employment are employed. Unemployment is zero percent. Participation rate of the economy is 50 %.

In the second economy where out of 4 people in every household, three people are employed, two in non food sector and one in food sector the labour force available for employment is 75 percent of the population. Again, the employment rate here is 100 percent because all people willing to work are employed. Unemployment does not exist. Participation rate of the economy is 75%.

Coming to the GDP, it consists of Consumption + Investment + Government Expenditure. (Export and Import are irrelevant here). Since adequate data is not provided on exact expenditure on food per family of 4 people, we assume that the amount spent is equal per person/per family.

In the first economy, amount spent on restaurant food is saved and invested.
In the second economy, since all individuals spend on food in restaurants, a part of amount earned by 25 people by working in restaurants is spent on the food.

Second economy has both consumption and investment, since participation rate is higher in the second economy, the GDP here would be higher.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.