4. Consider an economy with the following labor force characteristics: Number of

Question

4. Consider an economy with the following labor force characteristics:
Number of people employed E =135 million
Number of people unemployed U= 15 million

Number of people officially classified as out of the labor force O= 150 million

a.Calculate the unemployment rate using the above data.




b.   Calculate the labor force participation rate using the above data.




c.   Assume that 10 million unemployed people quit looking for work and 10 million of those people currently out of the labor force make a permanent move from their current residences in Springfield Massachusetts to Hobart Tasmania where they apply for permanent residency. Tasmania is a state in the nation of Australia. Calculate the new labor force participation rate for the United States.

Explanation / Answer

ANSWER:

A) No of employed = 135 million

No of unemployed = 15 million'

Out of the labor force = 150 million

Unemployment rate = no of unemployed / labor force

labor force = no of unemployed + no of employed = 15 million + 135 million = 150 million

unemployment rate = 15 milllion / 150 million = 0.1 or 10%

B) Labor force participation rate = labor force / total population

total population = no of unemployed + no of employed + Out of the labor force = 135 million + 15 million + 150 million = 300 million

Labor force participation rate = 150 million / 300 million = 0.5 or 50%

C) If 10 million out of force make a permanent move to australia then the total population will come down from 300 million to 290 million and when 10 million unemploymed people quit looking for work then the labor force will come down from 150 million to 140 million.

New labor force participation rate = labor force / total population

New labor force participation rate = 140 million / 290 million = 0.4827 or 48.27%

so the new labor force participation rate is 48.27%

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