3. The current unemployment rate for the US is 4.9% (July 2016). After a long pe

Question

3. The current unemployment rate for the US is 4.9% (July 2016). After a long period of gradually rising GDP with no increase in wage rates, average hourly wages rates have finally begun to rise – they only rose 5% year over year in January 2016. Why do you think that wage rates did not rise before? Why do you think they are rising slowly now?

5. Define the way economists define the Labor Force Participation Rate - LFPR. What is its current level in the US? What is its significance for long-term economic growth? Why do you think it is at its lowest level in 38 years? Why has the LFPR been falling for males, even more for African-American males, and rising for females, and even more for African-American females?

Explanation / Answer

3.

The current unemployment rate for the US is 4.9% (July 2016). After a long period of gradually rising GDP with no increase in wage rates, average hourly wages rates have finally begun to rise – they only rose 5% year over year in January 2016. Why do you think that wage rates did not rise before? Why do you think they are rising slowly now?

Wage rates did not rise before because of the presence of high unemployment in the economy. As unemployment increases, wages start to decline or get stuck at their current levels because the demand for labor falls. The sane happened in the ‘before’ case where the unemployment rate was high and wages did not rise.

In the next scenario in July, as unemployment started to fall and demand for labor started to rise, the wage rates too started increasing.

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