Consider an economy that has 100,000 people who are 16 years old or older. Of th
ID: 1125833 • Letter: C
Question
Consider an economy that has 100,000 people who are 16 years old or older. Of this group, 2,000 are currently in the military, 1,000 are homemakers, 10,000 are retired, and 14,000 are full-time students who are not employed. Further 10,000 are currently not working and are actively seeking jobs, 5,000 are temporarily laid off and anticipate that their jobs will resume within the next two months, and 5,000 people are currently not working and are not actively seeking jobs because they live in a community wit h a severely depressed economy. All other adults in this economy can be assumed to be working: in this group, 80% are fully employed and 20% are underemployed. Calculate the civilian labor force participation rate. (2 points 1 The govemment of this economy is considering changing its definition of unemployed so that it includes discouraged workers. If this new policy is implemented, what will the new unemployment rate equal? (2.5 points gSuppose the government changes its classification of discouraged workers and, in addition, decides to treat underemployed workers as unemployed workers since this group is not fully utilizing their labor resources. If both of these policy changes are implemented, what will happen to the unemployment rate?(2.5 points)Explanation / Answer
(e)
Working-age population = 100,000
Civilian labor force = Total population - Persons in military - Homemakers - Retired - Full-time students - Discouraged workers
Civilian labor force = 100,000 - 2,000 - 1,000 - 10,000 - 14,000 - 5,000 = 68,000
Calculate the civilian labor force participation rate -
Civilian labor force participation rate = [Civilian labor force/Working-age population] * 100
Civilian labor force participation rate = [68,000/100,000] * 100 = 68%
The civilian labor force participation rate is 68%.
(f)
Now, government has instituted a new policy that counts discouraged workers as unemployed workers.
Civilian labor force after policy change = Civilian labor force + discouraged workers
Civilian labor force after policy change = 68,000 + 5,000 = 73,000
Number of unemployed = Not working but seeking job + Temporarily laid off and waiting + discouraged workers
Number of unemployed = 10,000 + 5,000 + 5,000 = 20,000
Calculate the new unemployment rate -
New unemployment rate = [Number of unemployed/Civilian labor force after policy change] * 100
New unemployment rate = [20,000/73,000] * 100
New unemployment rate = 27.40%
The new unemployment rate is 27.40%.
(g)
Now, government has instituted a new policy that counts discouraged workers and underemployed workers as unemployed workers.
Employed workers before policy change = 53,000
20% of these are underemployed.
Underemployed workers = 53,000 * 0.20 = 10,600
Civilian labor force after policy change = Civilian labor force + discouraged workers
Civilian labor force after policy change = 68,000 + 5,000 = 73,000
Number of unemployed = Not working but seeking job + Temporarily laid off and waiting + discouraged workers + Underemployed workers
Number of unemployed = 10,000 + 5,000 + 5,000 + 10,600 = 30,600
Calculate the unemployment rate -
Unemployment rate = [Number of unemployed/Civilian labor force after policy change] * 100
Unemployment rate = [30,600/73,000] * 100
Unemployment rate = 41.92%
The unemployment rate after double policy change is 41.92%.
Thus, unemployment rate will increase, if these double policy changes will be implemented.