A small country has 12 adults of working age. Eight of these adults currently ar
ID: 1129785 • Letter: A
Question
A small country has 12 adults of working age. Eight of these adults currently are working: of the eight, two are part time workers,three have full time jobs, and three are underemployed. of the remaining four workers, two are actively seeking jobs, one is not working but is not actively applying for jobs because she does not believe there any jobs available, and the other is out of work due to the economy being in recession. Given this information,answer the following questions:
A) What is the unemployment rate in this economy?
B) What is the structural unemployment rate in this country?
C) What is the frictional unemployment rate in this country?
D) what is the cyclical unemployment rate in this country?
E) What is the natural rate of unemployment in this country?
Explanation / Answer
1 (a) In this economy 2 are actively looking for job and one is out of work due to unemployment so they sum to the total number of people unemployed.
Next there is a worker who is not working as well as not looking for a job so that worker will be considered as out of labor force.
Total labor force include employed which are 8 in this economy plus unemployed which are 3 in this economy.
Unemployment rate =(Unemployed /Total labor force)*100 =(3/11)*100=27.27%
(b) Structural unemployment rate occurs when people unemployed when there are structural changes in an economy such as development of technology which make people less skilled .
In this economy there is no such unemployment. So structural unemployment rate will be zero.
(c) Frictional unemployment is temporary unemployment when a worker leaves a job and looks for another job. In this economy there is no frictional unemployment so frictional unemployment rate will be zero.
(d) There is one worker who is out of works because of recession which caused lower demand for goods and services and hence lower demand for workers hence causing some lay offs .
So , it will be (1/11)*100=9.09%
(e) Natural rate of unemployment includes structural and frictional unemployment .
In this economy as structural and frictional unemployment rate is zero so will be natural rate of unemployment.