Consider an economy that initially has labor force of 2000 workers and a working

Question

Consider an economy that initially has labor force of 2000 workers and a working age population of 2500. Of these workers, 1800 are employed. The economy entersa recession. Employment falls by 4%, and in addition 0.2% of the labour force becomes discouraged at the prospect of finding a job and leaves the labor force. a. Calculate the employment rate given the information above? b. Calculate the labour force participation rate for this economy. c. Calculate the unemployment rate before and after the recession. Hint: The labor force has also changed

Explanation / Answer

a) Employment rate = No. of employed / Labor force = 1800/2000 = 0.9 or 90%

b) Labor force participation rate = Labor force / Adult population x 100 = 2000/2500 x 100 = 80%

c) Unemployment rate = No. of unemployed / Labor force x 100

Before recession:

Unemployment rate = (labor force - employed)/labor force x 100 = (2000 - 1800)/2000 x 100

= 200/2000 x 100 = 10%

After recession:

No. of employed = 1800 - 4% of 1800 = 1800 - 72 = 1728

Labor force = 2000 - 0.2% of 2000 = 2000 - 4 = 1996

New unemployment rate = (1996 - 1728)/1996 x 100 = 268/1996 x 100 = 13.43%

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