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    Ben Obi
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    The unemployment rate in the economy was originally 10%. There were 10,000 unemployed people out of a labor force of 100,000. When 4,000 previously unemployed people became discouraged and stopped searching for work, the unemployment rate fell to 6.25%. However, this is not necessarily good news for the economy because it could indicate structural unemployment issues where people's skills do not match available jobs.

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    The unemployment rate in the economy was originally 10%. There were 10,000 unemployed people out of a labor force of 100,000. When 4,000 previously unemployed people became discouraged and stopped searching for work, the unemployment rate fell to 6.25%. However, this is not necessarily good news for the economy because it could indicate structural unemployment issues where people's skills do not match available jobs.

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    16 views2 pages

    WA Unit 5

    Uploaded by

    Ben Obi
    The unemployment rate in the economy was originally 10%. There were 10,000 unemployed people out of a labor force of 100,000. When 4,000 previously unemployed people became discouraged and stopped searching for work, the unemployment rate fell to 6.25%. However, this is not necessarily good news for the economy because it could indicate structural unemployment issues where people's skills do not match available jobs.

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    © All Rights Reserved
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    of 2

    Suppose an economy has 10,000 people who are not working but looking and available for work

    and 90,000 people who are working.

    1) What is unemployment rate?

    “The term unemployment rate can be defined as the number of unemployed people divided by
    the labor force—the total of the number of people not working but available and seeking work
    plus the number of those already working." (Rittenberg & Tregarthen 2009).

    Unemployment rate is equal to the number of people unemployed divided by the labour force
    (number of people employed plus number of people available and looking for work) thereby,

    10,000/(90,000+10,000) multiply by 100%

    10,000/100,000= 0.1 multiply by 100%

    The unemployment rate is currently 10%

    2) Now suppose 4,000 of the people looking for work get discouraged and give up their searches.
    What happens to the unemployment rate? Would you interpret this as good news for the
    economy or bad news? Explain.

    “Workers who are discouraged are not regarded or counted as unemployed, though a record is
    kept each month of the number of discouraged workers". (Rittenberg & Tregarthen 2009). Given
    in the above report that there are a total of 4,000 people who have stopped seeking for work, the
    new unemployment rate will be thus calculated as;

    (Total unemployed workers – Discouraged workers) Divide by (Total number of employed


    workers + Current unemployed) Multiply by 100%. Therefore, the number of available persons
    searching for work will be

    10,000-4,000 = 6,000

    The new unemployment rate therefor is:

    6,000/(90,000+6,000)

    6,000/96,000 = 0.0625 multiply by 100%

    Therefore the new unemployment rate = 6.25%

    Explanation:

    Though there is a significant drop in the rate of unemployment, it still does not apear to be good
    news. The fact that a certain number of persons have given up on their search for a job may
    actually indicate that they are facing structural unemployment and they either do not expect to or
    are somewhat unable to adjust their set skills to the current demands of the workplace thereby
    still creating a low output which is a burden to the economy.

    Reference:

    Khan Academy. (2012, February 14). Introduction to inflation | Inflation - measuring the
    cost of living | Macroeconomics | Khan Academy [Video]. YouTube.

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