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Chapter 20: Problem 10

In discussing the labor market during the recovery from the \(2007-\) 2009 recession, Federal Reserve Chair Janet Yellen noted that "the employment-to- population ratio has increased far less over the past several years than the unemployment rate alone would indicate, based on past experience." a. During an economic expansion, why would we normally expect the employment- population ratio to increase as the unemployment rate falls? b. Why didn't the employment-population ratio increase as much as might have been expected during the recovery from the \(2007-2009\) recession?

Short Answer

Expert verified
a. During an economic expansion, increased job opportunities lead to a higher employment-population ratio and a lower unemployment rate. b. The employment-population ratio did not increase as much as expected during the recovery from the 2007–2009 recession due to factors like heavy job losses, slow job creation rate, and increased retirement among the baby boomers.

Step by step solution

01

Understanding Employment-Population Ratio and Unemployment Rate

Before proceeding, make sure to understand that employment-population ratio is the proportion of the working-age population (typically ages 15-64) that is employed. Unemployment rate, on the other hand, is the percentage of the workforce (those working or actively looking for work) who are without jobs. During an economic expansion, ordinarily, there are more job opportunities, which leads to a higher employment-population ratio and a lower unemployment rate.
02

Expected Change in Employment-Population Ratio During Economic Expansion

During an economic expansion, businesses typically grow and hire more workers to meet increased demand for their products or services. As more people find jobs and the employment-population ratio increases, the unemployment rate usually falls. This is because the size of the working-age population remains relatively constant, so when more people are employed, fewer people are unemployed.
03

Understanding the 2007-2009 Recession's impact on Employment-Population Ratio

The recession of 2007-2009 was marked by heavy job losses. Even when the economy began to recover, many people who lost jobs during the recession struggled to find new ones. The slow rate of job creation meant that the employment-population ratio didn’t increase as much as the fall in the unemployment rate might have indicated. Other factors like increased retirement rate among the baby boomers might have further skewed the ratio.

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Most popular questions from this chapter

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