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Chapter 20: Problem 11

During the last three months of \(2016,\) the employmentpopulation ratio was unchanged, and the labor force participation rate was decreasing. Shouldn't both of these data series move in the same direction? Briefly explain how it is possible that they didn't.

Short Answer

Expert verified
The employment-population ratio and labor force participation rate did not move in the same direction as they are affected by different factors. The labor force participation rate can decrease due to a decrease in the number of people who are unemployed and actively seeking work, but if the number of people who are employed remains the same, the employment-population ratio can remain steady.

Step by step solution

01

Define the employment-population ratio

The employment-population ratio is a measure of the proportion of the country's working-age population (ages 15 to 64 in most countries) that are employed. The numerator of the ratio is the number of those employed, while the denominator is the total working-age population, employed or not.
02

Define the labor force participation rate

The labor force participation rate refers to the proportion of the country's working-age population that is in the labor force. This includes both those who are employed and those who are actively looking for work (the unemployed). The numerator of this ratio is the total labor force (employed and unemployed), while the denominator is the total working-age population.
03

Explain the relationship between the two rates

Both of these rates measure different aspects of the working-age population, and it is possible for them to move in different directions because they are affected by different factors. The employment-population ratio is affected by the number of people who are employed, while the labor force participation rate is affected not only by the number of people who are employed, but also by the number of people who are actively seeking employment.
04

Demonstrate how these rates could move in different directions

For example, if the number of people who are unemployed and actively seeking work decreases (for instance, they decide to stop looking for work or to retire), this could decrease the labor force participation rate. At the same time, if there is a decrease in the number of unemployed people, and the number of people who are employed remains the same, the employment-population ratio can remain unchanged.

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Most popular questions from this chapter

(Related to the Don't Let This Happen to You on page 681 ) Briefly explain whether you agree with the following statement: "I don't believe the government price statistics. The CPI for 2016 was \(240,\) but I know that the inflation rate couldn't have been as high as 140 percent in \(2016 . "\)

What are the three types of unemployment? Which type of unemployment do you consider most likely to result in the least hardship for people who are unemployed? Briefly explain.

(Related to the Don't Let This Happen to You on page 681 ) An article in the Wall Street Journal asked "How can inflation be low when everything is so expensive?" The article also noted that "the CPI shows that prices are the highest they've ever been." Is there a contradiction between a low inflation rate as measured by the CPI and the observations that prices are "the highest they've ever been" and everything is "so expensive"? Briefly explain.

In May 2017, an article in the New York Times had the headline: "We're Getting Awfully Close to Full Employment." The article contained the following observation: "The socalled \(U-6\) rate \(\ldots\) fell to 8.6 percent in April from 8.9 percent [in March]." a. What is the U-6 unemployment rate? Why do economists and policymakers track changes in this measure of the unemployment rate? b. What is full employment? If the U.S. economy was close to full employment in May 2017 , why was the \(\mathrm{U}-6\) measure of the unemployment rate still as high as \(8.6 ?\)

Jared Bernstein, an economist at the Center on Budget and Policy Priorities, stated, "I want to see receipt of unemployment insurance \(\ldots\) go up in recessions." If government unemployment insurance payments didn't go up, he explains, it "would be a sign that something's very wrong." What would be very wrong about government unemployment insurance payments failing to rise during a recession? What would be the consequences for the unemployed and for the economy?
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