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Chapter 20: Problem 8

Homemakers are not included in the employment or labor force totals compiled in the BLS household survey. They are included in the working-age population totals. Suppose that homemakers were counted as employed and included in labor force statistics. How would that change affect the unemployment rate, the labor force participation rate, and the employment-population ratio?

Short Answer

Expert verified
Including homemakers as employed in labor force statistics would likely decrease the unemployment rate and increase both the labor force participation rate and the employment-population ratio as the number of employed individuals increases without any change in the number of unemployed individuals.

Step by step solution

01

Understanding the Definitions

Before advancing to the analysis, clear understanding of what each term represents is crucial. Unemployment rate is the percentage of unemployed people in the labor force. Labor force participation rate is the proportion of working-age population (both employed and unemployed) participating in the labor market. Lastly, employment-population ratio is the proportion of the working-age population that is employed.
02

Predicting Effects on Unemployment Rate

If homemakers were included as employed in labor force statistics, we add more people to both the workforce and the employed section. Because the unemployment rate is calculated by dividing the number of unemployed people by the total labor force, adding homemakers as employed does not change the number of unemployed people but increases the total labor force. So, the unemployment rate would decrease.
03

Predicting Effects on Labor Force Participation Rate

The labor force participation rate is the labor force divided by the working-age population. When homemakers are added to labor force statistics, both the labor force and the employed population increase. Since we consider homemakers already part of the working-age population, this ratio would increase.
04

Predicting Effects on Employment-Population Ratio

The employment-population ratio is the employed population divided by the working-age population. Including homemakers in employment statistics would increase the numerator while the denominator remains unchanged. Hence, the employment-population ratio would increase.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Understanding Unemployment Rate Calculation
When it comes to understanding economic indicators, the unemployment rate is one of the most cited figures. It offers insight into the health of a country's labor market and economy. The unemployment rate calculation is quite straightforward. It is the percentage of the total labor force that is unemployed but actively seeking employment and willing to work. The formula to calculate the unemployment is:
\[ Unemployment\ Rate = \frac{Number\ of\ Unemployed\ Individuals}{Total\ Labor\ Force} \times 100 \]
Including homemakers as employed would adjust the denominator, thus changing the outcome of the equation. If homemakers are considered employed, they increase the count of people within the labor force who are not seeking employment, as they are accounted for as employed members. This addition would decrease the unemployment rate because the ratio of unemployed individuals to the now larger labor force becomes smaller.
Labor Force Participation Rate Explored
Another critical measure for economists is the labor force participation rate. This rate reflects the active portion of an economy's working-age population. The labor force participation rate includes both employed individuals and those who are unemployed but seeking work. The formula for the labor force participation rate is:
\[ Labor\ Force\ Participation\ Rate = \frac{Total\ Labor\ Force}{Working-Age\ Population} \times 100 \]
If homemakers, who are typically not considered as part of the labor force, were counted as employed, it would lead to an increase in the numerator of this equation. The labor force participation rate would rise, indicating a higher percentage of the working-age population is either working or looking for work. This change could suggest a more engaged and potentially more productive economy.
The Employment-Population Ratio Demystified
Lastly, the employment-population ratio, a statistic that is essential yet often less discussed, measures the proportion of the country's working-age population that is employed. Unlike the labor force participation rate, it does not include the unemployed in its calculation. The employment-population ratio is expressed with the following formula:
\[ Employment-Population\ Ratio = \frac{Employed\ Individuals}{Working-Age\ Population} \times 100 \]
Including homemakers as 'employed' in this ratio would increase the numerator without affecting the denominator, as they are part of the working-age population. As a result, this action would raise the employment-population ratio, thus painting a picture of a stronger labor market with a higher employment rate among the population. Each of these ratios and rates provide a unique perspective on the dynamics of the workforce and its impact on the economy.

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Most popular questions from this chapter

Describing the economy in England in \(1920,\) the historian Robert Skidelsky wrote the following: "Who would not borrow at 4 percent a year, with prices going up 4 percent a month?" What was the real interest rate paid by borrowers in this situation? (Hint: What is the annual inflation rate, if the monthly inflation rate is 4 percent?)

(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.

Suppose you were borrowing money to buy a car. a. Which of these situations would you prefer: The interest rate on your car loan is 20 percent and the inflation rate is 19 percent, or the interest rate on your car loan is 5 percent and the inflation rate is 2 percent? Briefly explain. b. Now suppose you are a manager at JPMorgan Chase, and you are making car loans. Which situation in part (a) would you now prefer? Briefly explain.

According to an article in the New York Times, in early 2015 , Walmart received bad customer reviews: "They complained of dirty bathrooms, empty shelves, endless checkout lines and impossible-to-find employees." Shortly thereafter, Walmart announced that it was changing its employment practice by, among other things, increasing wages. The article noted that a year and half later, “[Walmart store] managers describe a big shift in the kind of workers they can bring in by offering \(\$ 10\) an hour with a solid path to \(\$ 15\) an hour." Wouldn't raising wages from \(\$ 10\) per hour to \(\$ 15\) per hour reduce Walmart's profit? Why would the company have adopted such a policy?

What effect does the payment of government unemployment insurance have on the unemployment rate? On the severity of recessions?
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