Chapter 21: Problem 33

Would you expect hidden unemployment to be higher, lower, or about the same when the unemployment rate is high, say \(10 \%,\) versus low, say 4\%? Explain.

Short Answer

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Hidden unemployment is expected to be higher when the unemployment rate is high (10%) compared to when it is low (4%). This is because, in a high unemployment scenario, job seekers face increased difficulty in finding employment, leading to more discouragement, underemployment, and subsequently higher hidden unemployment.

Step by step solution

Understand Hidden Unemployment and Unemployment Rate

Hidden unemployment refers to individuals who are unemployed but not counted in the official unemployment statistics because they are not actively seeking work, discouraged, or underemployed. On the other hand, the unemployment rate is the percentage of the labor force that is actively seeking work but unable to find employment. Now, let's try to establish a relationship between hidden unemployment and the overall unemployment rate in a high and low unemployment scenario. #Step 2: Analyze Hidden Unemployment in a High Unemployment Scenario (10%)#

Analyze Hidden Unemployment in a High Unemployment Scenario (10%)

When the unemployment rate is high, there would be more competition for available jobs, and the likelihood of finding employment is relatively low. In this situation, more people might become discouraged and stop actively seeking work, which may lead to an increase in hidden unemployment. Additionally, employers may have more bargaining power, leading to underemployment as part-time or temporary employment might be more common. #Step 3: Analyze Hidden Unemployment in a Low Unemployment Scenario (4%)#

Analyze Hidden Unemployment in a Low Unemployment Scenario (4%)

When the unemployment rate is low, there is a higher possibility of finding employment, and job seekers are more encouraged. In this situation, fewer people may become discouraged and stop actively seeking work. Therefore, hidden unemployment may be lower. Additionally, employers might have less bargaining power, and it could lead to fewer underemployed individuals. #Step 4: Compare Hidden Unemployment in High and Low Unemployment Scenarios#

Compare Hidden Unemployment in High and Low Unemployment Scenarios

Comparing both scenarios, we can conclude that hidden unemployment is likely to be higher in a high unemployment rate scenario (10%) as compared to a low unemployment rate scenario (4%). The key reason behind this is the increased difficulty in finding employment in a high unemployment situation, which makes job seekers more prone to discouragement and hidden unemployment. So, hidden unemployment is expected to be higher when the unemployment rate is 10% as compared to 4%.

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