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Chapter 8: Problem 13

What happens to the labor force participation rate when employed individuals are reclassified as unemployed? What happens when they are reclassified as discouraged workers?

Short Answer

Expert verified
When employed individuals are reclassified as unemployed, the labor force remains the same, and therefore, the labor force participation rate (LFPR) stays the same with no change. However, when employed individuals are reclassified as discouraged workers, the labor force decreases, leading to a decrease in the labor force participation rate. This indicates a decline in the percentage of the working-age population that is actively involved in the labor market.

Step by step solution

01

Understanding the terms

1. Employed individuals: People who are currently working, whether full-time or part-time. 2. Unemployed individuals: People who are not working but are actively seeking employment. 3. Discouraged workers: People who are not working and have given up actively seeking employment due to various reasons (e.g., they believe there are no jobs available for them). 4. Labor Force: The sum of employed and unemployed individuals. 5. Labor Force Participation Rate: The percentage of the working-age population (typically aged 15-64) that is either employed or unemployed. It can be calculated as follows: \( LFPR = \frac{LaborForce}{WorkingAgePopulation} × 100% \)
02

Reclassifying employed individuals as unemployed

In this case, let's assume that some employed individuals have been reclassified as unemployed. The Labor Force remains the same, as unemployed individuals are still part of it. Therefore, the Labor Force Participation Rate stays the same with no change.
03

Reclassifying employed individuals as discouraged workers

Now let's assume that some employed individuals have been reclassified as discouraged workers. In this case, both the Labor Force and the Labor Force Participation Rate will be affected. Since discouraged workers are not part of the Labor Force, their reclassification from employed to discouraged will cause a decrease in the Labor Force. This leads to a decrease in the Labor Force Participation Rate, as the following formula shows: \( ΔLFPR = \frac{ΔLaborForce}{WorkingAgePopulation} × 100% \) The decrease in the Labor Force Participation Rate indicates a decline in the percentage of the working-age population that is actively involved in the labor market.

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Most popular questions from this chapter

A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What's the unemployment rate? What share of population is in the labor force? Sketch a pie chart that divides the adult population into these three groups.

The U.S. unemployment rate increased from 4.6\% in July 2001 to 5.9\% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?

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.

After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?

What is frictional unemployment? Give examples of frictional unemployment.
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