Chapter 8: 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

Expert verified

We can expect hidden unemployment to be higher when the unemployment rate is high (10%) compared to when it is low (4%). This is because, in high unemployment scenarios, job opportunities are limited, and discouraged job seekers may give up looking for work, thus increasing hidden unemployment. In contrast, when the unemployment rate is low, job opportunities are more abundant, and people are more likely to find employment, leading to a lower level of hidden unemployment.

Step by step solution

Define Hidden Unemployment and Unemployment Rate

Hidden unemployment refers to the individuals who are not actively seeking employment or have given up looking for a job due to discouragement or other reasons, but would still like to be employed. These individuals are not counted in the official unemployment rate. The unemployment rate is the percentage of the labor force that is jobless and actively seeking employment. The labor force includes people who are employed and unemployed but actively seeking a job.

Analyze Hidden Unemployment when the Unemployment rate is High (10%)

When the unemployment rate is high, there might be several factors leading to this situation, such as an economic recession, industry decline, or technological changes. As a result, job opportunities become scarcer, causing many people to experience long-term unemployment. Those who are jobless for an extended period may become discouraged and stop seeking employment, leading to an increase in hidden unemployment. In such situations, hidden unemployment is likely to be higher due to the discouragement of unemployed individuals and the difficulty of finding jobs.

Analyze Hidden Unemployment when the Unemployment rate is Low (4%)

When the unemployment rate is low, the economy is typically in a good shape, and there are plenty of job opportunities available. As a result, more people are actively participating in the labor force, and the official unemployment rate is low. In this case, the level of hidden unemployment might be lower than in high unemployment scenarios since the labor market is favorable, and people are more likely to find jobs.

Compare Hidden Unemployment in both scenarios

Comparing hidden unemployment in high (10%) and low (4%) unemployment rate scenarios, we can expect that hidden unemployment will be higher when the unemployment rate is high. This is due to factors such as discouragement, long-term unemployment, and limited job opportunities in high unemployment scenarios, which result in more people giving up on their job search and thus becoming part of the hidden unemployment. In contrast, when the unemployment rate is low, job opportunities are plentiful, and people are more likely to find and maintain employment. Therefore, the level of hidden unemployment is likely to be lower.

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