Some people argue that the official unemployment rate understates true unemploym

Question

Some people argue that the official unemployment rate understates true unemployment, while others argue that it overstates true unemployment.

Explain each of these positions, giving some examples of what might cause the official rate to be either too high or too low.

Personally reflect on whether you think we should make any changes to how we calculate unemployment? If so, what would you propose? (Support your answers with academic/scholarly journal articles.)

Scenario: What if academic inflation caused the creation of a law that required an Associate’s degree to earn minimum wage. How would that affect the economy and you personally?

Explanation / Answer

Ans- The unemployment rate is defined as the percentage of unemployed workers in the total labor force. Unemployment even affects those who are still employed. When workers are let go, it increases the amount of work those who are still employed have to cover.

The official unemployment rate fall into two categories. One is true unemployment of labor resources is likely greater than the official unemployment rate and other is true unemployment of labor resources is likely less than the official unemployment rate. Two items that show up in understand category are discourage workers and part time workers. Two items that show up in the overstated category are unreported legal employment and unreported illegal employment.

Understated:- in this discourage workers and part time workers. Discouraged workers are people who are willing and able to work, and would gladly accept work, but because they have had no success finding a job that have given up actively seeking employment. To be officially counted as unemployed, a person must be actively seeking work.

Part-time Workers- people who are willing and able to work full-time, but are forced to work less because employers do not need their productive efforts. While they have jobs , and are officially included in the employed category when the official unemployment rate is calculated, their labor resources are really only partially unemployed.

Overstated:- unreported legal employment and unreported illegal employment. Some respondents in the current population survey intentionally lie about their employment status. These respondents fail to report legal employment because this might jeopardize income that is being fraudulently received through transfer payment. Other respondents fail to report illegal employment because this could place them in jeopardy of criminal prosecution.

Unreported legal Employment: Government transfer payment are based on the needs of recipients. In general, working individual are not eligible to receive these payments. Some people collect these transfer payment by fraudulently neglecting to inform government officials of their actual employment. While their jobs are legal, fraudulently collecting transfer payments is not .

Unreported Illegal Employment:- the underground economy is comprised of illegal productive activities, such as gambling, the sale of controlled substances, and prostitution. Due to Illegal nature of the activities, workers are less forthcoming about their employment status.

Over or under:- If either , is worse, is too high or low

Contractions- Discourage workers and part time workers tend to be most pervasive during business cycle contractions. With fewer jobs, people are more likely to become discourage or be forced into part time employment. The economic downturn is likely to affect the underground economy and those who fraudulently try to collect transfer payment.

Expansion:- By, contrast, the problems of discouraged workers and part time workers tend to be much less pervasive during business cycle expansion. With more jobs available, people are less likely to become discouraged or be forced into part time employment. The economic upturn is more likely to affect the underground economy and those who fraudulently try to collect transfer payment.

Unemployment rate is calculated:- The unemployment rate equal the percentage of the labour force that is unemployed: (Unemployed/labour Force) × 100. The three conditions required to be counted are 1- did not work in the previous week, 2- it was available for work, and 3- actively looked for work at some time during the previous four weeks.

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