During the course of a year, the labor force consists of the same 925 people. Of
ID: 1224352 • Letter: D
Question
During the course of a year, the labor force consists of the same 925 people. Of these, 22 lack skills that employers desire and hence remain unemployed throughout the year. At the same time, every month during the year, 35 different people become unemployed, and 35 other different people who were unemployed find jobs. There is no cyclical unemployment.
a.)Calculate thr frictional unemployment rate _____% (rounded to two decimal places)
b.) Calculate the unemployment rate ______% (rounded to two decimal places)
c) Suppose that a system of unemployment compensation is established each month, 35 new people (not including the 22 that lack required skills) continue to become unemployed, but each monthly group of newly unemployed now takes two months to find a job. Calculate the frictional unemployment rate after this change _____% (rounded to two decimal places)
d.) After the chang in part (c), calculate the unemployment rate _______% (rounded to two decimal places)
Explanation / Answer
There are three types of unemployment - Frictional, structural, and cyclical.
In given case, there is no cyclical unemployment.
It has been provided that 22 people lack skills that employers desire and hence are unemployed. This kind of unemployment (due to lack of skills) is referred to as strucutural unemployment. So, 22 people are structurally unemployed.
Remaining 35 unemployed are frictionally unemployed.
(a)
Calculate the frictional unemployment rate -
Frictional unemployment = 35
labor force = 925
Frictional unemployment rate = (Frictional unemployment/Labor force)*100
= (35/925) * 100
= 3.78%
The frictional unemployment rate is 3.78%.
(b) Calculate the unemployment rate -
Total unemployment = Frictional unemployment + Structural unemployment
= 35 + 22
= 57
Unemployment rate = (Total unemployment/Labor force) * 100
= (57/925) * 100
= 6.16%
The unemployment rate is 6.16%.
(c) At present, each month there are 35 unemployed persons.
Now, it has been provided that due to newly established system of unemployment compensation, each monthly group of newly unemployed now takes two months to find a job.
This means every month there are 70 frictionally unemployed persons.
Calculate the frictional unemployment rate -
Frictional unemployment = 70
labor force = 925
Frictional unemployment rate = (Frictional unemployment/Labor force)*100
= (70/925) * 100
= 7.57%
The frictional unemployment rate is 7.57%.
(d) Calculate the unemployment rate -
Total unemployment = Frictional unemployment + Structural unemployment
= 70 + 22
= 92
Unemployment rate = (Total unemployment/Labor force) * 100
= (92/925) * 100
= 9.95%
The unemployment rate is 9.95%.
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