4.2.1: Measuring the Labor Force and Unemployment

In a recession, the discouraged worker effect tends to increase the unemployment rate. Select one: True False

False During a recession, some workers who had been looking for jobs become discouraged and cease looking. These workers are no longer counted as members of the labor force and are called discouraged workers. The effect of their dropping out of the labor force is artificially to lower the unemployment rate.

According to the Bureau of Labor Statistics, a househusband who chooses to stay at home to take care of children is Select one: a. underemployed. b. not in the labor force. c. unemployed. d. a discouraged worker.

b.

The labor force is defined as Select one: a. all persons who are qualified and able but not working. b. all non-institutionalized persons over age 16 who are working plus those persons who are looking for jobs. c. only persons who are working. d. all persons working plus those persons who are not working and have quit looking for a job.

b. The labor force is defined as all members of the population who are over 16 years old and who are either employed or unemployed. Unemployed persons are those who are actively looking for a job or who are between jobs. Persons who are not looking for a job are not part of the labor force.

The labor force participation rate is Select one: a. (the labor force divided by the total population) times 100. b. (the labor force divided by the adult population) times 100. c. (the number of employed divided by the adult population) times 100. d. (the number of unemployed divided by the adult population) times 100.

b. The labor force participation rate measures the percentage of the adult population that is either employed or actively looking for work. To calculate the labor force participation rate, divide the total labor force by the total adult population and multiply that ratio by 100.

Assume that the population of a city is 500,000. It has 360,000 people employed, 40,000 unemployed, and 100,000 not in the labor force. What is this city's unemployment rate? Select one: a. 8% b. 10% c. 12% d. 25%

b. The unemployment rate is the total number of unemployed divided by the total labor force. The labor force is the total of unemployed plus employed, 40,000 + 360,000 = 400,000. Divide 40,000 by 400,000 and multiply by 100 to calculate the city's unemployment rate of 10%.

Assume that the adult population of a city is 500,000. It has 360,000 people employed, 40,000 unemployed, and 100,000 not in the labor force. What is this city's labor force participation rate? Select one: a. 10% b. 40% c. 72% d. 80% Correct

d. The labor force participation rate is the percentage of the population that is in the labor force. It is calculated by dividing the entire labor force (employed + unemployed) by the adult population. In this example, divide 400,000 by 500,000 and multiply by 100 to calculate the labor force participation rate of 80%.

General Motors sometimes temporarily lays off employees when it begins retooling to produce a new model car, then calls them back to work after the retooling. During the time of the temporary lay-off, these employees are counted as Select one: a. out of the labor force. b. discouraged workers. c. employed. d. unemployed.

d. The laid-off employees are counted as unemployed. They are temporarily waiting to be called to a job so they are classified as frictionally unemployed.

Suppose a state has an adult population of 10 million people, and the labor force participation rate is 80%. The number of people in the state with jobs is 7,280,000. The unemployment rate in this state is _____. Select one: a. 7% b. 8% c. 9% Correct d. 10%

d. The unemployment rate is the number of unemployed divided by the labor force. To calculate the total labor force multiply the adult population of 10,000,000 × the labor force participation rate of .80 = 8,000,000. Because 7,280,000 people in the labor force have jobs, 720,000 people in the labor force are out of work. Divide 720,000 by 8,000,000 and multiply by 100 to calculate an unemployment rate of 9%.

Since World War II, the labor force participation rate for males has declined and for females has risen. Select one: True False

True

As the economy moves out of a recession, the discouraged-worker effect will tend to ___________________ the unemployment rate. Select one: a. increase Correct b. decrease c. have no effect on d. fluctuate around

a. As the economy exits a recession, discouraged workers re-enter the labor force. These workers are those who had previously dropped out because they had become discouraged in trying to find work. As they re-enter the work force because of increased job opportunities, the unemployment rate may actually increase because the labor force has increased.

If the total population in the country is 250 million, the adult population is 175 million, the number of unemployed is 7 million, and the number of employed is 120 million, then the labor force participation rate is _____. Select one: a. 5.5% b. 72.6% c. 50.8% d. 70%

b. To calculate the labor force participation rate, divide the total labor force (employed plus unemployed) by the adult population. Multiply this ratio by 100. In this problem, the calculation is: (127 million/175 million) × 100.

One criticism of the Bureau of Labor Statistic's data-gathering methodology is that Select one: a. the effect of the underground economy may underestimate unemployment. b. part-time workers are not counted in the labor force. c. discouraged workers are not counted as part of the labor force. d. workers who are temporarily between jobs are not counted as unemployed.

c. Discouraged workers are those individuals who have looked for work, become discouraged, and have ceased looking. The Bureau does not count these people as part of the labor force even though they would work if they could find a job. This effect probably understates the unemployment rate.