Question

Which of these individuals are in the labor force and which are not? Items (6 items) (Drag and drop into the appropriate area below) the CEO of Coca- Cola a former executive who now is retired and living in Florida a person who got laid off from his job last week and has a job interview today a former accountant who now stays at home to watch his children a college student who isn't working and isn't looking for a job a dishwasher at Denny's who wants a better job Categories Not in the labor force In the labor force

Which of the following is a shortcoming of the unemployment rate?
Choose one or more:

A. There are too few observations collected monthly. The small sample size causes inaccurate measurements.

B. Temporary workers are not counted as employed.

C. If someone is working at a lower-paying job but is qualified for a higher-paying job, he/she is counted as unemployed.

D. The unemployment rate does not include discouraged workers.

Which of the following can lower the level of frictional unemployment over time?
Choose one or more:

A. an increase in the level of unemployment benefits

B. stringent government labor-market regulations

C. reducing the regulations on hiring practices in a country

D. an increase in the number of online job search engines

Answer 1

1) The category of 'not in the labor force' is defined as the people who are neither employed nor unemployed and they are not looking for the job. It includes the people who are retired, students and those who are looking after children staying at home.

Not in the labor force
a) A former executive who is now retired and staying in Florida.
b) A former accountant who now stays at home to watch his children.
c) A college student who isn't working and isn't looking for a job.

In the labor force
a) The CEO of Coca-Cola
b) A person who has been laid off last week and has a job interview today.
c) A dishwasher at Denny's who wants a better job.

2) Options A and D
The unemployment rate is calculated through sample surveys and such current population surveys and current employment surveys. However, these samples tend to be few and so it could not depict the accurate picture. The absolute measurement is not feasible and data generation, as well as interpretation, can have some errors.
Further, the unemployment rate does not include discouraged workers. The discouraged workers are those who are not employed and have stopped looking for the job. This could be in the last one or two months and he might have been looking for a job six months ago but he is not counted in the unemployed people.

3) Options C and D
Frictional unemployment is observed when people are in transition for new jobs or looking for jobs to match their skills. This type of unemployment always exists in the economy because a lot of people tend to change their job and that translates into frictional unemployment.
The relaxing hiring regulation can reduce frictional unemployment because most of the time stringent hiring and firing rules deter the firms from recruiting labor. Similarly, an increase in online job search engines or for that matter, facilitators can also reduce frictional unemployment. These search engines act as a facilitator in the fragmented market where employees and employers are matched.

4) Cyclical unemployment - Bob loses his job as the economy slips into recession
Cyclical unemployment is because of ups and downs in the economy or because of economic cycles such as recession and booms. Bob has no redundant skills but he lost his job because of the recession and that is cyclical unemployment.

Frictional unemployment - Julie had to leave her job when she moved to a new city and now looking for a job.
Julie graduates from a college and now looking for a job as an accountant.
Frictional unemployment exists when people are in the transition for a new job or looking for a new job to match their skill set.

Structural unemployment - Jim got laid off because of automation.
Structural unemployment exists when the labor has redundant skills which are no longer useful in getting the job.
Jim has lost his job because the company has automated the manufacturing process. Now his skills are no longer needed to the company and that is mismatch between supply and demand.