Question

Consider an economy with 500 people in the labor force. At the beginning of every month, 10 people lose their jobs and remain unemployed for exactly one month; one month later, they find new jobs and become employed. In addition, on January 1 of each year, 20 people lose their jobs and remain unemployed for six months before finding new jobs. Finally, on July 1 of each year, 20 people lose their jobs and remain unemployed for six months before finding new jobs. 1. What is the unemployment rate in this economy in a typical month? 2. What fraction of unemployment spells lasts for one month? What fraction lasts for six mexinths? 3. What is the average duration of a completed spell of unemployment? 4. On any particular date, what fraction of the unemployed are suffering a long spell (six months) of unemployment?

Answer 1

Given that consider an economy with 500 people in the labour force At the beginning of every month, 10 people lose their jobs and remain unemployed for exactly one month 1) unemployed rate in a typical month = ? given no . of people in labour of the face = 500 people who last there job = 10 i.e, = 500 - 10 = 490 and 490/500 because [no. of people in labour = 0.98 % force is unemployment rate a typical months = (100 % = % of the people in labor force) = 100 % - 0.98 % = 100 - 0.98 times 100 % = 100 - 98 = 2 % because [unemployment rate in a typical month is = 2 %] 2): - fraction as unemployment spell = 10/500 fraction as unemployment spell = 1/50 6 months: - fraction of unemployment spell = 20/500 fraction of unemployment spell of employment = ? = 1 + 6/2 =